Supply Chain Free Consulting
Should I have fixed price Transporation contracts?
Should I seek transportation services from open market?
Four things here
1) Where are you based?
2) What’s the competition for the cargo?
3) Are you big enough to dictate terms?
4) Can you guarantee cargo on a daily basis?
First one is particularly important. If you are in the middle of Pacific Ocean, then you will have to pay upwards of 200K dollars to move a container somewhere. Can you wait?
But understand the markets of cargo and containers in the local market first. Both are trying to find each other on multiple platforms.
If you think you are tooo big, then you are mistaken. They will do fixed price agreements with you and go elsewhere citing war in Ukraine as reason for shortage of trucks. or anything. Like Union budget caused a cyclone on the highway, hence no trucks.
Shipping companies are the biggest liars out there. They lie every second. Esp. the local shipping companies.
ok Answers
– If you can guarantee FTL cargo to replenish warehouses, on a daily basis, go for open market contracts. Make sure if you have MORE than one channel to procure trucks. Do not rely directly on freight forwarders always.
– If you cannot, go with fixed price contracts with strict penal clauses for reneging contracts.
– If shipping costs make up less than 5% of the product costs, then always go with fixed price contracts. It’s your job to find out how to keep the costs under 5%.
-If you have time sensitive cargo, go with open market contracts. Be ready to pay higher when markets demand. Keep the channel wide open. Quote a price too. Upfront.
