Following a chaotic 2021, the focus for 2022 will be all on allocation, allocation, and more allocation. To help shippers successfully navigate a challenging import market that is expected to continue into 2023, we put together a quick top 5 list of important considerations as shippers prepare for carrier allocations this shipping season.
1. Place “old school” allocation strategies on the shelf, maybe until 2024 shipping season.
No surprise here - like most shippers’ experiences in 2021, pre-pandemic strategies for allocation simply will not work this year. Approaches based on securing 80% or more of your total allocation through carrier direct contracts and awards based on least cost will likely set shippers up to fail.
The capacity volatility experienced in 2021 is expected to continue through much of 2022. Combine this with the ongoing Southern California port congestion, ILWU contract uncertainty and the persistent pandemic leads to an environment where multiple provider options must be a critical component of any allocation strategy.
2. Consider allocation awards by sub-trade for multi serviceable port pairs
Risk diversification is essential in today’s market. Historically, utilizing the same carrier partner to service one destination over multiple sub-trades was viewed as being risk diverse. However, in today’s market this approach requires a tune up. Where weekly port pair volume dictates, plan and execute your required allocation over multiple carrier options to diversify your exposure to market disruption which has many faces.
3. Diversify allocations by ocean alliances strengths
As the saying goes, “don’t put all your eggs in one basket.” This approach for risk diversification holds true for your carrier partners regardless of whether these are carrier direct contracts or forwarder agreements. All three ocean carrier alliances cover most Asia ports; however, each alliances’ strengths vary when it comes down to nominal capacity. It is critical to not only have enough partners in today’s market, but also to make sure they are not all replicating the same service as any significant disruption will multiply the exposure.
4. Regularly forecast and communicate cargo flow seasonality
Simply indicating monthly or annual volume as part of the allocation negotiation will not be enough and could be interpreted as a demonstrated lack of commitment or partnership.
In past “buyer’s” markets, shippers could expect some forgiveness if their forecasts were inaccurate. If volumes fell under their agreed amount, they were likely not held to their full MQC and had little fear of penalty. If they were over their MQC and needed additional capacity above their MQC, they could count on securing that need from one or multiple carrier contracts.
To ensure consistent cargo flow, be sure to regularly provide and communicate accurate forecasts and updates with all carriers and supply chain partners, especially if your products have a lot of seasonality. During your 1st quarter business review, provide insights on 3rd quarter forecasts to secure awareness from partners well before the booking process begins.
5. Stay on course and maintain shipment consistency with forwarder allocation on market rates regardless of the gap between fixed and spot.
Make sure to have partnership arrangements in place access to capacity on market rates through forwarder allocations. Market disruption is ongoing so it is almost guaranteed that you will experience some gaps in your carrier direct allocations. It will be imperative to have consistent access to capacity even if that means at current spot market-level rates. The gap between fixed and market rates may be meaningless if you are unable to move your freight. Build a forwarder allocation into your supply chain strategy to diversify your risk and maintain shipment consistency.
Laufer Group has been successfully helping importers navigate challenging waters for over 70 years. If you have questions on any of these five points or any other challenge you wish to discuss we are here to help. Please contact Brian Martorano, National Director of Business Development, Ocean Import.