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Busting myths of international freight charges

An interview with Ivan Glucina, the International Freight specialist of the Expense Reduction Analysts - Asia Pacific team.

 

About Ivan

Ivan has over 25 years of sales and general management experience in all facets of the freight industry. He has enjoyed a variety of leadership roles and has managed some of the largest international freight forwarding companies in New Zealand & Australia.

Before joining ERA, Ivan was GM for Toll Global Forwarding and previously held GM/MD roles for Kuehne & Nagel, CEVA Logistics and TNT Express Worldwide.

Throughout his career, Ivan has established a strong record of sales growth, process improvement and effective cost management including leading complex implementations for some of the most advanced supply chain management solutions available.

 

Ivan what would you say the hottest news is in the International Freight market?

There are two major modes of international freight – ocean freight and airfreight (International courier services is a form of express airfreight).

 

Ocean freight: Carriers (shipping lines) have been struggling to be profitable over recent years due to a weak global economy, with the recent low point being the Hanjin Shipping bankruptcy in 2016.

This resulted in downward pressure on rates. In 2017 operating margins for most carriers improved following numerous mergers, improved demand and higher rate levels.

The Top 3 carriers in 2000 controlled 24% of global shipping, in 2017 more than 40% is controlled by the top 3.

Carriers will work more closely together to maintain or lift rates wherever possible.

 

Airfreight: It’s not commonly understood that almost half of airfreight cargo is carried on commercial passenger flights globally. 

Passenger demand for air travel has been showing strong growth year upon year driving airlines to increase flights/capacity. Air cargo capacity has therefore continuously been growing with more aircraft and more flights.

At the same time, many airlines’ ageing Boeing 747s are being sold to cargo carriers in higher numbers, further increasing their capacity. 

Although airfreight rates have been relatively stable for some time – dependent upon sector – there is still competition in this mode

 

What would you say the most significant risks are for the managers of International Freight?

There is a multitude of hidden costs and contributing factors in the international freight industry which make managing this cost extremely difficult for anyone who is not an expert in the field!

  • There are often fee charges which are unnecessary, and the client shouldn’t be paying them
  • Some freight forwarders add very high margins which can be negotiated
  • Foreign Exchange Rate fluctuations also affect the overall cost of freight and margins are placed on top of these rates as well.
  • Fuel charges also affect the cost of freight, and while there is no control over international fuel costs, those rates need to be monitored and managed. Airfreight can be significantly influenced by fuel costs.
  • There is great variance regarding trade, and it can be difficult to get transparency on what is being charged.
  • Freight forwarders are not obliged to be transparent in their fees; only specific Government charges must be free from margins.

 

So should companies be using freight forwarder?

Definitely! For airfreight, it's required, and shipping lines will typically only deal directly with huge ocean freight volumes and specific commodities. Clients need to be aware that the base cost of freight services can vary significantly between freight forwarders. With higher volumes of freight, some freight forwarders can lower their base pricing through more effective cargo consolidation.

Clients should also be careful with the use of the additional services of a “freight broker” as well as those of a freight forwarder as it adds an extra margin of cost to the process.

 

How can freight buyers manage their costs?

By engaging in the Expense Reduction Analysts of course! It may be beneficial to fix rates for extended periods, by utilising the services of a freight forwarder that is best suited to their unique service requirements. There are many smart technologies and service solutions available to clients that may provide;

  • Reduced transit times and reduced costs: direct-to-store models, DC bypass, origin VAS, air-sea hybrid…
  • Improved information: document management, shipment visibility, purchase order visibility.

 

Where are the opportunities for savings?

It is challenging to get savings unless you have a freight expert on board, because of the complexity and number of various charges, it’s hard to know which costs are real – and realistic! The best solution is to use a specialist such as myself, to manage and monitor a freight tender.

Expense Reduction Analysts have recently worked with two large clients in WA and achieved savings more than 40% on their international freight costs. While this is higher than we would normally expect, there are significant savings achievable in these high-cost areas.

 

About Expense Reduction Analysts (ERA)

We help clients to support the health and growth of their business, whatever its nature, focusing on proactive expense and supplier management. As an Australian and global company, Expense Reduction Analysts can benchmark costs and spending, follow the latest supplier innovations, and have real-time data on changes and advancements. This strength gives Expense Reduction Analysts the recognition and power needed on supplier markets to best serve your interests.

 

For more information please contact Ruth Cohen at rcohen@expensereduction.com 

 

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