Recession Doesn’t Spare Brand Owners’ Shipping Costs

It was a story that made headlines throughout the logistics world. In its annual benchmark State of Logistics Report, the Council of Supply Chain Management Professionals (CSCMP) said that, after rising more than 50% during the previous five years, business logistics costs fell to 9.4% of U.S. gross domestic product (GDP) in 2008. This number was down from 10.1% (2007), as total U.S. logistics costs dropped to $1.3 trillion in 2008, a decrease of $49 billion. The clear inference was that the impact of recession caused the cost drop, as logistics providers supposedly scrambled to cut logistics costs faster than shipping volume declined.

Yet a deeper look at the numbers revealed that the so-called logistics cost decline was little more than a big drop in inventory carrying costs, as interest rates plunged to record lows in the financial crisis. Warehousing costs alone were up 9.5%; air, ocean and rail transport costs—the first two of which have a major impact on globally sourcing beauty suppliers and marketers—were up 4.4%. Even economically sensitive trucking costs were up 1.3%. The lesson is clear: Despite the recession, shippers of price-sensitive beauty products still face rising transport costs in all traditional modes.*

How to Cut Costs

It’s been previously observed in this column that few industries depend more on global sourcing than beauty. The explosion of global trade in the past decade or more—and the expansion of sourcing, transportation and distribution networks that enabled it—has stretched the resources of all but the largest multinational corporations. Demanding service levels and high costs—only partly due to fuel—make supply chain management even more of a top priority when recession strikes. Companies that have made cutbacks in their own organizations to reduce costs may, more than ever, lack adequate logistics infrastructure, capable decision support tools, necessary capital and operating scale as a result of recession.

In a down economy, brand owners should review supply chain logistics from the ground up. Today, a poorly constructed or outdated supply system with inadequate organization can create unnecessary delays and expense at ship terminals and airports, caused by information snags, inadequate packaging and other such lapses. These can result in customs delays, cargo loss, and theft—all of which create huge and unexpected cost penalties.

When it comes to logistics, speed is second only to reliability as a competitive edge, and in the world of global sourcing and shipping, speed is synonymous with planning and preparation. Inadequate preparation, reflecting incomplete information about customs and shipping requirements, is the most preventable (and most costly) problem when it comes to inefficiencies in global sourcing. The industry needs to realize that advance planning, with the help of a knowledgeable freight forwarder who knows what to plan for, can put shipments on the fast track while complying with even the strictest customs and security rules.

Given today’s tough business conditions, choosing the right forwarder is more important than ever. Freight forwarders can often find creative solutions that reduce logistics costs, with the insight to do the advanced planning that takes best advantage of their cutting-edge electronic tracking and documentation systems. Such tools are an immense advantage for budgeting planning with regard to volumes, capacities, equipment and fuel surcharges. The best freight forwarders can pinpoint a shipment’s location at any time or point in the logistics chain. This is an immense cost-saving advantage for both the producer and the shipper. However, technology alone is not the only basis for choosing a freight forwarder that can help reduce logistics costs. To make a good decision, look for certain standards in any freight forwarder you select.

How to Choose the Right Freight Forwarder

Customer service emphasis—From a door to door service backed by customs clearance, storage and distribution to a straight one-off transaction, a freight forwarder should understand what you want so that your business gets what it needs. That requires specific levels of tailored, flexible service that can adapt as customer specifications evolve. The ultimate objective is efficiency of cost and time: minimum downtime and as few obstacles to delivery as possible, complemented by maximum uptime as your freight gets to where you need it to be within the expected time-frame.

Industry understanding—A freight forwarder should be intimately familiar with the customs rules and regulations of every country through which freight will pass, in addition to understanding the associated service parameters and costs. The government agencies responsible for customs clearance and security issues are much more sympathetic to the goals and aims of a broadly backed organization with the personal relationships that are essential to understanding foreign business culture. The forwarder’s knowledge of Incoterms (the standard international shipping terms) and new developments such as the Rotterdam Rules (which describes the rights and obligations involved in the maritime carriage of goods, are equally important. Developed through the United Nations and already endorsed by at least 20 major countries (at the time of writing), the rules allow for individual, confidential contracts that cover the reality of door-to-door multimodal shipping. The new rules clearly document responsibility and liability during the whole transport process—but they are still complex, and freight forwarders are best positioned to apply them.

Global capabilities—The best freight forwarders are an integral physical part of the global supply chain. They will have offices in centers of commerce, such as New York, London and Hong Kong. Equally important, they will have a comprehensive global network of agents who are chosen on the strength of their expertise, their own rigorous professional standards and their enthusiasm for customer service. It is essential that the freight forwarder have a multilingual staff and a respect for and insight into other cultures that helps deliver better service.

Professional certification—A freight forwarder should meet the international process quality certification standards in its regions and as appropriate. It should also be approved to participate in cargo security programs such as the Department of Homeland Security’s Customs-Trade Partnership Against Terrorism (C-TPAT) for global imports from any country, and the Transportation Safety Administration’s Certified Cargo Screening Program (CCSP) for air cargo. A good indication of professional standing is membership in leading industry associations worldwide, such as the Council of Supply Chain Management Professionals and country specific freight associations.

Making the Difference

A decade ago, the idea of a beauty brand entrusting all of its transportation, distribution, warehousing, packaging, light assembly and freight billing to an outside party might have been greeted with skepticism. But today’s logistics service providers are more than capable of assuming the burden of capital intensive infrastructure, equipment and technology resources—all while using their own efficiencies to reduce the shipper’s costs. Selecting the correct forwarder can mean the difference between satisfied customers and unhappy ones, reflecting the difference between efficient, cost-effective distribution of your products or careless, wasteful handling of them. Choosing the right forwarder during tough economic times is an immediate cost-reduction strategy that goes right to the bottom line, and that will pay even greater dividends once the economic recovery takes hold.

Simon Kaye is founder and CEO of Jaguar Freight Services, with operations and fully integrated door-to-door freight solution networks in Europe, North America, South America, Australasia, Asia, the Middle East and Africa. [email protected];; 1-516-239-1900

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