Shippers may not have much room to negotiate freight rates but they can certainly shop around to get the best quotes. There is also room for folks in similar industries sending similar products to team up for bargaining power BY: K. Y. CHAN
At one end of the spectrum, exporters may benefit from lower rates as carriers may be competing on price to fill up excess capacity. At the other end of the spectrum, the recent rise in fuel costs and a weaker New Zealand currency may have the impact of bumping up freight and rising raw material cost.
Whichever way an exporter or importer looks at the situation, the tough market conditions call for some tough action. Cost-conscious business people are getting tough on their service suppliers, often shopping around to get the best rates before deciding.
Importers like Alex Ng, whose Knightbright Corporation sources spas, showers, bathroom fixtures and vanities from China, are particularly hard hit by the unfavourable exchange rates. “All my imports are priced in US dollar and therefore, are more expensive. It’s the same with freight charges and forwarding services.”
SHOP AROUND
Ng says he has no choice but to scale down imports, particularly the higher end items like spas and jacuzzis. And as for freight forwarding services, Ng says he now shops around and compares costs before deciding. “In the past, I used to rely on one particular company. Now I call at least two (companies) for quotes. I should be calling more.”
Riding on the back of the weakened Kiwi dollar, exporters are enjoying a surge in sales but their gains are somewhat diminished by freight rates being quoted in US currency.
True, freight rates are weakening in most major trade lanes but it’s less so for cargo to and from New Zealand, says Noel Thompson, managing director of Cargo Coordinators International NZ Ltd. “The reason some rates are reducing (in US$ terms) is due to lighter vessel loading and carriers competing to maximize their load space. It should be noted that lower fuel costs today does not signal that will continue long term into the future,” he cautions.
There’s very little exporters can do to realize savings in shipping costs when demand is hot. “When there is high demand for shipping space, it is difficult for exporters to argue for reduced rates,” Thompson says. “Equally, from a shipping line perspective, they are experiencing low demand in some other trade sectors. So they are unlikely to reduce their rates where there is real demand and space shortage. This may change if export volumes drop off,” he adds.
As freight forwarding companies have limited margin, there is not a lot of wriggle room for them in the current market, Thompson says. “Reduced rates from ocean lines will normally be passed straight on otherwise they could become less competitive and thereby targets for other providers.” “We are always looking to devise new and innovative ways of solving problems for clients,’’ says Thompson who declines to reveal “commercially sensitive” details.
CONSOLIDATION
Thompson acknowledges that there could be some potential for co-operative consolidation in goods that are compatible but this would require a lot of organisation and liaison.
“Are there exporters in the same area, does the cost of putting the goods together with domestic freight cost outweigh the gains? Does shipper A have his cargo ready to move at the same time as shippers B and C?
Are they going to the same location in the destination country or does it have to be unloaded and then moved domestically? Who is going to pack the goods in the container? If they are not commercial packers, are they insured?
Do they have adequate experience … and so on. “You can see it is no easy task. If you then introduce refrigerated cargoes, it gets even more complex.”
There is perhaps the possibility for like-minded/similar cargo interests to join a consortium, says Thompson. “In effect, this is what you have in some sectors today such as kiwifruit, other fruit and produce where a number of shippers have entered into joint negotiations on the basis of their shared volume. They offer a larger, secure volume to ship in total and the shipping lines deal with one body for the agreed arrangement,” he adds.
On developments in the international trade scene, Thompson says most exporters are aware of a possible protectionist stance being taken by some countries. This situation is yet to be resolved but he is confident that in markets where New Zealand is not disadvantaged by local subsidies, “our products will generally be in demand due to our inherent combined value and quality components.”
Still, amidst the gloom and doom that has gripped New Zealand businesses, comes a burst of sunshine – in the form of a free trade agreement (FTA) that NZ and Australia have signed with the 10-member Association of South East Asian Nations (ASEAN).
More than 90,000 different tariffs will disappear under the new agreement, covering trade in goods, investment and services, financial services, telecommunications, electronic commerce and intellectual property. With a combined GDP of over $2 trillion, the ASEAN market offers tremendous opportunities for NZ exporters.
He says new exporters and importers frequently need as much if not more help in mentoring or consultancy support for general business setup, organisation, GST/tax and registration, and just general business advice. A one-stop shop to help businesses would meet this need, he adds.
KEY TAKEAWAYS
- Shop around and compare quotes from different freight forwarders.
- Consider cooperative consolidation of cargo with other compatible exporters but this would require a lot of organization and liaison.
- Join or form a consortium of like-minded/similar cargo interests to negotiate for lower rates with shipping lines in return for larger, secure volume to ship.