10 Tips on How to Negotiate Under New OSRA Reforms
From the June 2000 edition of Managing Exports
The Ocean Shipping Reform Act (OSRA), which went into effect May 1, 1999, is now one year old. Enough time has passed for export professionals to assess the results and start putting together strategies for both taking advantage of its provisions and meeting its challenges. One thing is clear: the confidentiality of contracts ushered in by OSRA has changed the rules of the game, and for exporters to remain competitive they must learn to play by the new rules. Conducting "business as usual"-or just assuming that your forwarders or carriers are taking care of things-is a recipe for failure.
What's Changed, What Hasn't?
Despite all the hype and the oceans of ink that have been spilled concerning OSRA's impact, deregulation's main effects can be summed up quite simply:
- There has not been a fundamental, across-the- board downward movement in carrier rates. Rates have moved in opposite directions in different trade routes based not on OSRA but on supply and demand. This has been the case even though the major rate-setting carrier conferences have virtually disappeared.
- Carriers' Internet-published tariffs (required under the Act) are generally meaningless. First, many of the Web sites are almost incomprehensible, according to the Federal Maritime Commission. Second, confidentiality of contracts means there is a big gap between actual and published rates.
- The huge growth since May 1, 1999 in shipper-carrier individual contracts has focused more on service details than on rate bargaining.
- While, as expected, big-volume shippers have generally benefited most, implementing new strategies made possible by OSRA can put smaller and midsize exporters in an advantageous competitive position provided they act aggressively.
10 Strategies to Take Advantage of OSRA
If there is a single lesson export pros need to get into their bones regarding OSRA it is: negotiate, negotiate, negotiate. Following are 10 concrete strategies that have emerged as potentially effective during the first year of the Act's implementation:
- Negotiate global or multi-trade contracts with your carriers whenever possible; bring all your assets to the table to improve bargaining leverage. Among big carriers, Maersk-Sealand (www.maerskline.com/maersksealand) has been a leader in offering "one-stop shopping."
- If you not a big-volume shipper, focus the negotiations on key service issues, not rates.
- Offer the carrier return cargo that helps it position equipment in exchange for better rates and service. Tailor-made clauses on "round-tripping" of containers for inbound and outbound moves are becoming more common.
- When cargo is not time-sensitive, schedule your export shipments during "slack" season for a particular lane. Do everything you can to adjust export operations to avoid peak seasons, when rates are highest.
- Be on vigilant guard against opportunistic surcharges (like the "equipment-repositioning surcharge" in the Atlantic). Insist on knowing all costs upfront.
- Check out and utilize the carriers' Web sites and their eCommerce capabilities to save time and money. For example, APL's (www.apl.com) Internet-channel customer service handles such basic eCommerce transactions as: Review schedules/routes; booking; submit bill of lading (B/L); receive B/L; print B/L; tracing; PO tracking; notification; payment.
- Check out the rapidly-growing dot-com facilitators industry. These include online shipping auctions that offer a locus for transactions (www.cargonow.com; www.freightgate.com; www.quoteship.com; www.shipping-auction.com) and online providers offering booking and logistics (www.freightquote.com).
- Negotiate so-called "clever contracts" that contain incentives or penalties for both the exporter and the carrier to perform tasks according to agreed-upon benchmarks.
- Consider joining a Shipper's Association that pools members' cargo to leverage more favorable rates (see accompanying sidebar). Many new associations have come into existence as a result of OSRA, and some offer a wide range of logistics and other services.
- Consider using a Non Vessel Operating Common Carrier (NVO). NVOs (see chart for top 20 export NVOs) consolidate exporters' partial container loads and book them with carriers. Although NVOs suffer from certain provisions of OSRA, they have fought back by forming shipper's associations like the New American Consolidators Association (member, Direct Container Line: www.dclusa.com) and entered the market for full container loads.
For More Information
Full text of the Ocean Shipping Reform Act-showing additions and deletions from the 1984 Act-is available on the Web at: www.shippers.com/shipping/act.asp.
Shipper's Association Information
- American Institute of Shippers Associations Inc. (AISA), Washington, D.C., 202-628- 0933. www.shippers.org. AISA has about 50 member co-ops, representing a high percentage of all the shippers' associations now operating in the United States. Contact: Glen Cella, executive director; Ron Cobert, counsel.
- Streamline Shippers' Association, Vernon, Calif., 323-588-9100. www.streamlineshippers.com. This association has 2,000 members. Contact: Frank Santos, sales manager.
- Worldwide Logistics Associates Inc., 202- 466-0222. This association, recently formed by the National Customs Brokers and Forwarders Association of America (NCBFAA), has over 400 members and controls more than 50,000 TEUs a year. The association began by targeting transatlantic and transpacific trade lanes, which will bring strong negotiating clout to exporters to Europe and Asia. The association is transparent to the member-members will deal directly with the ocean carrier, but under rates negotiated by the association. Open to NCBFAA members, annual membership is $300 a year, and per container fees average $10. The association has a presence in nearly every U.S. port of entry and inland freight destination. Contact: Dave Akers.
- National Unaffiliated Shippers' Association, West Warwick, R.I., 401-822-4100; www.nusa.net; firstname.lastname@example.org. This brand new association brings together, from over twenty States, companies that export a variety of unrelated products. Contact: Thomas C. O'Rourke, director of corporate and international logistics at Dryvit Systems Inc.
Top Export NVOs 1999 by Export Tonnage
- Direct Container Line; 888-325-4325; www.dclusa.com
- Ocean World Lines; 212-312-1800; email@example.com; www.owlusa.com
- Kuehne & Nagel (Blue Anchor); 770-997-5226; www.orienttransport.com
- Northeast Consolidators
- Fritz Cos. (Fritz Transport Int'l, A.J. Fritz); 800-952-8382.
- Shipco Transport; 201-216-1500; fax: 201-216- 174; www.shipco.com.
- Nippon Express; 212-758-6100; www.nipponexpress-usa.com
- Marubeni America; www.marubeni-usa.com
- Panalpina (Pantainer Express); 201-683-9000; www.panalpina.com
- Conterm Consolidation Service; 562-432- 8755; www.conterm.com
- K.C. International
- Schenker (Sea Cargo Int'l); 516-377-3000; www.schenker.com
- AEI Ocean Service (Radix Group Int'l, Votainer); 203-655-7900
- Expeditors International; 206-246-3711
- Tropical Shipping
- Blue Eagle
- FFS Freight International
(Source: Port Import Export Reporting Service)