Savings in costs by handling shipping

Nov. 11, 2011

When negotiating in international trade,  one of the things that have to be settled is whether the terms are F.O.B  or C.I.F.   If it is F.O.B, the buyer or consignee or importer pays for the freight and is therefore responsible for looking for the ship and conversely, if it is C.I.F, the seller or the supplier or the exporter takes the responsibility of shipping.

At this stage of the negotiations,  I guess, the first question that comes to mind is, why even bother to try  controlling the shipping side of international trade.  Will I stand to gain any profit in exchange for all the headaches? The answer is a resounding yes as the economic rewards for the new found knowledge can be tremendous.  Ocean freight is after all a component of the total landed cost. To be able to reduce this component, and as a result lower your CIF price, will easily make your product more competitive. As a matter of fact, the ocean freight cost component can play a critical role when selling low value commodities. It could spell the difference between profit and loss.

In addition, if you decide to handle shipping yourself and are able to lower your freight rates, you can increase your profits.  For someone shipping hundreds of tons of cargo in a year, a difference of USD1 pmt easily translates to another hundred thousand dollars in profit.

An example of this was when I was head of Chartering for National Shipping Corporation of the Philippines, and we were chartering ships for the importation of steel coils and steel plates from South Korea to the Philippines for National Steel Corporation.  Our company earned hundreds of thousands of dollars in freight savings by time chartering ships and acting as disponent owners instead of simply acting as shipbrokers.  These earnings could have been National Steel’s had they taken  charge of shipping.

Another example was when I was  in charge then of Pricing in our liner ships and we were carrying about 80 forty foot containers every month from United States West Coast to Manila for Manila Paper Mills. The President of Manila Paper Mills, Mr. Leonardo Ty was a very cunning businessman. He took charge of shipping all his waste paper and in the process was able to negotiate a USD100 reduction in freight rate per forty footer because he knew the market situation and knew that it would be better for our shipping line to carry low paying cargo instead of carrying none at all. The end result - a saving of about USD8000 per month or a total of USD96,000 for the year.

Isn’t it any wonder why huge  exporters  such as Cargill, Dufferco, Glencore, Ssangyong, Shell, and many others prefer to handle shipping themselves?

But in addition to freight rates, taking charge of shipping can result in savings by getting better terms and conditions in the shipping contracts, avoid shipping delays, and avoiding claims by using ships that are in better condition.

(to be continued on Nov. 18)

Note: If you have any questions, feel free to post your question or privately send me an email to desillsshipg@gmail.com and I will try to answer the question as best as I can.

Introduction

LEARNING SHIPPING

By Bobby Tordesillas

(Author is currently President of Desills Shipping Services, Inc, a Ship brokering firm based in the Philippines. Took up Professional Ship Management Course at the Norwegian Shipping Academy in Oslo, Norway in 1984-85 as a government scholar, where he graduated 2^nd place. Have acquired 30 years of experience in international shipping as head of chartering, pricing in liner trade,

maritime insurance and claims and corporate planning in National Shipping Corporation of the Philippines, and head of Business Development and Ship brokering in NCCI Marine and YHK Shipping. Was also a columnist in the Shipping Section of Manila Chronicle and later on Manila Standard Today, both popular broadsheets in the Philippines from the mid 1980’s to mid 1990’s and authored a pubished book Containerized Liner Shipping.)

Nov. 4, 2011

INTRODUCTION

In my 30 years of experience in international shipping, I find that several exporters and importers do not want to be involved in shipping.  In the Philippines in particular, about 80% to 90% of exporters move their cargo on F.O.B basis while about the same percentage of importers bring in their cargo on C.I.F. terms.

There are several reasons for this.

The very obvious reason for this is first of all, traders are not taught shipping  in  management schools. Even subjects in International Business go to the extent of only defining some shipping terms but do not go further to educate students on the intricacies of charter parties, bills of lading, contracts of affreightment, chartering, liner shipping, formulating shipping strategies, shipping terms  and so on.

Second, some shippers find the task of shipping a nuisance and very time consuming and would prefer to spend that time improving their businesses.

Third, some shippers think handling shipping by themselves would be a risk. They may not find a ship on time. Their cargo may get lost during transit. Their cargo may be damaged.  And they want to avoid these risks.  Passing this job on to the person sitting across the table would make life a lot easier for them or so they think.

And finally, some exporters and importers are afraid of getting into liabilities because they do not understand the terms and conditions of shipping contracts.  They are also afraid they may  be swindled by sweet talking ship owners.

This kind of attitude is perfectly normal and is expected from someone treading on unfamiliar ground.

There is the fear of the unknown.  There is the lack of desire to learn.  And there is a lack of motivation to change one’s ways.

Why indeed should one bother to be involved In shipping?  (to be continued on Nov. 11, 2011)