The term allocated in shipping can take different meanings depending on the context.
However, when shippers and carriers talk about freight allocation, they generally refer to space allocation and capacity for a given shipment. Let’s get into more detail.
What Does Allocated Mean In Shipping?
At its core, allocated in shipping is used to describe the act of setting aside or reserving resources for specific purposes. Most often, it means ensuring that there is enough space for goods in various stages of their journey.
For instance:
- Container slot allocation refers to the way ocean carriers assign the container space (slots) of a vessel to different shippers or partner carriers. Because container ships have a fixed number of slots, often measured in TEUs (Twenty-foot Equivalent Units), slot allocation directly affects capacity.
- Warehouse space allocation, on the other hand, refers to designating specific areas within a warehouse for particular goods or orders.
Ultimately, allocation in this sense guarantees that your goods have a spot as they travel through the supply chain, reducing the risk of delays or bottlenecks.
What Is Freight Allocation?
Freight allocation is a broad logistics management term that can refer to either freight cost allocation or space allocation for cargo.
Freight Cost Allocation
Freight cost allocation is calculating and distributing a shipment’s total cost among individual items, shipments, or destinations. Doing so offers a better understanding of the true Cost Of Goods Sold (COGS), and improves financial reporting and decision-making.
Space Allocation
This term refers to the space that carriers, such as shipping lines or airlines, allocate to their customers, often based on contractual agreements.
In essence, freight allocation is about strategically managing both the costs and the physical space associated with shipping goods.
What Is Allocation Management?
Allocation management is the process of optimizing the use of reserved shipping capacity. For shippers, this means ensuring they effectively utilize the space they’ve booked on vessels (or other transport modes), as documented in their contractual agreements with the carrier(s).
How Does Allocation Management Work?
As a shipper, there are various aspects you can work on to optimize your allocated capacity.
Compliance
Verify that cargo and container configurations meet legal and carrier requirements for the specific shipping route.
Optimal Shipment Combinations
Allocation management can help you decide whether it’s best to combine smaller shipments onto a single vessel or split larger ones across multiple vessels.
Strategic Carrier Utilization
See how you can efficiently distribute shipments among different carriers to utilize your reserved allocation in full by the end of the contract period and avoid potential penalty fees for unused capacity.
Real-time Tracking And Monitoring Services
Digital solutions like Ship4wd’s real-time tracking dashboard, help you keep a close watch on each shipment en route and assess adjustments or changes promptly.
Efficient Communication With Carriers
It helps you address issues and make proactive adjustments, leading to more effective allocation management, reduced costs, and delays.
Space Allocation: What It Means For Carriers
On the part of the carrier, space allocation is deciding how much space on their vessels, aircrafts, or other transport means will be made available to different shippers or freight forwarders.
For example, for air shipments, airlines tend to reserve large portions of cargo space on specific flights over a period of time for their key freight forwarders.
So, every freight forwarder has their own allotment, which they re-sell to their own customers – the individual shippers that is.
Allotment contracts between shipping lines and freight forwarders are typically valid for an entire season and are signed before the season starts. But at that time, the forwarders do not know the exact amount of their customer demand.
So, the carrier’s challenge here is to choose the allotments so that the expected total contribution is maximized. Carriers calculate the total contribution by subtracting operational and handling costs from the contract rate.
To optimize space allocation, carriers may employ different strategies, including:
Static Allocation
A fixed amount of space is agreed upon for a specific contract period (e.g., 100 TEUs per month).
Dynamic Allocation
The allocated space can change based on fluctuating demand or performance.
On the part of the shipper, securing adequate space allocation is crucial for capacity planning; it also ensures they can move their goods even during peak seasons.
Carrier Allocation: What Is It?
From the shipper perspective, carrier allocation is selecting and assigning a specific carrier to handle a particular shipment. Especially for large-scale shippers, optimal carrier allocation enhances efficiency and reduces freight transport costs.
Key considerations in carrier allocation include:
- Understanding the specific requirements of the shipment, such as the type of goods and carrier network.
- Assessing the different types of shipping lines, like air freight, sea freight, trucking, or rail.
- Evaluating carrier performance, reliability, and service levels.
- Comparing the rates and availability of various carriers for the particular shipment.
- Leveraging existing contracts and negotiated rates with carriers.
Navigating Resource Allocation In Cargo Shipping
With so many different factors to consider, shipping cargo overseas can be quite complex for small or medium-sized companies, especially those who are just starting the import/export endeavors.
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