Freight and fuel prices drive need for operational efficiency

- Last updated on GMT

Related tags: Containerization, Cargo

Tightening freight capacity and rising fuel prices have forced food
companies to rethink how they deliver value to the enterprise, how
they plan transportation loads, and how they measure and motivate
performance.

According to market analyst Aberdeen​, the businesses that stand to survive in this tough environment are those that now treat transportation management as a critical platform for information sharing and activity synchronisation within the company and across suppliers and customers.

This is indeed a critical time for food companies that rely on freight transportation. A squeezed supply of refrigerated shipping containers in the US has caused shipping rates to rise 10 per cent to 25 per cent since last spring, which has helped to push up prices.

To accommodate such changes, companies of all sizes need to change their transportation processes in numerous areas over the next 18 months. According to Aberdeen, these process changes include incentive-based contracts, capacity forecast sharing, self-service carrier appointment scheduling, and continuous planning.

The best-in-class companies are already well down the path of making these changes, especially in extending the transportation process outside the boundaries of the local transportation department and changing their relationship with carriers.

In addition, technology is seen by many businesses as vital to enabling these process changes. Nearly 30 per cent of companies plan to adopt commercial transportation applications in the next 18 months, and the majority of current users plan to extend their solutions as well.

Aberdeen's New Strategies for Transport Management Benchmark Report​ provides specific recommendations for action for companies based on their current maturity stage. However, it says that all companies, regardless of size and transportation sophistication, should first of all prioritise transportation improvement initiatives through the lens of the customer.

In addition, transportation management processes should be extended to deliver value to other parts of the organisation, such as customer service, replenishment, and procurement. They must identify root causes of service failures and cost overruns by using scorecards and analytics to examine carrier performance and internal and trading partner processes.

As in virtually every aspect of supply chain operations, technology is increasingly playing a pivotal role. Aberdeen says that businesses should create a programme to become more carrier friendly to buffer themselves from capacity shortages and rate hikes.

The report is especially pertinent as shipping rates are expected to continue to climb. In addition to continually high oil and steel prices, many shipping lines in the US and elsewhere are implementing expensive security regulations aimed at thwarting terrorism.

Other costs including insurance, terminal charges and even container prices are also on the increase. China's rapid industrialisation continues to suck in a sizeable proportion of available freight.

A report on the container ship market by analyst Howe Robinson suggests that all this is creating a 'tonnage squeeze,' with ships available for charter certain to be in short supply in 2004. Some container lines will be forced to cut non-core services if they become unprofitable.

Related topics: Processing & Packaging

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