4 Ways to Optimize Allocation and Reduce the Cost of Non-Performance
Date: 25 April 2022

Come foggy waters, a lighthouse can guide a ship safely to port. In logistics, visibility is vital, and we’re not talking only about navigation. Poor visibility with freight allocation leads to mediocre optimization, with valuable space wasting away unused or shipping times slowed as carriers wait for holds to fill up. The result? Inefficient networks end up plagued by costly non-performance and unnecessarily slow shipping.

In decades past, carriers would regularly hold freight at a specific location, say a port in Shenzhen, and wait for the space to be filled. Days or weeks could slip by before the vessel finally departed with a full load. However, with the popularity of Just-in-Time manufacturing and consumers demanding that products be delivered within a few days, holding cargo is often no longer feasible.

An obvious way to increase speed is to raise prices. If a container ship is only 80 percent full and a shipper wants the goods put en route immediately, they could simply pay the carrier extra to make up the revenue lost by shipping right now.

Consumers won’t be satisfied with quick shipping and ample supply, however, they also want low prices. Increased costs get passed onto consumers, and if you ask them to pay more, they may balk, turning to competitors offering lower prices. So not only do shippers need their cargo delivered ASAP, but they must also control expenses.

Fortunately, shippers and their partners can leverage a variety of tactics, technologies, and processes to optimize freight allocation. This leads to more efficient usage of space, allowing carriers to carry more without having to wait for cargo. Ultimately, improved optimization may lower prices and improve shipping times.

1) Consider Entering Contracting Season Early

Many shippers are entering contracts early to help ensure steady supplies and lock down prices. Years past, shippers often negotiated deals for just one season but amid industry turmoil, multi-year agreements are becoming more common.

By entering contracts earlier, shippers can get ahead of other companies, locking down space. For carriers, reaching agreements earlier improves forecasting and ensures steady demand, thus making allocation more predictable.

Further, entering agreements early may also result in a smoother negotiation process. Negotiating with deadlines fast approaching adds stress and can fray nerves. A more relaxed discussion may help both sides reach an equitable, stable agreement.

Fortunately, the right platforms can now clarify contract terms and to make it easier for both parties approaching negotiation. With NYSHEX, we designed a step-by-step process for setting expectations and defining requirements. You can also monitor milestones, ensuring that everything is on track. Should issues emerge, our exception management system encourages fair, systemic resolutions.

2) Focus and Secure High-Priority Freight on Committed Contracts

Not all cargo is equal. Space is always limited but securing high-priority freight ensures that space is there when you truly need it. While negotiating contracts and setting schedules, shippers must closely consider their highest priorities. Shippers may not need to prioritize all of their freight. However, it’s vital to identify cargo that could disrupt production or other important business processes if it is not delivered on schedule.

Logistics is an industry of partnerships with stakeholders depending on one another to make the world go round. When entering contracts, shippers and carriers must commit to each other and strive to uphold those commitments. Inking agreements earlier, signing committed contract dealscontract multi-year deals, and prioritizing freight can all increase clarity, reliability, and predictability.

3) Use Technology to Manage Your Allocation in Real-Time

Technology continues to advance at breakneck speed. A few hundred years ago, shipping relied on sailboats, and transiting from Asia to North America could take months. Now, container ships can cross the Pacific in just a few weeks.

Technological progress isn’t limited to the vessels themselves. The Internet, computers, and industry software all make it easier to track allocations and inventories in real-time. Algorithms and AI reduce the need for human oversight and intervention while providing decision-makers with must-know information.

If you’re still relying on manual workflows and Excel sheets, you need to upgrade. Spreadsheets revolutionized many business processes, but when it comes to allocation optimization, they’re all but obsolete. More robust tools will save time and money while increasing visibility.

4) Be Prepared for Rolling

Even with well-written contracts and dependable carriers, you’ll likely have to roll some cargo at some point. The most reliable carriers are working to reduce rolling due to overbooking and other factors within their control. However, even expertly-maintained ships and equipment may suffer breakdowns, and uncontrollable issues, say trade disputes, can crop up.

When freight must be rolled, your carrier should strive to get your shipment on the next available ship. If the carrier is at fault, they will typically cover any costs directly associated with shipping. However, your business may still suffer a financial impact. For example, you might have to shut down production for a time, leaving orders unfilled.

Various tactics can reduce the risk of rolling. You can divide up cargo among bills of lading, for example. When carriers roll freight, they do so based on the bill of lading. If your entire shipment is on one bill and it’s selected, that means all of it is rolled. With split bills, some of your cargo may still ship.

Also, transshipments are more likely to get rolled, so cut out intermediary destinations when possible, especially with high-priority cargo.

Take Away: Be Proactive, Not Reactive, to the Market Conditions

Follow the above steps and you’re well on your way to being proactive rather than reactive. In shipping and business in general, companies that take charge often perform better than reactive ones. By aggressively leveraging technology, engaging in committed contracts, and committing resources to forecasting, shippers and carriers both may increase clarity and improve resource allocation.

Further, with a proactive approach, not only can you implement all of the above, but you’ll also uncover your own solutions and workarounds to achieve end goals. That said, the right technologies and dependable partners can help you work through impediments, reducing non-performance and ensuring better-optimized allocation and shipping in general.

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