Reducing cost and risk in a time of volatility
A smarter approach to managing air and sea logistics
As supply chain leaders we need to meet the expectations of our customers, shareholders, employees, planet and legislators whilst navigating the challenges of an increasingly Volatile, Uncertain, Complex and Ambiguous (VUCA) world.
Managing global logistics is all VUCA and today it is particularly challenging with global geopolitical disruption creating enormous volatility in air and sea freight rates and service availability.
Moreover, it has been difficult for organisations to keep track of these developments which has resulted in many relying on spot prices to manage their logistics costs.
Spot price buying can have advantages and can be competitive. Equally, there are downsides, like price volatility, periods of high prices, and low-quality relationships. And, no matter how you go about it, managing logistics this way is resource-intensive.
It’s time to get smart
In many cases, there is a better way, a way that answers the challenges of the VUCA world. This way has been proven to achieve significant savings while offering an ideal balance between certainty, flexibility, and responsiveness, and one that cultivates high-quality supplier relationships.
To deliver more value to the business and answer the VUCA challenges, we have been working with our clients to set up a small panel of carefully selected freight forwarders, typically between three to six companies, for a duration long enough to build proper partnerships, so three years has been our yardstick.
In the current environment, we negotiate with panel members for rates to be fixed on a six-month rolling basis. This achieves stability and competitive pricing. And, not to be ignored, it helps build genuinely collaborative relationships.
The six-month rate validity is long enough to secure attractive rates and short enough to adjust as required to allow for changes in the constantly evolving marketplace.
The panel also allows for contingency, to provide for a back-up on regular lanes and to act as a shortlist of providers for ad-hoc requirements.
The proof is in the pudding
Working with a number of clients based in ANZ, Europe and the Americas over recent months, we have seen costs reduce in the order of 15 to 30% in addition to improvements in the overall commercial terms of the services.
Because suppliers on the panel can see the benefits of an ongoing allocation and relationship, they also see the value in investing in the relationship and better supporting a client’s objectives with more value-adding features in their panel offer.
This approach seems remarkably simple, and at one level it is. It is certainly easy to understand and appreciate how this approach can provide an ideal balance of certainty and competitive pricing. But there is more behind our thinking, and the examples in the table below illustrate some of that. Still, it is worth considering exactly how a logistics panel helps overcome the challenges of the VUCA world, which can be summarised as follows:

Obviously, there is more to all of this, but ultimately this is a common-sense answer to the challenges of our VUCA world. A world that is likely to become more volatile, uncertain, complex, and ambiguous. So, it makes good sense to develop capabilities that can cope with this environment over a long period.