Cargo Business News

February 2013

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4 F UpFront Is the lowest price painful for the customer? Can the cost of something get so low that it hurts the buyer? The old saying that ���you get what you pay for��� can hold truth at times, as this funny video of a phone negotiation with the dentist attests (favorite line: ���Total agony, but $500���): Of course, we find out the person negotiating the low dental work price gets exactly what he wants, but there is a question raised here when relating this to the shipping industry: Will continued low container costs help the get the industry get back on its feet? Or at least, give it more teeth? In our annual Shipper-Carrier Relationship cover story this issue, we do indeed find out that the grapple over freight rates is once again at the core of things, and it���s hard not to see the customers��� side of the argument when vessel overcapacity is, as our contributing editor, Rick Knee puts it: ���putting downward pressure on shipping prices.��� There is also the issue of pricing integrity. A large-volume shipper recently told me that one-year agreements should forego rate adjustments until the volume committed, or contract period, has expired, unless the carrier is implicit in the initial agreement regarding three-or-six-month reviews. Nonetheless, the shipper went on to say there were carriers requesting GRIs one or two months after the freight contract was signed. And it only takes the price undercutting of one big shipping line to drag rate levels down for everyone else. So yes, as has often been discussed and written about, ocean carriers can be their own worst enemies when it comes to forecasting, planning, and rate contract execution, even though the Great Recession was certainly not their idea, and the customer base can also be guilty in areas such as volume commitments. However, the question remains: Will you get what you pay for? The answer is probably ���Yes.��� The cover story quotes C.J. Wang, chairman of Taiwan���s Evergreen container-shipping company: ���The popularity of megaships coming on line may challenge the efficiency and ability of the carriers��� equipment turnaround once again.��� There���s not much reason to think this won���t be the case, and so it goes that if the shipping lines continue to lose ��� or not make enough ��� money, that collective will not be able to offer optimal capacity, service, and equipment. If you need something and you can���t get it, or what you���re getting doesn���t meet expectations, it���s frustrating ��� especially when it comes to your service needs. What is possibly more distressing is looking further out to a potentially shrinking landscape of shipping lines, which could ultimately lead to a less competitive pricing environment. Class One railroads, anyone? The word ���partnership��� gets bandied about quite a bit and, no doubt, as a few customers mention in the cover story, there are good examples of it at work. Hopefully, the overall shipper-carrier partnership will strengthen to the point where each side gets more of what the other needs ��� and that should include healthier pricing in a healthier economy. The latter isn���t there yet, with global trade demand not quite out of the doldrums, but there is more perceptible light at the end of this historically dreary tunnel. In the meantime, once this negotiating season is over with, we���ll see if the price was truly right for all. CliCk hErE to viEw thE vidEo February 2013

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