Nov 15

What is Blockchain Technology

Source:  Global Trade Magazine, March 6, 2017

Screen Shot 2017-11-15 at 12.22.46 PM

 

 

 

IBM and Maersk announced today a new collaboration to use blockchain technology to help transform the global, cross-border supply chain.

The blockchain solution based on the Hyperledger Fabric and built by IBM and Maersk will be made available to the shipping and logistics industry. The solution will help manage and track the paper trail of tens of millions of shipping containers across the world by digitizing the supply chain process from end-to-end to enhance transparency and the highly secure sharing of information among trading partners. When adopted at-scale, the solution has the potential to save the industry billions of dollars.

Ninety percent of goods in global trade are carried by the ocean shipping industry each year. IBM and Maersk intend to work with a network of shippers, freight forwarders, ocean carriers, ports and customs authorities to build the new global trade digitization solution, which is expected to go into production later this year. It has the potential to vastly reduce the cost and complexity of trading by using blockchain technology to establish transparency among parties. The solution is designed to help reduce fraud and errors, reduce the time products spend in the transit and shipping process, improve inventory management, and ultimately reduce waste and costs.

Maersk found in 2014 that just a simple shipment of refrigerated goods from East Africa to Europe can go through nearly 30 people and organizations, including more than 200 different interactions and communications among them.

In order to prove the potential value of a commercial trade digitization solution, IBM and Maersk have worked with a number of trading partners, government authorities and logistics companies. Goods from Schneider Electric were transported on a Maersk Line container vessel from the Port of Rotterdam to the Port of Newark in a pilot with the Customs Administration of the Netherlands under an EU research project. The US Department of Homeland Security Science and Technology Directorate, and US Customs and Border Protection are also participating in the pilot.

Damco, Maersk’s supply chain solutions company, supported origin management activities of the shipment while utilizing the solution. The international shipment of flowers to Royal FloraHolland from Kenya, Mandarin oranges from California, and pineapples from Colombia were also used to validate the solution for shipments coming into the Port of Rotterdam.

“As a global integrator of container logistics with the ambition to digitize global trade, we are excited about this cooperation and its potential to bring substantial efficiency and productivity gains to global supply chains, while decreasing fraud and increasing security,” said Ibrahim Gokcen, chief digital officer, Maersk. “The projects we are doing with IBM aim at exploring a disruptive technology such as blockchain to solve real customer problems and create new innovative business models for the entire industry. We expect the solutions we are working on will not only reduce the cost of goods for consumers, but also make global trade more accessible to a much larger number of players from both emerging and developed countries.”

Improved workflow and visibility on status of shipments
International trading parties require both improved workflow and better visibility. They need a faster, security rich and more efficient way to handle the documentation processes needed to move goods across international borders.

The costs associated with trade documentation processing and administration are estimated to be up to one-fifth the actual physical transportation costs. A single vessel can carry thousands of shipments, and on top of the costs to move the paperwork, the documentation to support it can be delayed, lost or misplaced, leading to further complications.

How it works
Blockchain, an immutable, security rich and transparent shared network, provides each participant end-to-end visibility based on their level of permission.

Each participant in a supply chain ecosystem can view the progress of goods through the supply chain, understanding where a container is in transit. They can also see the status of customs documents, or view bills of lading and other data.

Detailed visibility of the container’s progress through the supply chain is enhanced with the real time exchange of original supply chain events and documents.

No one party can modify, delete or even append any record without the consensus from others on the network.

This level of transparency helps reduce fraud and errors, reduce the time products spend in the transit and shipping process, improve inventory management and ultimately reduce waste and cost.

The solution enables the real time exchange of original supply chain events and documents through a digital infrastructure, or data pipeline, that connects the participants in a supply chain ecosystem. This promotes sustainable transport by integrating shipping processes and partners, and establishing evaluation frameworks through increased transparency and trusted access. An industry standard application programming interface for the centralized sharing of data and shipping information via the cloud was originally conceived by Frank Heijmann, head of trade relations, Customs Administration of the Netherlands, and David Hesketh, head of customs research and development, HM Revenue and Customs.

For shippers, the planned solution can help reduce trade documentation and processing costs and help eliminate delays associated with errors in the physical movement of paperwork. It will also provide visibility of the container as it advances through the supply chain. For customs authorities, the solution is intended to give real time visibility, significantly improving the information available for risk analysis and targeting, which may eventually lead to increased safety and security as well as greater efficiency in border inspection clearance procedures.

“We believe that this new supply chain solution will be a transformative technology with the potential to completely disrupt and change the way global trade is done,” said Bridget van Kralingen, senior vice president for industry platforms at IBM. “Working closely with Maersk for years, we’ve long understood the challenges facing the supply chain and logistics industry and quickly recognized the opportunity for blockchain to potentially provide massive savings when used broadly across the ocean shipping industry ecosystem. Bringing together our collective expertise, we created a new model the industry will be able to use to help improve the transparency and efficiency of delivering goods around the globe.”

Nov 14

Shippers warned ELD mandate will crimp supply chains

Source:  JOC.com

The electronic logging device mandate is closing in on supply chains. Photo credit: Shutterstock

The electronic logging device (ELD) mandate is barreling toward the trucking industry, and unless shippers prepare for it, they are likely to feel as much pain as their trucking partners, speakers warned executives at the JOC Inland Distribution Conference in Atlanta last week.

“I think false logs have been an epidemic, from the 1930s until right now, and they’re going to go away,” said John Seidl, a transportation consultant with Integrated Risk Solutions and former Federal Motor Carrier Safety Administration (FMCSA) trucking investigator and Wisconsin state trooper.

As the initial deadline for electronic logging, Dec. 18, draws near, evidence shows Seidl’s “epidemic” is spreading. The number of false log violations reported by the FMCSA rose 11.5 percent in fiscal year 2017, which ended Sept. 30.

That compares with a 9.6 percent increase in fiscal 2016. The number drivers placed out of service by state law enforcement officers in fiscal 2017 for falsifying their logs jumped 14.8 percent, or by about 3,900, to 30,274, the FMCSA roadside inspection data show.

The result of the ELD mandate will be a reduction in daily driving time for those drivers that habitually stretch their hours by falsifying logs, he said. Carriers and truck drivers that have not installed ELDs yet, he said, “are most likely the biggest offenders in terms of false logs.”

“Why is this law in place? Because people die when some truck drivers work too hard,” Seidl said. “They work too hard because they don’t make a lot of money and shippers hold them up and they have to make up for lost time. In my view, the ELD is a godsend for the drivers.”

The responsibility of shippers and receivers that “hold up” drivers at docks was highlighted by two industry leaders on opposite sides of the ELD debate in video messages presented by moderator Mark Willis, host of Sirius XM Radio program “Road Dog Trucking.”

“Shippers will need to be more cognizant of their drivers’ time,” Chris Spear, president and CEO of the American Trucking Associations, said in a videotaped message. “Keeping [drivers] moving will be more important than ever to comply with the hours of service rules.”

“The collaboration required across shipper and broker, carrier, and receiver is going to have to be taken to a level we haven’t had before,” Eric Lien, senior vice president of corporate development at Arrive Logistics, said during a panel on the upcoming ELD mandate.

“Clearly this regulation is going to increase your costs,” Todd Spencer, executive vice president of the Owner-Operator Independent Drivers Association, said in a videotaped message. “Transportation costs will have to reflect the regulations and other things transportation providers eat and absorb.”

Yet a sizeable number of shippers, 20 percent according to a joint survey of shippers and logistics providers by JOC.com and several partners, have done nothing to prepare for the mandate, which takes effect Dec. 18. Those shippers could see sizeable rate hikes.

“In terms of rates, we’re seeing a 6 to 10 percent increase,” said Thayne Boren, general manager at Truckstop.com, referring to contract rates. “As we head into next year, our economists are predicting rates could soar as much as 20 percent in the next peak season.”

“In March there was a year-over-year change of 25 percent in spot rates and that didn’t even have the ELD thrown in,” said Lien. “If the ELD transition doesn’t normalize quickly, we could have a strong first half of the year and 2018,” he said, referring to motor carrier pricing.

None of the panelists can predict the future, however, and there is little clarity at this point about exactly how many drivers will exit the trucking industry when the mandate takes effect and they are required to use electronic logs, and how much capacity and productivity will be lost.

“Our research shows somewhere in the range of 2 to 4 percent,” Boren said. “There are some doomsday folks that say 20 percent [of capacity] will exit the market. I would never even come close to that number. But there’s a lot of confusion out there about the mandate in general.”

The biggest loss of capacity may come not from drivers exiting the business but from the loss of what one logistics operator called “wiggle room” when it comes to recording hours of service — in other words, falsifying logs. Seidl said the practice is more widespread than many might think.

“Would you stay at a truck stop for 10 hours if the only difference was a piece of paper and a pencil?” he asked. “Let’s say no. I’m going to stay there 8 hours. That gives me two additional hours of driving. Two hours a day, five days a week, that’s 10 hours a week.”

Multiply that by 10 drivers, and that company is picking up an additional 100 hours a week. “Last time I checked, that’s [the equivalent of] a driver and a half,” Seidl said. That 100 hours is also the equivalent of a 14 percent productivity boost that 10-truck carrier will lose with ELDs.

Shippers need to examine the lengths of their routes and their delivery promises to make sure there is no disruption to their supply chains during the transition to ELDs, speakers said, but that is just the start. They’ll also need to adopt more “best practices,” Lien said.

“That’s making sure the load is ready at appointment time, making sure there’s flexibility around drop and hooks, making sure you’ve got appropriate staffing during shipping and receiving hours, making sure there’s parking for drivers. These are just best practices,” he said.

“If the ELD mandate brings a higher frequency of best practices, that’s just fantastic,” said Lien.

Electronic logging is meant to make enforcement of hours of service rules easier, and to minimize falsification of log records. However, cheating will still be possible with ELDs, several panelists said. It will just be harder, said Norm Ellis, president of ELD vendor EROAD.

The ELD rule “is a challenge that will be tested.” he said. “If someone wants to try to find a way around [the ELD rule], they will likely find a way around it. It won’t be as easy as it is on paper. It’s our job [as vendors] to be proactive and try to make sure our logs can’t be duplicated.”

Contact William B. Cassidy at bill.cassidy@ihsmarkit.com and follow him on Twitter: @wbcassidy_joc.

Oct 17

How do Terminal Handling Charges (THC) work?

Terminal Handling Charges (THC) Explained

Port cranes on bright day.jpg

Terminal Handling Charge, as the name suggests, is a charge levied by a port terminal for the handling of cargo at a specific terminal within a specific port in a specific country.

Although seemingly innocuous, THC is a critical component in an ocean freight shipment and must be treated with care and respect as it has the potential to make or break a deal.

To understand what exactly is the Terminal Handling Charge, one needs to go deeper into each part.

Table Of Contents

What Is Terminal Handling? A Brief History

Why Is Terminal Handling Charge (THC) Important?

Types Of THC

Freight Rates And THC Methodology

Conclusion

Cranes in port.jpg

What Is Terminal Handling? A Brief History

Stevedoring or the business of loading and unloading of cargoes from a commercial ship is one of the key businesses in the shipping industry.

In the olden days of trading, the owner of the ship paid the stevedores for the loading and unloading operations.

As trading evolved and globalization set in, shipping also evolved and so did stevedoring.

It evolved from a manual, labor intensive work to one handled by people but assisted more by machines. As stevedoring and global commerce developed, so did the methodology of charging for these services.

The fees charged by the stevedores initially to the owner of the ship and subsequently to the owner of the cargo (or both) eventually evolved into Port Handling Charges.

As containerization became popular and shaped the modern world, the various ports (mainly controlled by the State) around the world took on the task of employing either their own personnel or 3rd party operators to provide the service of stevedoring.

The ports also took on the task of invoicing the port users for these charges and this charge is currently called the Terminal Handling Charge.

Cargo Ship Loading Containers-1.jpg

Why Is Terminal Handling Charge (THC) Important?

Well, for starters, in any shipping transaction there are several costs and several parties paying these costs.

It is important to know who pays what charges for a shipment and who pays freight charges for a shipment.

The hero of this article, the THC, is a completely localized charge and is set by the port/terminal at the various locations.

THC is not a constant charge across the many ports on a shipping route even with the same shipping line.

For example, on the Asia/Europe route if the service calls Shanghai, Singapore, Port Kelang, Hamburg, Rotterdam, the THCs might be different at each of these ports.

Even within the same port, THCs can be different at different terminals within the port.

THC can be quite an expensive charge, and the apportioning of this could make or break a deal.

For example, if you take a shipment from Rotterdam to New York for the last week of September 2017, the strictly port-to-port ocean freight cost (excluding any local charges at both ends) works out to a market average rate of USD765/20’.

The current average THC charged for exports out of Rotterdam port is approximately USD235/20’, which works out to around 30% of the port to port ocean freight mentioned above. The THCs are generally valid for a year and some lines have volume-based THCs at the various ports/terminals around the world.

USD235 per 20’ container is a substantial cost which, if missed out at the quotation, negotiation or invoicing state, can cause a significant loss for either the buyer or the seller.

Therefore, it is imperative that you have a goodunderstanding of the freight quotation before you start with a shipment.

Cargo Ship Loading Containers 2.jpg

Types Of THC

In every shipment, irrespective of who pays it, THCs are present at Origin, Destination and at Transhipment port.

Origin THC (OTHC) and Destination THC (DTHC) are paid by the client (seller or buyer) depending on their terms of sale, either directly to the port or to the carrier depending on the port of origin/destination.

Therefore, it is very important that you understand whether this charge is included in your freight quote or not.

Transshipment THC (let’s say at Point B) is always paid by the carrier that arranges the shipment from Point A to Point C via Point B as their ocean freight rate includes this cost.

Different container types also attract different THC quantum because of the handling methods involved.

For example, special equipment and special cargoes like Hazardous, Reefers, and Out of Gauge (OOG) will attract different THC quantum.

This is because the port costs for handling these container types are different to that of normal dry containers.

OOG cargo may require the use of slings and extension spreaders due to the over dimensional nature of the cargo.

Hazardous cargoes require a special area within the CY for the safe storage and monitoring, and hence those costs may also be factored into the THC.

Reefer cargo handling at port requires the containers to be plugged into an electricity source and also needs to be monitored. These costs may be factored into the THC.

Container Ship.jpg

Freight Rates And THC Methodology

The sea freight rates aggregated in our system is shown as the total ocean freight cost (port – port), including bunker adjustment factor (BAF), Currency Adjustment Factor (CAF), Canal surcharges and all other relevant surcharges.

Based on our freight rate aggregation, the total container cost may be built up according to the below surcharge structure.

origin-destination.jpg

THCs may be included or excluded in above calculation based on our THC methodology given below.

abvrivation.jpg

It is important to understand how the carrier charges the THC as depending on the route of shipping; the carriers may choose to include or exclude the THC in the freight.

In certain countries in West Africa, the THC maybe for example shown as a “Liner Out Charge”.

Conclusion

If you are a freight forwarder, you have the onerous task of ensuring that the carrier quotes you the correct charges and that you invoice client the right charges.

Ocean freight audits are an important part of ensuring that you are being charged the right amount by the carriers.

As seen above, the humble yet crucial THC surcharge is one of the key charges that could impact heavily on the overall bottom line of a shipment transaction.

Sep 29

ILWU Pickets APL’s LA terminal

Source:  joc.com

In one of the busiest weeks of the peak shipping season, dockworker picketing shut down the Global Gateway South terminal of APL in Los Angeles, seeking leverage in contract negotiations involving newly organized superintendents.

The picketing by International Longshore and Warehouse Union Local 63 is the latest attempt by the local to influence negotiations that will establish a contract template for formerly management superintendents that the union is organizing in Southern California.

The job action comes at the worst possible time for terminal operators in the largest US port complex. Vessels filled with holiday season imports are usually full at this time of year because importers are rushing to ship their merchandise before factories in China close for the Golden Week celebration that will begin Sunday.

ILWU Local 63 in Southern California this summer has been attempting to organize terminal superintendents that have historically been part of management. The National Labor Relations

Board has certified the voting results at two of the terminals — Pasha Stevedoring and Terminals, and APL — and the union local is in the process of negotiating contracts with the terminal operators.

The contract negotiations at Pasha have been under way for two months. Last month, ILWU Local 63 placed pickets at Pasha to gain leverage in the contract negotiations. The local waterfront arbitrator ruled that day that the pickets were not “bona fide,” meaning they were in violation of the coastwide contract between the ILWU and the Pacific Maritime Association, and the pickets were removed. The ILWU appealed that decision to a three-member arbitration panel, which has yet to rule.

Thursday’s job action at the APL terminal follows the same pattern as that that took place at Pasha. APL is in contract negotiations with ILWU Local 63 for the newly organized superintendents. With the terminal shut down for the first shift on Thursday, APL and Local 63 were awaiting the local arbitrator’s ruling as to whether the picketing is bona fide.

Local 63 is also negotiating superintendent contracts at the Ports America/ITS terminal in Long Beach and the Everport terminal in Los Angeles. The ILWU and the PMA headquarters in San Francisco are not commenting on the local events in Southern California. The contracts that are being negotiated for the superintendents are terminal-specific, and do not fall under the coastwide contract. The PMA and ILWU at the coast level are involved only in the arbitration process.

The organizing of superintendents is a controversial development, with management and labor having strong views on this subject. Superintendent positions until now have always been part of management. Terminal operators consider superintendents to be their face to the public, and terminals that are considered to be efficient and well-managed say this quality differentiates them from competitors. There are 13 container terminals in Los Angeles-Long Beach.

The ILWU, meanwhile, said that in the new era of computerization, the number of superintendents has proliferated. The ILWU charges that the superintendents are performing work that belongs under ILWU jurisdiction.

Terminal operators whose superintendents have not yet been organized are taking what they consider to be preventative action. Some terminals have increased pay levels for superintendents to convince them to remain management. One terminal is said to have laid off a number of its superintendents.

Contact Bill Mongelluzzo at bill.mongelluzzo@ihsmarkit.com and follow him on Twitter: @billmongelluzzo.

Aug 31

Space Tightening and Spot Rates Rising 2017-8-31

Source:  Joc.com

With vessels leaving Asia already near or at capacity, beneficial cargo owners (BCOs) expect that an increasing number of shipments will be rolled to subsequent voyages and freight rates will jump dramatically by late September.

“It’s tight. This year we’re back to the old-school peaks we grew up with,” Patrick Halloran, director, global logistics at Cardinal Health, an importer of pharmaceuticals and medical products, told JOC.com. “I think this one is demand-driven,” he said.

Some importers this peak season admit they have been lured into a sense of complacency by lackluster freight rates in the spot market. Spot rates have been stuck in a narrow range of around $1,500 per 40-foot equivalent unit container to the West Coast and $2,400 per FEU to the East Coast throughout the always busy month of August. Last week spot rates from Shanghai actually dropped 7 percent to both coasts from the previous week, according to the Shanghai Containerized Freight Index published under the Market Data Hub on JOC.com.

That is expected to change soon as demand in the eastbound Pacific finally catches up with vessel capacity. Conditions are expected to get dicey in the last couple of weeks of September as factories in China rush to get their shipments out before closing in early October for the annual Golden Week holiday. A carrier executive this week said the anticipated demand for vessel space in late September “is already reflected in the forecast we receive from our customers.”

Despite relatively strong growth in US containerized imports of more than 6 percent so far this year, an overhang in capacity has limited carriers this summer to sporadic general rate increases, which evaporated in subsequent weeks. “Cargo volumes this summer do feel very strong, and our sense is that almost all carriers’ utilizations are very high,” said Kenneth O’Brien, chief operating officer at Gemini Shippers Association. IHS Markit senior economist Mario Moreno projects 2017 growth of 6.6 percent in US containerized imports.

However, BCOs report that so far this summer there has been little rolling of cargo in Asia. Until that happens, the pressure is not there on BCOs and non-vessel-operating common carriers (NVOs) to pay higher rates to get their shipments on the vessels. The first signs that changes are occurring surfaced the past couple of weeks, with some BCOs experiencing a delay in getting carriers to accept their bookings.

“I have not experienced ‘true’ rolls to date. What I am experiencing is the carriers delaying the acceptance of the booking. They are waiting to confirm bookings, thus avoiding rolls. The reason they are waiting is to accept the higher-paying containers,” a BCO said. He added that it is taking 14 to 17 days to get on a vessel now, compared to four to seven days last year at this time.

This means some carriers are playing the spot market. As space tightens, carriers will put on  hold acceptance of some bookings, often from customers that have signed service contracts with rates that are below the spot rates. Carriers then shop the slots to BCOs and NVOs who are willing to pay the higher spot market rates. “It’s a game carriers play,” said one executive with a chuckle.

However, a former carrier executive noted that these same lines during the slack season take a beating when they must lower their rates below service-contract levels in order to attract cargo. Furthermore, carriers forever deal with bookings that are made by BCOs who do not actually deliver the cargo. “Fifteen to 20 percent are phantom bookings,” he said.

Carrier pricing and yield management can be quite complex given the peaks and valleys that occur every year, all year, in liner shipping. At the foundation of carrier pricing is the break-even rate,which varies slightly from line to line given their cost structure, size of vessels, debt repayments and need for capital to reinvest in assets. The former carrier executive listed break-even at $1,300-$1,400 per FEU to the West Coast. Carriers argue the break-even rate is closer to $1,700-$1,800, when factoring in the cost of repositioning the containers to Asia.

Service contracts for the 2017-18 season that began May 1 ranged from about $1,000 to $1,100 per FEU for the largest retailers, to about $1,200 to $1,300 for the smaller BCOs. Therefore, when the spot market is at $1,500 and is showing signs of going higher, carriers will book as many shipments as they can under the spot rates.

This is certainly the case, for example, for contract customers that commit to 10 containers per week, but during the peak season book 20 or more. Any booking above 10 containers is almost certainly going to pay the higher spot rate.

BCOs and carriers agree that the best strategy is for carriers and their customers to establish and maintain a close working relationship that levels as much as possible the effects of the natural peaks and valleys during the annual shipping cycle. “While space is very tight, we have found that our carrier partners have and continue to honor their contractual relationships with Gemini Shippers Group and our member companies,” O’Brien said.

In addition to dealing with the normal seasonal fluctuations in supply and demand in the eastbound Pacific, BCOs are coping with the uncertainties surrounding the devastating Hurricane Harvey, which is disrupting logistics supply chains in the US Gulf, weather events in Hong Kong and Singapore, and yet another Chinese government policy development involving environmental restrictions.

Importers report that China has been shutting down or at least pressuring dozens of old, polluting factories to slash production. This is forcing importers to find new suppliers, or if that is not possible, to wait and see if the current initiative is temporary. If it should suddenly be lifted, and production ramps back up, Chinese ports and carriers could get hit with a spike in cargo that overwhelms them.

Although there are no specific numbers available, some carriers are quietly deploying “extra-loader” ships to meet growing demand. This could relieve some of the pressure on spot rates. However, vessel space is expected to be quite tight in the pre-Chinese Golden Week period in late September. Conditions are expected to remain tight through October. Carriers are therefore urging BCOs to work closely with their service providers to prepare for cargo rolling and rate spikes for the remainder of the peak season.

Interested in sharing JOC.com content? Please view our current Copyright and Legal Disclaimer information, as well as ourFrequently Asked Questions to ensure proper protocol is followed. For any questions, contact the Customer Support team at our Help link.

Contact Bill Mongelluzzo at bill.mongelluzzo@ihsmarkit.com and follow him on Twitter: @billmongelluzzo.

Aug 25

Trans Pacific Space Tightening – 2017-8-25

Source:  JOC.com

With indications that an unusually strong peak season is under way, fueled by a buoyant US economy, space in the eastbound trans-Pacific is tightening and carriers are aiming to put the highest yielding cargo on ships. That will force shippers with lower-rated cargo to pay higher rates or face delays.

“We believe that the short-term future is that there will be some issues on space, maybe for the next two-and-one-half months,” Chas Deller, president of 10X Ocean Solutions, which advises beneficial cargo owners in contract negotiations with carriers, told JOC.com on Thursday. “The customer will have little choice but to pay more than they paid last year in order to get their freight on board.”

A medium-sized US importer said finding slot space has become trickier in recent weeks and wondered whether the collapse of Hanjin has spurred the tightness. “This summer is just absolutely unbelievable,” she said.

Import volumes from Asia to the United States rose 4.2 percent in the first half but grew 7 percent in July, according to PIERS, a sister product of JOC.com. US containerized imports in August may hit a monthly record high, with imports forecast by Global Port Tracker to rise 2.1 percent, to 1.75 million TEU.

Despite the growth, the spot rate to move an FEU from Shanghai to the US West Coast and East Coast has been largely static for the last three weeks, according to the Shanghai Containerized Freight Index. The spot rate to the West Coast is $1,659 per FEU and $2,592 to the East Coast. Rates on both routes, though, are up more than 50 percent since June.

“It is becoming a carrier market right now,” said Joe Quartarolo, executive vice president of global freight forwarding at Empire Worldwide Logistics. “They’re in control and they will be selective on what cargo gets on board the vessels based on each of the loading ports’ decisions to maximize profits.”

The situation is one that may be unfamiliar to many shippers who have enjoyed the fruits of a very weak container shipping market over the past several years, winning successive year-over-year rate reductions that shipper companies have gotten used to. The situation began turning around during the 2017 contract negotiations when carriers were able to secure modest increases of a few hundred dollars per FEU, turning the tide from the prior year when some rates were in the $700 range. But the situation has only tightened since, with growth rates in the import trans-Pacific accelerating.

“As as long as we see these 5, 6, 7 percent growth indications with capacity not increasing by that much, the carriers will be once again in charge. We’re seeing once again a complete reversal from the psychology that we have seen in the last couple of years,” Deller said.

The tightness of space is not just costing shippers more, it is adding an element of unpredictability to importers’ supply chains, Deller said.

“And the issue with [the space situation] is that you then begin to lose confidence that your product will arrive when you want it to arrive. The whole point from an importer’s perspective in the trans-Pacific is … these products have to arrive, so customers have been saying to us, ‘I don’t care about the rate negotiations, the freight has to move and it has to be here on time.’ So the only way to do that is to bow to the carrier’s demand.”

The tightening trans-Pacific import market supports comments made by Maersk CEO Soren Skou in the company’s Aug. 16 second-quarter earnings call where he said, “We believe that what we see now is probably the strongest fundamentals for container shipping that we’ve had for quite a while and certainly since 2010 and the financial crisis.”

He pointed to the fact that the idle fleet globally has dropped to just over 2 percent as many ships have been activated in recent months, but rate levels are holding in an indication that trade volumes this year are strong. For the first time in a decade economies in the United States, Europe, and the developing world are all expanding simultaneously.

“You’ve seen very little movement in the past few months despite the fact that a lot of idle capacity has been deployed. And I think we’ll take that as a sign of strength in the market,” Skou told analysts.

What appears to be happening is a peak season that has arrived with a vengeance, driven by a strengthening US economy. Real US GDP growth bounced back in the second quarter, rising at a solid 2.6 percent annual rate, compared with an anemic 1.2 percent in the first quarter, according to IHS Markit projections, which anticipate that GDP growth this year will accelerate to 2.1 percent.

“Even though the last couple of years the peak season was almost non-existent, this year it’s a real peak season. We see space becoming very tight at origin. It’s been tight for the past several weeks,” said Quartarolo.

He said the heavy volumes are being seen in delays at Pacific Northwest ports and at rail ramps around Chicago, creating delays of several hours to a few days.

He said spot rates are currently $500 to $600 higher than rates negotiated this spring during annual service contract negotiations, which creates a big incentive for carriers to load higher-paying cargo first, to the degree they are able to.

“Obviously you have the fixed long-term rates negotiated back in April and May, and then you have the spot market rates. So of course they would like to load the high-paying cargo rather than the low-paying cargo. They are not going to eliminate the fixed-rate volume but they will reduce it,” he said.

Deller said likely loading delays will force some shippers to turn to air cargo. The tightness in ocean space “will have a knock-on effect on air cargo, because if you can’t get on board and are delayed for a couple of weeks and you miss a projected sale, you are going to fly it no matter what.”

Shippers turning to air will find a tight airfreight market as well. As the forwarder Flexport reported on Aug. 15, “This has been a huge year for airfreight. Rates have stayed high and will rise further in the peak season. The trans-Pacific air market in particular is very strong.”

Interested in sharing JOC.com content? Please view our current Copyright and Legal Disclaimer information, as well as ourFrequently Asked Questions to ensure proper protocol is followed. For any questions, contact the Customer Support team at our Help link.

Contact Peter Tirschwell at peter.tirschwell@ihsmarkit.com and follow him on Twitter: @petertirschwell.

 

Aug 10

Record Import Volumes Forecast for August 2017

US containerized imports are forecast to reach the highest-ever monthly total in August as retailers react to strong consumer demand, providing carriers another tailwind to their improving fortunes.

The Global Port Tracker, published monthly by the National Retail Federation (NRF) and Hackett Associates, predicts  August import volume will rise 2.1 percent year over-year, to  1.75 million TEU. The current record for import volume was in March 2015, when inbound containers hit 1.73 million TEU.  The forecasted record in August would cap a strong six-month period in which four out of six months will be the busiest months in the history of the report, providing its predictions for the coming months are correct, Global Port Tracker said.

Global Port Tracker forecasts container volume to end the year up 4.9 percent, at 19.7 million TEU, from 2016. IHS Markit Senior Economist Mario Moreno has upgraded his forecast from 6.1 percent annual growth to 6.6 percent after strong volume in the first quarter.

“Retailers are selling more and that means they need to import more,” NRF Vice President for Supply Chain and Customs Policy Jonathan Gold said. “With sales showing year-over-year increases almost every month for a long time now, retail supply chains are working hard to keep up. These latest numbers are a good sign of what retailers expect in terms of consumer demand over the next few months.”

The expected 2.1 percent increase in August over the same month in 2016, followed by a 5.6 percent increase in volume in July — to 1.72 million TEU — over the same month in 2016. June’s volume of 1.69 million TEU was 7.5 percent up from the same month in 2016.

The report predicted the US will import 1.67 TEU in September, an increase of 4.7 percent over the year before, and will import 1.72 million TEU in October, up 3 percent from the same month in 2016. November’s volume is expected to clock in at 1.62 million TEU, down 1.4 percent on the same month in 2016, and December’s volume is predicted to be 1.59 million TEU, up 1.5 percent on the month last year, Global Port Tracker said.

The report’s upbeat predictions match evidence elsewhere suggesting a buoyant peak season, and beyond. The total volume of imports through US ports in the first seven months of the year was 12.5 million TEU, up 1.7 percent on the same period last year, according to PIERS, a sister product of JOC.com.

The Port of Oakland on Wednesday reported  an “all-time record” for cargo imports in July, handling 84,835 TEU, a 1 percent increase on the previous record of 84,023 containers handled in March 2015. The Port of Virginia also reported a record, with a “best July ever” total of 234,230 TEU, a 7.5 percent increase over the same month in 2016.

Spot rates in the eastbound Pacific edged lower last week after spiking by double digits last week as carriers attempt to maintain their pricing power during the early stages of the peak-shipping season. The spot rate for shipping a 40-foot container from Shanghai to the East Coast was $2,661, down 1 percent from $2,685 last week. The spot rate to the West Coast was $1,661, down 2 percent from $1,687 per FEU container last week, according to the Shanghai Containerized Freight Index published under the Market Data Hub on JOC.com.

Carriers indeed have greater pricing power this year. Last summer the Pacific trades were marked by overcapacity, which suddenly dissipated when Hanjin Shipping filed for bankruptcy on Aug. 31. Hanjin had accounted for about 7 percent of total capacity in the Pacific. The East Coast rate last week was 41 percent higher and the West Coast rate was 30 percent higher than during the same week last year.

Fewer shippers each year allow peak season surcharges and general rate increases into their annual trans-Pacific service contracts, limiting carriers ability to capitalize on what historically been the most profitable shipping period for them. Even so, Drewry expects container lines to end the year with $5 billion in profit, after six straight years of industry losses.

Contact Hugh R. Morley at Hugh.Morley@ihsmarkit.com and follow him on Twitter: @HughRMorley_JOC.

 

Jul 28

ILWU votes to extend contract until 2022

Source: joc.com

The International Longshore and Warehouse Union Friday announced that early reporting of coastwide election returns show the ILWU rank and file approved a three-year contract extension through July 1, 2022, signalling the potential for strong labor peace at West Coast ports for the next five years.

“Members of the ILWU voted on the employers’ unprecedented contract extension proposal after a year-long debate and democratic process in which every registered longshore worker from Bellingham, Washington, to San Diego, California, had an opportunity to vote,” the ILWU stated.

The subject of a contract extension was first raised in March 2015 at the JOC’s annual TPM Conference, when Pacific Maritime Association President James McKenna suggested that the ILWU consider an extension, and ILWU President Robert McEllrath told him to send the ILWU a formal letter.

The results of the West Coast vote that was taken this past month, which the ILWU expects will soon be formally ratified, will shift the attention of beneficial cargo owners to the East Coast, where the International Longshoremen’s Association and the United States Maritime Alliance have also been discussing the possibility of extending their contract, which is scheduled to expire on Sept. 30, 2018.

The results of the West Coast vote that was taken this past month, which the ILWU expects will soon be formally ratified, will shift the attention of beneficial cargo owners to the East Coast, where the International Longshoremen’s Association and the United States Maritime Alliance have also been discussing the possibility of extending their contract, which is scheduled to expire on Sept. 30, 2018.

“This agreement between the ILWU and PMA will provide the stability and predictability that (National Retail Federation)’s members and other supply chain stakeholders need to move their cargo efficiently through our ports,” NRF Vice President for Supply Chain and Customs Policy Jonathan Gold said in a statement. 

Beneficial cargo owners represented by dozens of trade organizations have been encouraging the longshore unions and employer organizations on both coasts to extend their contracts so it will be safe for US importers and exporters to plan their supply chain logistics for the next five years.

Employers on both coasts are keenly aware of the importance of sending to BCOs a message of labor stability and cargo-handling productivity. “With this  contract extension, the West Coast has a tremendous opportunity to attract more market share and demonstrate that our ports and our workforce are truly world-class. We are fully committed to delivering the highest standards of reliability and productivity for years to come,” McKenna said Friday.

West Coast ports have experienced a steady loss of market share the past 15 years. The loss continues this year. In the first half of 2017, the West Coast’s share of US  imports from Asia was 65.6 percent, which was down from 67.2 percent during the same period last year, according to PIERS, a sister product of JOC.com within IHS Markit.

By the same token, given the intense competition among ports on both coasts for market share, a guarantee of labor peace will promote growing cargo volumes, and jobs, for both the ILWU and the ILA. BCOs want to avoid the crippling effects of work slowdowns and stoppages such as occurred during the 2014-15 negotiations  between the ILWU and the PMA.

Container volume growth so far this year has been stronger than in previous years, and IHS Markit Senior Economist Mario Moreno projects US imports from Asia, which represent the most highly-contested market segment for  ports  on  both coasts, will increase 6.6 percent in 2017. 

Interested in sharing JOC.com content? Please view our current Copyright and Legal Disclaimer information, as well as ourFrequently Asked Questions to ensure proper protocol is followed. For any questions, contact the Customer Support team at our Help link.

Contact Bill Mongelluzzo at bill.mongelluzzo@ihsmarkit.com and follow him on Twitter: @billmongelluzzo

Jul 28

Booking container space, no-shows and forecasting space demand

Source: joc.com

A renewed focus on flaws in the container booking process that leave vessels partly empty when promised cargo doesn’t arrive or overbooked, with containers left on the dock has triggered a slew of new efforts by shippers, carriers, and consultants on how to resolve the problems.

Better forecasting; digital management platforms, such as the New York Shipping Exchange (NYSHEX); penalties for bad behavior; and greater visibility in the booking process are just some of the strategies tested. Industry consultants, start-ups, shippers searching for ways to increase certainty in their supply chains, and cash-strapped carriers desperate to improve efficiency are all looking to reduce so-called no-shows. Whether any of the solutions can succeed in overcoming a stubborn challenge in the container shipping system for years, is unclear.

At its heart, the system is driven by uncertainty: shippers face no penalty for booking a certain volume of cargo on a ship, and then failing to send it; and carriers face little retribution for leaving containers on the dock that they have committed to shipping. The two behaviors, and the apparent disregard for the impact on the other party, fuels an unwillingness to take steps to change a system that clearly hurts both parties in the long run. Carriers end up running ships with plenty of empty space, and shippers have to scramble to make alternative arrangements to get their cargo to its destination on time when containers are left on the dock.

Several shippers told JOC.com they are trying to more accurately predict how many boxes they will send in a shipment, and the NYSHEX in June launched an online portal that uses a system of contracts and penalties to encourage bookers and carriers to fulfill their commitments. Hapag-Lloyd and CMA-CGM have in recent weeks revived a strategy — that has not worked for others in the past — of charging a cancellation fee on shippers that deliver less cargo than they committed to ship.

New insights from Drewry Shipping Consultants says that the problem could be mitigated by a digital information sharing system that allows shippers and non-vessel-operating common carriers (NVOs) to better allocate their cargo among different carriers and vessels.

“Our Drewry view is that to resolve this issue will require a new technology-based capacity platform, enabling e-business synchronization of capacity in container shipping focused on “structural issues with booking and lack of technology.” The consultants found that the problem most affects small- and medium-sized shippers and non-vessel operators.

The question is what will it take to break that cycle, and will it be achieved by using a carrot to encourage more responsible behavior, or a stick to force the issue? Several BCOs say they have responded by coming up with their own methods of dealing with the problem, with some success.

Gary Fast, associate vice-president for international transportation at Canadian Tire, Canada’s largest container importer, said he believes its strategy of providing certainty for carriers has helped ensure that the retailer’s cargo is very rarely rolled. Fast said Canadian Tire forecasts extensively, based on information accessed by teams of analysts from up and down the organization, and provides them to suppliers, carriers, and service providers up to 26 weeks in advance. The company says it can forecast with 95 percent accuracy how many containers it will send on a particular ship.

In addition, the company, which does sales of $13 billion and handles about 65,000 containers each year, works to ensure that it always fulfills the minimum quantity commitment (MQC), or number of containers it will send, in annual carrier contracts, Fast said. If Canadian Tire at the end of the contract year has sent fewer containers than was committed, it will keep sending cargo through the carrier until the commitment is met, said Fast, adding that few companies are so committed to meeting the MQC.

“Having that certainty that we are going to honor that MQC, also gives (the carrier) a high degree of confidence in Canadian Tire,” and motivates the carrier to protect the retailer, Fast said. “Carriers are very much incentivized not only to give us a good rate but to watch our freight and take care of it.”

Three other shippers told JOC.com said they are working to provide the carrier with an accurate forecast of the number of FEU to be sent, in the hope it will prompt the carrier will reciprocate with a more reliable service and less cargo rolled. One of the shippers, a supplier of apparel that sends goods on the trans-Pacific and trans-Atlantic routes, said the tactic has shown results.

“By going back and comparing ‘Here’s what we said, here’s what we did,’ we feel we can market our forecast to our carrier reps and we reward those who can get us space with volume,” said the supply chain manager of the apparel manufacturer, who asked to remain anonymous. “It sounds naïve, but I believe it works — honesty is the best policy.

“We know our carrier reps lose credibility with their trade and origin teams if we don’t execute to our forecast,” the manager said. “We had one carrier who just couldn’t translate our forecast into action. We liked many things about that carrier, but structurally they gave lip service to the forecast and rolled several containers. That carrier is now seldom used.”

Another BCO, a household goods retailer, said that it was hoping that accurate forecasting combined with “providing visibility to our needs more than six weeks in advance” would help “reduce rolls and refused bookings.”

A senior logistics manager for an Illinois-based manufacturer and importer of automotive products said that he requires vendors to book space on a vessel more than two weeks in advance, and watches closely to ensure they comply, after realizing that vendors who didn’t book vessel space far in enough in advance were the ones whose cargo was left behind or delayed.

While most shippers told JOC.com that the booking process raises concerns, it’s not clear how big an issue it is, and until there is general agreement on that, significant change in the industry may be elusive. The household goods retailer said refused bookings and rolled cargo that created a delay of three days or more accounted for about 1 percent of bookings, and “factory canceled bookings probably exceed 10 percent of total.”

Drewry, in its research, quoted a shipper saying that the rolling of containers happened less than 5 percent of the time, and the consultancy quoted another saying that “about 10 percent of booking requests have problems with lack of space or lack of container equipment when you place the booking.” Even after the booking is confirmed, 3 percent of bookings are canceled, the BCO said, adding that the rate has increased from 2 percent last year.

Jason Lloyd, director of freight trade at Interra International, of North Carolina, a global distributor of food products, said he believes the problem of overbooking stems more from NVOCCs, who make multiple bookings to ensure they have enough space for their customers, or because they get a better-priced offer on another vessel. That in turn causes problems for BCOs, who may be shut out of a vessel that appears overbooked — even though in reality not all of that cargo will arrive, he said.

Mike Hashmi, manager of import-exports and customs compliance for The Apparel Group of Texas, said a carrier refusing to take cargo at the last minute, having agreed to take it earlier, “happens often,” although mostly during the July-to-October peak season. Hashmi cited an email he received on July 12 from a carrier saying that a shipment three days later could not happen, and offering space on a vessel a week later.

“They weren’t telling us what’s the reason, but I know what’s the reason,” said Hashmi, who refused the later booking and instead went with another carrier sailing closer to his preferred date. He said he believed that the carrier did not want to do the extra work needed to provide a container for “garments on hanger,” which requires the installation of bars in the container on which to hang the clothes.

That uncertainty over who causes the problem, and why, can make it difficult to find a solution.

Carriers have in the past tried — unsuccessfully — to levy booking cancellation fees on BCOs that do not deliver the amount of cargo they promised in advance. BCOs have generally resisted, and it is too early to say how the recently initiated effort by Hapag-Lloyd and CMA-CGM will play out. The German carrier is charging $60 per cancellation on all bookings that are canceled within three days prior to the vessel’s arrival on the Indian-Singapore route, and CMA-CGM is charging $150 per TEU on the North Europe-Middle East-Indian Subcontinent trade.

NYSHEX also is trying to change behaviors with a penalty system, albeit a more sophisticated one. The company in June moved from a test phase to the full launch of an online portal that can book cargo with carriers, but also monitors whether the booking is fulfilled by shipper and carrier.

Carriers that use the portal post specific details about a cargo movement they are willing to make — including the origin and destination, the number of containers to be moved, and the price of the move. Shippers can then commit to sending cargo under the deal, and are required to back up their commitment with a bond, cash deposit, or insurance policy. If the shipper fails to send the cargo, it forfeits between 30 to 40 percent of the agreed shipping cost, depending on the route. A similar penalty is levied on the carrier if it fails to complete the delivery.

“If carriers can use enforceable contracts to reduce their downfall rates, it will give them more confidence in being able to utilize their vessels,” said NYSHEX CEO Gordon Downes. “And consequently they can avoid overbooking their ships, which is the most common cause of rollings.”

That in turn, he said, “means shippers will know at the time of contracting how much capacity is available, which is far better than waiting to make a booking two or three weeks before the departure date only to be told that the ship is full and then being forced to scramble for an alternative carrier, or worse.”

Drewry suggests a different solution, believing that greater visibility in the booking process would enable carriers to better allocate cargo, and prevent excessive volumes beyond what a vessel can handle arriving at the dock.

The consultants suggested that could be achieved with a “network capacity management platform” that shares information between carriers and shippers and NVOs. That would enable shippers and NVOs to book cargo on a vessel with “real time” information that would enable them to see whether space is available for cargo of the specifications they are trying to send — rather than the current system of booking and then waiting a day or two for confirmation that the space is available, the consultant said.

“The carriers could publicize their capacity and rates — either publicly or privately — to shippers and forwarders, or other carriers,” Drewry said. That would facilitate access to the information and distribution of containers across the carriers and reduce overbooking and shipments being held up due to lack of available capacity.

The consultant likened the system to the way portals such as Amadeus and Sabre handle business to business travel bookings.

“It would indeed work as a carriers’ marketplace, where carriers can share their total or partial available capacity,” Philippe Salles, head of e-business advisory, transport, at Drewry said. “However, the system would not allocate the booking automatically. The shipper would be the one to decide on the carrier, to agree the price and booking’s ‘No-show’ policy.”

Key to better allocation of cargo, however, is giving shippers more accurate vessel scheduling data, and the ability to see the gamut of their shipping options, and assess which are the most beneficial.

Drewry’s cited CargoSmart’s Routemaster as a step in the right direction. The software provides optimization tools that allow a shipper to find the most efficient, and cheapest route for sending cargo. Included in the estimation are factors that enable the shipper to pick the most beneficial routes — such as carrier schedules and on time performance, weather reports and industrial action around a terminal that would affect the shipment. Also available is the carrier’s performance record on rolling cargo, as well as the cost for the trip, CargoSmart said.

That analysis enables a shipper to judiciously select a route that avoids carriers and terminals that are potential trouble-spots, said Kim Le, strategic alliance director for CargoSmart.

“That helps mitigate that, minimize that, because it gives them alternative options, and it also gives them a view of their existing routes, and compare it to other alternative options,” she said. They can see if cargo regularly gets rolled, or a shipment is frequently moved to a secondary carrier, and can use that information to shape the next route booking, she said.

The effectiveness of such a strategy, however, will still depend on resolving the problem of uncertainty: while the allocation of cargo may be more efficient, the system will still fall down if shippers don’t send what they say they will.

“Their logic is that if carriers can better manage their capacity, they can better serve their customers with fewer declined bookings and rollings,” Downes said, of the Drewry proposal. “But carriers are already pretty good at managing their capacity, and this logic only touches on a small part of the problem.

The biggest cause of bookings being declined or cargo being rolled, Downes said, is that “carriers don’t know what cargo is going to be booked on each vessel until around two or three weeks before the departure. And even then, the bookings can have high downfall rates.”

Contact Hugh R. Morley at Hugh.Morley@ihsmarkit.com and follow him on Twitter: @HughRMorley_JOC.

 

Jul 27

Market Share and Niche Strategies for Carriers in Trans-Pacific Market July 2017

Source: joc.com

Members of the Ocean Alliance have increased their share of Asia imports the most out of the three major vessel-sharing agreements, while the niche carriers still managed to grow their share as well, thanks to new entrant SM Lines scooping up much of Hanjin Shipping’s business.

In the three months following the April 1 launch of the new alliances, members of the Ocean Alliance increased their market share 5.5 percentage points to 43 percent compared with the same period a year ago, according to an analysis of data from PIERS, a sister product of JOC.com. In the same period, members of THE Alliance increased their total share 1.81 percentage points to 27.4 percent, and members of the the 2M along with partner Hyundai Merchant Marine (HMM) increased their total share 2.57 percentage points, to 22 percent.

Screen Shot 2017-07-27 at 5.33.19 AM

The five niche container lines moving Asian imports increased their total share 1 percentage point to 6.4 percent in the same April-to-June period. Individually, Zim Integrated Container Services lost 0.14 percent percentage points to 2 percent; Pacific International Lines (PIL) increased its share 0.56 percentage points to 1.5 percent; Wan Hai Lines’ share was nearly flat 1 percent; and Matson Navigation Co. increased its share 0.07 percentage points to 0.72 percent. SM Lines, which entered the trade this year, had a 1.09 percent share of total US imports from Asia.

The dominant presence of the Ocean Alliance in the eastbound Pacific does not surprise David Bennett, president Americas at Globe Express Services. “Look at their sailing schedules from China, their overall capacity, their service integrity their transit times,” he said. On the other hand, Bennett said the niche carriers contribute to a balanced environment in the Pacific by tailoring their services to their customer base, maintaining good service levels, and pricing competitively. “There’s always a place for niche carriers that have quality service,” he said.

Two significant mergers now under way — consolidation of the three Japanese lines into one and the Cosco Shipping Holdings’ acquisition of OOCL — will likely have a positive impact on their respective alliances when the mergers take full effect next year, said Lars Jensen, CEO and partner in SeaIntel. The consolidation of the Japanese lines means it will require only three lines to agree upon network modifications within THE Alliance, rather than five at present, and three carriers in the Ocean Alliance rather than four today, he said.

“This increases the agility in decision-making, not that it will become smooth sailing as the carriers will clearly have different opinions, but the fewer the parties who need to agree and compromise, the faster it goes and the fewer individual ‘quirks’ will be there to reduce the overall efficiency of the networks,” Jensen said.

The Korean carriers could be a wildcard in the Pacific in the coming year. HMM attempted to become a full member of the 2M Alliance with Maersk Line and Mediterranean Shipping Co., but the two large European carriers would agree only to a slot-sharing arrangement. SM Lines did not respond to questions, although the Korean carrier that emerged after the bankruptcy of Hanjin Shipping has not publicly expressed interest in joining an alliance. Jensen noted that compared with the large alliance lines, the Korean carriers “are both small indeed,” and as such their potential contribution to an alliance is likewise small. “They would therefore not have much negotiating leverage in any talks relating to adoption into an alliance as things stand now,” he said.

Although the niche carriers did not grow as quickly in the second quarter as the alliance carriers, some of the independent lines do have plans to increase the size of their vessels in the coming year. The niche carriers say they plan to grow by offering specialized services within their niches, rather than by competing head-on with the alliance carriers on vessel size or number of services. The niche carriers will build upon what they do best, which is to better utilize their equipment, achieve higher slot utilization, and seek out healthy export rates with a focus on profitability.

Screen Shot 2017-07-27 at 5.28.56 AM

 

“We’re not driven by market share. We’re driven by profitability,” said George Goldman, president of Zim USA. While the mega-carriers seek scale and scope globally, Zim develops scale and scope within its existing service areas, Goldman said.

By definition, niche carriers are unique, even compared to each other, because each line develops a business plan built around its asset base, the trade lanes in which it operates, and most importantly, the value it provides to its customers in particular niches. Presumably, the value proposition is such that each line’s customers are willing to pay a premium rate for a service that fits its needs better than what the larger carriers offer. However, when competing head-on with the large alliance members, the niche carriers sometimes have to price below the market rates in order to secure business.

Jensen said it is all about the service that is provided to beneficial cargo owners (BCOs), but that raises the question of what “service” means to individual customers. Larsen said service to some BCOs means faster transit time and greater reliability in a particular lane. Some BCOs seek faster delivery of containers once the vessel arrives in port. Others look for a seamless handoff of the container to inland carriers. Other BCOs want personalized service from their carrier representatives, and the ability to pick up the phone and call the representative when something goes wrong, he said.

When it comes to service levels, Matson bills itself as a leader at sea and on land. Matson, which is primarily a carrier in the US domestic (Jones Act) trades, has one service each week from China to its dedicated terminal Long Beach that it operates with SSA Marine. This arrangement enables Matson to address several of the service attributes that Jensen mentioned. Matson spokesperson Keoni Wagner said the China service provides an industry-best 10-day ocean transit from Shanghai to Long Beach (compared with 12 or 13 days for most carriers), a high reliability of next-day availability of all containers on chassis at a near-dock yard, and a seamless handoff to inland transportation providers managed by Matson Logistics.

Those services come at a cost to Matson. It contracts with Shippers Transport Express to truck most inbound containers immediately upon discharge to the near-dock yard. The yard is open from 6:30 a.m. to 2 a.m. local time the following morning. That enables BCOs to take delivery of their containers, on wheels, without having to wait in line at the marine terminal.

Yet Matson also profits from this arrangement. The trans-Pacific is notorious for being a headhaul trade with weak backhaul rates. Carriers charge $1,500 to $2,000 per 40-foot container on the eastbound leg from Asia, only to give any profits away on the commodity-driven westbound leg, with rates below $500 for many commodities and about $200 or less for the lowest-rated commodities.

Matson’s weekly China service has headhaul moves in both directions. Vessels steam westbound to Hawaii, a protected Jones Act trade, continue on to China and return with ships filled with imports from China. Given its rapid ocean transit and overnight delivery times in Long Beach, Matson markets its service as premium, and charges accordingly.

Singapore-based PIL also profits on its exports, but not to the major load centers in China and North Asia. Ernie Kuo, senior vice president of PIL USA Agency Services, noted that PIL, with its own vessels or through slot-sharing arrangements with other lines, offers service in 80 loops globally. Its network includes a number of destinations, such as in the South Pacific, Southeast Asia, and Africa that are not served directly by the mega-carriers. Some of the loops link nicely with its US ocean and intermodal offerings.

PIL builds off of the eight eastbound trans-Pacific services, as well as its intermodal inland connections, to offer opportunities for US shippers that export to locations throughout its network. These arrangements may produce only a half-dozen or so export shipments per BCO, but they build goodwill and business relationships with BCOs that grow with time. Also, since many of those trade lanes offer little if any direct carrier competition, they tend to be “higher-revenue destinations” for PIL, Kuo said.

Screen Shot 2017-07-27 at 5.31.17 AM

Zim competes directly with alliance carriers in the major US trade lanes, but it picks its gateways strategically based on equipment repositioning opportunities, relationships with railroads, and opportunities for offering value-added services. For example, Zim does not take on the mega-carriers in Los Angeles-Long Beach, even though Southern California is “ground zero” on the West Coast, Goldman said. Rather, Zim calls in Vancouver where it has a working relationship with Canadian National Railway. Zim has always had a strong presence in the Canadian market, and CN’s intermodal service to Chicago, Memphis, and New Orleans give Zim deep penetration in the US interior, he said.

Zim does not have its own terminal in Los Angeles-Long Beach, which can be a disadvantage, Goldman said. Also, Zim right now does not see an opportunity to differentiate itself in a gateway served by the largest carriers with the biggest ships in the US trades.

Zim’s trans-Pacific services to the East Coast transit the Panama and Suez canals. Its Savannah calls not only serve the fastest-growing region of the United State, the Southeast, but the Suez routing also gives Zim opportunities to serve the mid-South via intermodal rail provided by CSX Transportation, Goldman said. Also, Zim’s North American services link up efficiently with export opportunities to other parts of the world where it is strong, such as the Mediterranean and Caribbean.

Similarly, as Zim looks for growth opportunities, the Gulf becomes a consideration, he said, because Zim is well established in the Caribbean. A Gulf service would mesh well with its existing Caribbean services, and would produce more turns for Zim’s containers.

“It’s all about profitability and sustainability,” Goldman said. The reality is that not every carrier can do or wants to do what Zim does. Zim strategically chooses routes that provide opportunities for higher-revenue cargo and value-added services based on profit rather than high volume for the sake of volume, he said.

Niche carriers say it is not impossible, but it is difficult, to achieve their goals through participation in an alliance. That reality has kept Wan Hai out of alliances so far. “We are currently not interested in joining an alliance as our current service structures allow us to focus on our current customers appropriately,” said Randy Chen, vice president.

For niche carriers, “nimble” and “flexible” are important advantages, and membership in an alliance can limit flexibility. At PIL, “the chain of command to the top is quick,” Kuo said. To an entrepreneurial carrier, that means being able to react promptly to even a small opportunity because small beginnings often lead to bigger dividends as the business relationship grows. Citing one example, if a BCO inquires about a booking that PIL cannot service, PIL will recommend another carrier that can offer the service the BCO is looking for. At a later date, the same BCO may return with business that fits into PIL’s service offerings, he said.

Being a niche carrier does not mean being a small line with small ships. PIL, for example, is a top-12 carrier in terms of global container volume, and it is involved in a new-build program that will deliver 12 ships with capacities of 11,800 TEU. The new vessels will be deployed on the high-volume trade lanes where PIL has slot-sharing arrangements with Cosco Shipping Holdings and Wan Hai. The key to making big ships profitable is to properly manage allocations, Kuo said.

Another reality about niche services is that they have a limited capacity for growth. Matson learned that lesson seven years ago when, pleased with the success of its weekly China service, it started a second one. That service operated from September 2010 to August 2011 before Matson discontinued it.

Contact Bill Mongelluzzo at bill.mongelluzzo@ihsmarkit.com and follow him on Twitter: @billmongelluzzo.