UPS: Some ocean carriers concluding negotiations early this year
Keith Andrey, VP of global freight forwarding for UPS, says carriers are also more interested in offering intermodal pricing this year in order to secure cargo volumes in a historically low rate environment.
Some ocean carriers are concluding contract negotiations earlier this year and are more interested in offering intermodal rates than in the past, says Keith Andrey, VP of global freight forwarding for UPS. Many contracts in the transpacific run from May 1 to April 30.
UPS manages the movement of over a half million TEUs of container cargo a year for its customers globally, including both freight forwarding and NVO products, and a significant amount of that cargo moves to and from the United States, Andrey told American Shipper
in a recent interview.
“Before, we always had to delay because the BCO deals were done first, but many of those deals have already been done and as a result of that that’s going to allow us to kind of negotiate earlier I think and complete a lot of our discussions in advance of some of the time frames we worked under last year,” he said.
Andrey also said lines are interested in some areas of business that in the past they haven’t been keen on in the past couple of years, including service to inland intermodal points. That gives UPS an opportunity to provide its customer with options that potentially weren’t available previously.
The increased flexibility of carriers, he believes, is being driven by concerns about the larger vessels that are coming into the transpacific market and the desire by carriers to make sure they get containers onto those vessels.
While the majority of UPS’s business is full containers, it also handles large amounts of less-than-containerload (LCL) cargo.
One service UPS has expanded in recent years is its “preferred LCL product.” With that product, UPS uses its LCL network to move cargo from overseas into seaports such as Los Angeles or Newark, N.J, and then uses domestic airfreight and/or trucks for final mile delivery.
The company now offers the service to Mexico, where it is being used to supply industrial manufacturers, including the automotive industry. As a sea-air product for LCL cargo, it is more expensive than traditional LCL services, but less expensive and slower than economy airfreight.
Some shippers use the preferred LCL as a part of their regular supply chain, but Andrey says most of the time it’s used to “meet an obligation” to a customer, like quickly getting parts to a manufacturer, for example, to prevent them from having to shut down an assembly line.
Ocean carrier freight rates are currently at historic lows
, and Andrey said, “I don’t think the industry overall is healthy when rates are this low...It ultimately won’t be healthy because it will eliminate choices in the future for the customers.”
He believes forwarders like UPS may have an advantage over asset owners in a low rate environment because it has “opportunities to provide value that are not tied to a transactional market rate.” Andrey explained UPS can offer shippers the choice between air and ocean freight and full- and LCL products so they can make “the right decisions with their supply chain and provide the predictability they’re looking for.”
The acquisition of APL by CMA CGM and the merger of China Shipping and COSCO, as well as expected changes in alliances, means forwarders such as UPS are required “to have a pretty fluid strategy for dealing with the steamship lines,” said Andrey. For UPS, there is a need to have a balance of capacity in different alliances in order to be able to offer shippers a choice in how to move their cargo.
UPS has invested heavily in assets aimed at serving customers in the pharmaceutical and medical devices industries and has a line of "Temperature True
" products for pharmaceutical and biotech cargoes that need to be handled in a cold chain.
The company has also been focusing on industrial manufacturing, including vehicle production. Andrey noted that in some cases manufacturing is moving closer to consuming countries, and UPS has “invested significantly in our services and capabilities in the Mexico-U.S. trade. We’re placing our investment in the areas where our customers are going.”
The new requirement that shippers supply the verified gross mass of containers under the Safety of Life at Sea treaty will be a challenge, he said, but also an opportunity for intermediaries.
“A good portion of the shippers globally don’t have scale to even weigh freight going into containers,” he said. “We have the terminals available to weigh containers and potentially help in that area."