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Customer Solutions: Optimizing Ocean Transportation Costs

Many importers and freight forwarders use container utilization percentages as a proxy for measuring how cost effectively they are moving their product via ocean transportation services. However, the volume of cargo loaded into an individual container only tells part of the story; furthermore, it can be a misleading measure. The impact of the mix of container sizes the shipper used and the comparative costs of those containers within the shipper’s contracted rates also needs to be factored in. Expeditors’ Freight Efficiency Score (FES) calculation synthesises these three cost drivers down into a single and comprehensive metric which truly measures the cost efficiency of an ocean import program.

Freight Efficiency Scores

Freight Efficiency Scores is a metric developed by Expeditors to either demonstrate cost efficiency or through further analysis, identify cost saving opportunities for the shipper. Our recent US benchmarking study pooled 12 months of shipping data for over 20 US retail customers and enabled each retailer to see how the cost efficiency of their ocean import program compares to other retailers with similar shipping volumes and supply chain attributes.

Trending of the results allowed us to assess which of the cost drivers has greatest influence on cost efficiency - container capacity utilization or the mix of the container sizes used?

Container Capacity Utilization

Across the 20+importers, average container capacity utilization ranged from 70 to 90%. Most importers achieved average container utilization within a narrow range of 80 – 87%. However, the Freight Efficiency Scores for these importers ranged from 1.65% to over 2.50% a spread of over 50%. As can be seen in the chart (right), the study illustrated there is not a strong correlation between container utilization and an importer's true cost efficiency.

Container Sizes

However, our study did demonstrate a correlation between an importer’s Freight Efficiency Score and the mix of container sizes used. As the chart to the left illustrates, strong Freight Efficiency Scores are driven by low usage of 20ft containers and high usage of 40ft high cube containers. The study did not identify any correlation between the use of 45ft containers and cost efficiency. In fact, the two importers with the strongest Freight Efficiency Scores (retailers ‘P’ and ‘R’), used little or no 45ft containers.

From this we can conclude that using the optimal mix of container sizes, based on specific contract rates, is essential for an importer to achieve cost efficiency.

Example – Retailer J

For ‘Retailer J’ our study identified they had a comparatively weak Freight Efficiency Score. Through a second step in the analysis we were able to simulate the effect of increasing the amount of cargo routed through a CFS warehouse and the impact this would have on Retailer J’s total cost. The CY-CFS Optimization analysis demonstrated the enhanced consolidation program would reduce importer J’s transportation costs net of the additional CFS costs. However, at this micro level, it also demonstrated the trend shown in the wider study that the mix of container sizes used are more important than container utilization in achieving cost efficiency.

The charts above compare the Optimized Consolidation Scenario with how Retailer J actually shipped over the 12 month period studied (‘As Shipped’). The line on both the charts illustrates how the Freight Efficiency Score would reduce (improve) in the Optimized Consolidation scenario compared to how the cargo was shipped. This would be driven by an increased use of larger container sizes (chart top left) and not through improved container capacity utilization (chart top right). In fact, in the cost optimized scenario, container utilization would decrease from 82% to 72% but the cost efficiency achieved by using larger but fewer containers would result in a net saving for Retailer J.

Analytical techniques such as these provide shippers with a valuable and actionable insight into how they can improve the cost-efficiency of their ocean transportation program.

Expeditors’ Account Managers have presented customized versions of the Benchmarking Study during Quality Business Reviews (QBRs) with their customers. These studies benchmarked both the customers' cost efficiency and the customers' consistency in achieving that efficiency week-to-week measured through standard deviation. In the example below, the customer's Freight Efficiency Score is represented by the green bar which is compared to a selected peer group (blue) and to other US retailers (red).

Summaries presented to customers have provided them with a clear view of how the cost efficiency and consistency of their ocean import program compares to a peer group of comparable importers as well as other US retailers.

At Expeditors we focus on supporting our customers with knowledge and insight to help them achieve their logistics and supply chain goals.