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Saturday, October 21, 2017

Benchmarking Against Peers Upheld Among BCOs

January 11, 2017

Image: World Shipping Council

Image: World Shipping Council

 International transport and logistics executives are increasingly benchmarking their companies’ costs and supplier terms in ocean transport contracts, according to data gathered by Drewry Supply Chain Advisors.

 
In the past 6 months, the ocean transport spend under carrier contracts benchmarked by Beneficial Cargo Owners via the Drewry Benchmarking Club global initiative increased by 50%, to $2.2 billion; the number of benchmarked routes rose by 81% and the volume of benchmarked dry container teu jumped by 67%. 
 
FMCG companies and retailers are generally ahead of industrial manufacturers when it comes to using benchmarking to negotiate contracts.
 
The global transport procurement consultant reported that the number of multinationals (retailers and manufacturers) participating in the Drewry benchmarking initiative has increased 5-fold since 2014.
 
“Benchmarking ocean contract rates, supplier transit times and contractual terms such as demurrage and detention is becoming more established, as BCOs realise the importance of benchmarking for setting target rates, negotiation and rate reviews, particularly when markets are volatile,” said Philip Damas, head of Drewry’s logistics practice.
 
Drewry has seen a change in the attitude of some BCOs, who were initially sceptical about comparing their contract terms confidentially with those of other companies and said that they already benefitted from very favourable terms.
 
 As the BCOs’ competitive pressures have increased and as contract rates have stopped declining, transportation executives have become more open to the use of peer-to-peer groups to identify the most favourable terms of cost and service and to monitor their own performance as buyers against companies moving the same volume of freight under contract.
 
“When a BCO says that he or she has got the best contract rates and services possible, we still reply that benchmarking is ‘how you know’ where your company is relative to minimum, average and maximum benchmarks, plus any company can always learn from other companies in the group through voluntary sharing of best practices,” Damas commented. 
 
For example, the Drewry Benchmarking Club recently organised best practice discussions on faster tender processes and on e-sourcing-based bid analytics and combinatorial optimisation – leading practices which are spreading from very large BCOs to medium-sized shippers.
 
Drewry has recently been asked by BCOs in the food and pharma sectors to extend its benchmarking initiative from dry-freight containers to specialised reefer containers and will be informing the industry about further developments in this field.
 
Using spot rate indices, such as the World Container Index and the Drewry Container Freight Rate Insight, many BCOs are also benchmarking their rates against spot international ocean freight rates and spot international air freight rates. Unlike spot rates, contract rates and terms are not published and are available to BCOs only via confidential peer-to-peer benchmarking groups or communities.
 
foodpeer-to-peerPhilip Damas