It is important for any company to have a deep understanding of all the elements that compose its supply chain and the internal and external variables that can affect it. As a globalization result, supply chains have become increasingly complex, many companies have chosen to acquire part of their goods and / or services in other geographical areas, where shipping times become variable and it is not possible to have them immediately.
Depending on companies’ nature, the supply chain ranges from raw material unprocessed, to a finished good, and can encompass three main phases: supply, manufacturing, and distribution. Supply chains have become one of the focal points of business managers, so that in many companies there are academically trained staff in the supply chain management.
Returning to the issue that now supply chains do not know borders is that we must be aware of the constant changes in the rates offered by both maritime and land transport companies. Knowing what these changes may be due to, will make the managers of the supply chain keep in mind that they must watch over these variables and consider them as part of the possible scenarios that may arise.
One of the main reasons for the high transports in logistics prices are fuels. The volatility of the bunker and the implementations in maritime transport related to the environmental impact, have made the prices of freight transport unmanageable worldwide. For land transportation it is very important to keep in mind the fuels costs too.
During 2019, the shipping companies announced the measures they were going to implement due to the change in the % of sulfur that fuels must have from the year 2020, to what we know as IMO 2020. The IMO 2020 has come to hit international freight transport, which has made exporting companies have to create a more efficient process to compensate a little for the high costs they have had to face.
That is why companies that take their product to another continent or that need to acquire supplies from outside their borders, need to achieve a strong relationship with shipping companies. To calculate the price of a sea freight, besides fuel, other factors must be considered, among them we have the following:
a) Final destination of the cargo: the different routes traced by each shipping company cause differences from one shipping company to another in the shipment of merchandise of the same weight to the same destination.
b) Volume of the cargo to be shipped: the cost of the freight will go hand in hand with the amount of product that is loaded into the container.
c) Container used: one container varies from another in terms of dimensions or type, the same rate is not charged for a dry container to a container that needs to carry freezers to preserve the product.
d) Docking costs in each port: the docking cost is established by the port authorities and therefore the way to calculate them is different in each port.
e) Surcharges applied by shipping companies: some of these surcharges may be dock rights, release fee, security fee, overweight fee, among others.
f) Annual General Rate Increase: it is an annual price increase in which the shipping companies agree on the amount and period to be charged.
g) Delays: the shipping company charges the cost of delays because the container is being used for more days than expected, these delays are usually carried out for the inspection of containers in customs.
h) Changes between seasons: between July and November is when the highest price per shipment is reached
Regarding land transport, many companies prefer to use a sea route to shorten delivery or receipt times of merchandise and thus increase their competitiveness in the market. Even though land transport is less and less used to send products due to long waiting times, it is currently used as a complement to the service provided by the shipping company. In this way, when unloading the product in a port, land transportation is required to take the product to the factory.
Costs of ground transportation are applied depending on the service required, it can be port to door, door to port or door to door, in this way the cost of transport includes the collection or delivery or both in a postal code and the transport of the container to port. The rate will depend on the distance between the port and the postal code or vice versa, the weight of the merchandise, insurance charges, among others.
It is important to mention that there are many more variables to take into account about transportation and that taking into account all these costs will allow us to keep our supply chain under control and minimize the impact of their variability in the face of the ever-changing price for sea and land freight. Make globalization become your friend and not your enemy, properly plan how you will manage your supply chain and avoid high costs in this type of transport with advices like the ones we discussed in this blog.