It has been a very challenging few months for the logistics sector, particularly on the sea freight side. Supply and availability for containers in and out of the UK has been significantly under demand, hence in most cases rate cards have been pulled and pricing has risen to unprecedented levels. We would go as far as to say that price has somewhat taken a back seat to securing space on the ships, to move product on time and to deliver customer requirements.
The brand image impact for the customer, certainly with their key clients is paramount. We have seen some clients that are reliant on sea freight for goods inwards, where margins were already tight, that have been trading at a loss because of the current conditions.
Our view is that now is a bad time to be looking tendering and disrupting your sea freight service. If you are securing availability, and with minima delays, then we would urge you to remain with your existing broker. We would also note that if your existing broker is honouring an old rate card with costs that resemble the norm ($1000 or so), then the broker will be making a severe loss on your account. We are aware of some super ethical brokers that honoured their rate cards for Q4 2020 to do the right thing by their customer, despite their own finances, and they deserve a lot of respect for their loyalty.
Overall though, because pricing has escalated, the markets are very active as customers try to benchmark or find availability. One thing is for certain though, we do not believe that there is a broker in the country that is getting rich currently, a few percent profit (if they are lucky) at most is all we would expect them to be earning. With this in mind we would not recommend that you negotiate too hard, look at the bigger picture and look to build a long-term relationship with your current, new and future partners.
We are all aware of the recent border closure for road freight coming into the UK, causing supply issues. Many clients had already started preparing for contingency supplies and inventory a long time prior to this – driven by Brexit, albeit where issues were unavoidably impacted was particularly around fresh food supplies.
The courier sector continues to be very buoyant as e-commerce and online sales continue to boom. This is a culture shift that we expect to remain post pandemic as we believe that consumers will continue to buy online. The decline in bricks and mortar store trading was prevalent pre-pandemic and it is unclear how and when stores will reopen and trade profitability. Auditel have many key clients that have a significant high street presence, and despite theirs and our best efforts, these outlets continue to act as a major drain on financial resources. Many clients are investing heavily in their online infrastructure and presence, and are viewing online as their core sales stream for 2021.
Couriers provide a fundamental part of the supply chain for an online sales outlet and therefore it is critical that the client is using the correct courier for their customers and products, and with a tariff and rate structure that is most efficient to their profile. We would also urge clients to use a multi carrier solution where possible, for the obvious cost efficiency benefits, but also for business continuity purposes.
Courier rates are volume driven, i.e. the more you spend with a carrier then the better the rate will be. If your online volumes are increasing, then do not be afraid to push for a better rate mid-term. Equally, with this in mind, find the balance between using multiple suppliers and obtaining the best rate. We would suggest that you use each carrier in the lanes that they specialise in, for example UPS are a B2B carrier, DHL International are strong in Europe, DPD are the best performing domestic B2C carrier at the moment, Hermes “do what it says on the tin” as a budget B2C carrier, and so on.
In terms of courier rates, there comes a point of course that your rate is as low as it can go, i.e., marginally above the base cost for the carrier to move the parcel from A to B. These are national accounts or corporate accounts, certainly with an annual spend of +£500k per annum then you should be approaching this level, and without a doubt at +£1m you should be eligible for the absolute best available rates for any specific carrier.
We would avoid consolidator carriers unless you had a marginal spend, at a key account level there is no financial benefit to using a consolidator, as in essence all you are doing is adding another margin to your pricing.