Maritime shipping interests face many risks in their operations. As a risk management tool, controlling costs is as important as the coverage provided by commercial marine insurance. Freight rates are reaching record-breaking levels due to the economic effects of the coronavirus pandemic and volatile consumer demand. These spiraling costs have the potential to threaten business prospects for shippers. In this guide, we will explore industry best practices for saving money on shipping expenses, helping to preserve profitability even in challenging economic conditions.
The State of Freight Expenses
Commercial shipping companies have experienced volatility in freight expenses over the past two years. Only five years ago, contracted freight rates were at historic lows; fast-forward to 2020/2021 and those rates are setting new high records. Freight rates have been influenced by several factors, including:
- Port congestion.
- Shifting consumer spending habits and demand for goods.
- Interruptions in global supply chains.
- Personnel and equipment shortages in world ports.
- Imbalances in exports between China and European/U.S. interests.
- Spotty availability of shipping containers.
These factors have contributed to contracted freight rates as much as 6% higher than pre-pandemic rates. Industry analysts suggest that rates may continue to increase in the coming year before world economics restabilize. For shippers at the mercy of freight spot pricing and high contract rates, the role of commercial marine insurance in protecting business assets cannot be overstated.
Best Practices for Controlling Freight Costs
International trade is a critical component of world economies. As the coronavirus pandemic took hold, these economies struggled as imbalances in both trade and commercial shipping became part of doing business. Commercial shippers faced new challenges, especially in controlling costs. Shippers have access to resources which can help provide powerful risk management tools, supplementing the protection of commercial marine insurance. Industry best practices for controlling costs include:
Staying abreast of market shifts – knowledge of current market conditions is an integral aspect of the modern commercial shipping industry. What happens in one country in terms of shifting markets or regulatory changes may influence international trade with others, potentially driving up costs. Awareness of these shifts can help to inform business decisions, allowing shippers to thrive even in uncertain conditions.
Working with reputable supply chain partners – from manufacturers to suppliers, freight forwarders, and import/export firms, shippers must develop strong partnerships with a diverse collection of stakeholders. The reputations and capabilities of each of these partners can strengthen or weaken supply chains. Shippers can control unexpected expenses by choosing their partners wisely, such as those that have a solid track record of regulatory compliance.
Taking control of freight forwarding – one method shippers can use to control costs is by eliminating freight forwarders from the equation. Although risky – freight forwarding is a complex process of regulatory compliance and abundant documentation – a shipper that chooses to handle this aspect of the supply chain stands to save hundreds of thousands or even millions of dollars each year. Only the shippers with extensive knowledge of customs and documentation requirements should select this money-saving option.
Selecting Cost-Effective Carriers – shipping costs vary between carriers, and the savvy shipper is able to leverage these disparities in pricing to their advantage. To control costs, shippers must balance service quality and price, selecting only those carriers that have the track record to deliver on their promises. Remember that cheaper is not always better. Doing your due diligence on a carrier’s reputation and business history can provide vital information, helping you to select the right carrier for your needs and budget.
Sourcing from new suppliers – many shippers have discovered that supply chain partners in foreign countries are no longer as cost-effective as before. To save on expenses, shippers have leveraged new partnerships with domestic suppliers and manufacturers. Sourcing goods domestically can also reduce lead times, helping shippers deliver on time and on budget.
No matter what practices shippers adopt in these challenging market conditions, the role of commercial marine insurance in protecting business assets is as important as ever. This insurance helps to ensure business continuity while providing coverage for the operational and liability exposures shippers face. Commercial marine insurance stands as the backbone of risk management in the shipping sector.
About Merrimac Marine Insurance
At Merrimac Marine, we are dedicated to providing insurance for the marine industry to protect your clients’ business and assets. For more information about our products and programs, contact our specialists today at (800) 681-1998.