Profitability in sea freight shipment is not a myth or a unicorn.. It is very possible.. Read how..
It is not a secret that ocean transportation and logistics is currently confronting immense change in terms of new technology, new markets, rising customer expectations, and new business models..
There have been a few articles on this blog about these advances like Blockchain based Bill of Lading, and other technologies that are shaking up the freight industry .. There are many ways the industry could develop to meet existing and new challenges, some of which are evolutionary and others are more revolutionary..
While cargo transportation is generally a complex business, in some cases it could be straightforward as well depending on how you manage it.. It is also a fact that in this high paced business environment it is not easy to follow every market trend and find answers on how to tackle the prevailing challenges easily..
Each customer and each shipment has its own issues, peculiarities, problems and characteristics.. But the main question that several shippers and services providers ask is “How to ensure profitability in sea freight shipment“..
More often than not, exporters, importers, carriers and logistics service providers experience loss due to poor planning, decision making and implementation..
A lot of people get into the industry sometimes without knowing even the basics relating to the business, the specifics relating to the business, the requirements and some of the vital information that can make or break the business..
I have even written a Beginner’s Guide to Importing for those who wanted to get into the importing business but didn’t know how..
Here are some steps you can follow to ensure profitability in sea freight shipment..
1. Understand the business : Elementary, but often ignored.. When I say understand the business, have a THOROUGH understanding of the business that are about to embark on or the one that you are already in..
Learn the nuances of the business and more importantly the pitfalls of the business.. Once you understand the pitfalls of the business, you will then be able to take necessary steps to avoid it..
2. Employ right: Experience matters in running any business and if you want to ensure profitability in sea freight shipment, you better ensure that you employ right..
Your organisation needs to have people with relevant experience and understanding of their job at each level right from your bike messenger to the lower, middle and top management..
A simple example of where you could lose your profits would be for example if your bike messenger did not deliver the required release documents to the carrier in time which delayed the clearance of the cargo thereby incurring storage, demurrage and/or detention, which you cannot claim from your client..!!
Employing the right people, training them sufficiently to handle the business and retaining their services as long as possible could make a big difference to your bottom line..
Once your team has developed a profound understanding of your customers, their requirements, and the strength of the company, they will intuitively know how to convert business into profits..
3. Have structure : Outline the organisational structures, SOPs (Standard Operating Procedures) and KPIs (Key Performance Indicators) from the onset.. If your company has set and proven business systems, your teams will follow suit and ensure much needed profitability..
4. Optimise : For your business to be financially viable, whether you are a BCO (Beneficial Cargo Owner = Shipper) or a Freight Forwarder, one of your top priorities should be to optimise operational efficiency which goes a long way in reducing your logistics costs..
Apart from optimising operational efficiency, you also need to ensure that the resources of your company is optimised such as optimising the use of your own assets before you look to source from a 3rd party.. This will save you a bundle which can directly contribute to the profits on the sea freight shipment..
5. Cost Reduction : A guaranteed way of increasing your profits is to reduce costs.. Especially and importantly, the avoidable and unnecessary costs..
For example, if your business involves a labour workforce, you need to do a workforce analysis and ensure optimisation of your workforce..
This is of utmost importance as labour costs is one of the highest cost items in a labour intensive business such as Warehouse/Yard operation..
Cost reduction is a major factor that can happen only if you understand your business, the shipment and the costs that may be involved in the shipment..
Remember that no shipment is identical to the next..
For example, one might be stopped by customs for inspection (extra $$$) whereas the next one might not be.. One might incur storage and/or demurrage and detention (extra $$$) while the next one might not..
You could try creating a dynamic map of costs classified as mandatory (freight, surcharges etc), statutory (port, customs etc), variable (transportation, inspection etc) and avoidable (storage, demurrage etc) costs on a shipment.. This will assist you in identifying the problem areas and try to control it immediately..
Costs like transportation, labor, storage, administrative, inventory carrying are some of the major contributors to the bulk of your logistics costs..
6. Partner with the right people : Even the biggest and best companies in the industry may not be able to handle all of the businesses and services themselves and may use the services, infrastructure, strengths and expertise of a 3rd party service provider from time to time whether in their own area or as a partner in another country..
Since you will not be there to do the work yourself, it is important that you partner with the right entity to provide the service..
After all it will be your name and reputation on the line.. Partnering with the right people is also important for you to be able to ensure that you don’t spend more than what you have to..
There are many scrupulous operators in the form of partners who have taken many people including customers and their own partners for a ride.. So safeguard against shipping and freight fraud..
7. Know which service type you need to use : There are a few different service types in container shipping.. FCL, LCL, Groupage are the different options that you as a customer have in terms of sea freight shipment..
- FCL : Full Container Load – this is when the full container is used by a single customer for his cargo..
- LCL : Less than Container Load – this is when the same container is used for cargoes belonging to multiple shippers and consignees..
- GROUPAGE : Similar to LCL with the only difference that these containers, cargo packing etc are controlled by a Groupage operator instead of the shipping lines in the case of LCL containers..
If you are wondering how this service type can ensure profitability in a sea freight shipment, consider this example..
Based on container dimensions, a heavy tested 20′ container can load upto about 27.5 tons and upto 33 cbm of cargo.. When shipping under FCL service, whether you ship 2 tons or 27.5 tons you pay the same freight rate.. But in an LCL service type you will pay for the space/volume you use..
For example if you have only 2 tons of cargo to be shipped to Shanghai, it doesn’t make sense for you to pay the cost for the full container when you are only using 2 tons of the weight capacity.. In this case, it maybe profitable for you to ship the 2 tons as LCL or ship the same as a Groupage cargo with a Groupage Operator..
8. Know your currency : An area where profits can be very quickly eroded is currency fluctuation.. When you are entering into a shipment as an exporter or importer or handling it as a service provider, it is very important that you choose the right currency to trade in/quote..
For example if you are based in a country where there is severe Forex fluctuation, it might be safer and wiser for you to choose to trade/quote/pay in your local currency.. Know the technicalities involved in the buying and selling of currency to fund your shipment..
9. Insure correctly : Another key area often (surprisingly) neglected by many customers is not taking proper or adequate insurance cover, mainly to save costs..
This is shipping, which only involves packing (sometimes without following proper cargo packing guidelines) your precious cargo into a metal box which will be one of thousands loaded on a ship which is expected to safely navigate choppy seas (inspite of your incorrect packing) across thousands of kilometers to your customer..
What could go wrong..!!
10. Visibility : Supply chain visibility is a key factor in any businesses especially in the retail or industrial sectors..
If you have proper visibility of your stock on hand or stock on its way to you and its ETA, you could avoid procuring extra stock locally at a higher cost, or over ordering to compensate for any shortfalls which increases your storage costs..
Maintaining visibility is a way to counteract uncertainties in the supply & demand process, and maintain proper service levels..
Noting that service disruptions can happen at any time along the supply chain, visibility allows the stock controllers to react quickly and find alternate routes of supply or distribution if the need arises while contributing to better cost control..
11. Plan Plan Plan : All your operations needs to be well planned and executed.. Planning your stock, shipment schedule considering holidays, delivery times, documentation time lines, transit times, weather related delays from pick up till delivery is key..
Lack of planning could lead to impulsive and forced decisions that will cost you and eat into your profit margins..
I would be interested to hear what steps you have taken to ensure profitability in sea freight shipment..??
In order to also try and answer this question, Dr.Lina Jasutiene took the initiative to unite myself and 21 other industry experts to discuss key areas of disruption shippers and logistic companies need to focus on now to overcome existing challenges with particular focus on sustained profitability..
Her Online Masterclass features AUDIO INTERVIEWS with all the experts and covers topics such as
- Future cargo transportation market trends
- Disruption areas
- Avoiding cargo damage
- New Markets
- Cargo issues
- Legal challenges
- How to adapt to changing environments
- REAL STRATEGIES and much more
The subject of my interview was
What are the biggest mistakes shippers make in packaging and stuffing any type of cargo inside containers and what are the practical solutions are to avoid cargo damages..
You can listen to my interview with Dr.Lina Jasutiene here..