Sea Freight Cost Ratio Analysis for Ex-Works Purchases

Freight Cost Ratio Analysis for Ex-Works Purchases

The hose division of Delta Hydraulics Thailand's open book pricing and fixed fright reimbursement agreement with Caterpillar Inc came under threat as a result of the Covid pandemic and Houthi terrorist activities in the Red Sea. Jason Bresnehan negotiated Delta's' freight reimbursement with Caterpillar in 2016 based on a fixed percentage of ex-works purchase price from component and material suppliers in USA, China, Italy, India and Australia.

The fixed percentage was satisfactory for a few years, with the occasional "win some lose some" movements which either Delta or Caterpillar wore. However, the Covid pandemic resulted in significant and unforeseeable freight cost increases as a result of lockdowns, port congestion and shipping container shortages. In addition, the Houthi rebel activities in the Red Sea caused route disruptions, route changes and slower delivery times which also caused freight cost increases.

Delta Thailand retained Evahan to undertake a detailed cost analysis of every freight shipment that Delta arranged to Laem Chabang Thailand from October 2016 to April 2023.  The departure ports included Yuhuan, Zhejiang Port, China, Port of San Francisco Port, California USA, Port of Long Beach, California USA, Port of Genoa, Italy, Port of La Spezia, Italy.

The supply chain analysis also included road transport costs from the materials manufacturer's factory to the departure port transport costs which included some costly routes such Menominee, Michigan to the Port San Francisco. The analysis also included all Thailand end handling costs and road Trasport from Laem Chabang to Delta Hydraulics in Rayong Thailand.

The freight mix was FCLs and LCLs.