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Carrier digitalization slowing NVO’s Asia import share gain

Carrier digitalization slowing NVO’s Asia import share gain

Non-vessel operating common carriers (NVOCCs) grew their share of US imports from Asia by only 0.4 percent in the first three quarters of 2017, down from 1.8 percent growth in 2016, as container lines lure smaller shippers away from NVOs with digital products.

However, the winners in the market share battle between carriers and NVOCCs, also known as forwarders, will not be the transportation providers with the best digital products, but rather those with the best service. “Digitization, no matter how well executed, has to go hand-in-hand with the ability to provide customer service whenever things do not proceed according to plan, which indeed is quite often the case in shipping,” said Lars Jensen, CEO of SeaIntelligence.

NVOCCs in the first nine months of 2017 increased their share of all US imports by 0.7 percent compared to the same period of 2016, to 38 percent, and Asian imports by 0.4 percent, to 43.1 percent, according to PIERS, a sister product of JOC.com within IHS Markit. If the growth in Asian import share holds for the calendar year, it will be the slowest growth for NVOs since 2012, when NVOs lost 3.5 points of share. In the decade from 2006 to 2016, NVO share of Asian imports recorded a 3.4 percent compound annual growth rate.

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Carriers such as Maersk Line, CMA CGM, and Hapag-Lloyd have signaled their intention to leverage digital platforms and go directly to beneficial cargo owners (BCOs) to boost market share, said Zvi Schreiber, CEO of Freightos. “With low rates and chronic oversupply, carriers are certainly feeling the pressure to increase direct market share and keep some of the [NVOCC] markup for themselves,” Schreiber said.

Service contracting and booking cargo have always been a cumbersome manual process involving the extensive exchange of paperwork between carriers and their customers. For that reason, most carriers focused on their largest customers for most of their business, conceding to NVOCC cargo supplied by smaller shippers. NVOCCs therefore increased their share of US imports from Asia to 43 percent in 2016, up from 29 percent in 2006, according to PIERS.

Carrier mergers and acquisitions the past two years, and restructuring of carrier alliances from four to three larger alliances effective April 1, 2017, indicates that for many lines, the focus continues to be on the biggest customers. “I expect that we will continue to see at least a modest continued growth in [NVOCC] share as carriers consolidate, grow larger, perhaps become less agile and focus mostly on just their largest customers,” said the president of the Americas at a large carrier. He added that he would not be surprised if the US trade grows to resemble the Asia-Europe trade, where forwarders play a dominant role.

Recently, however, a number of digitized products offered by carriers and third parties have simplified the booking process and enabled carriers to reach mid-size and smaller shippers they may have failed to go after in the past. Last year Maersk, for example, reportedly restricted rate provisions for named BCO accounts in forwarder contracts, making it more attractive in some instances for the BCOs to deal directly with the carrier. Maersk did not comment on that report.

Smaller shippers have always turned to forwarders in Europe and NVOCCs in the United States because they did not control enough volume to secure competitive prices. That is still true to a degree, but Schreiber noted that there are sufficient tools in the marketplace that savvy BCOs can use to protect their financial interests while focusing more on service. “Increased price transparency in the industry means BCOs can focus on service and reliability, both hallmarks of forwarder value propositions,” he said.

The emphasis on service and reliability is the key driver in the booking decisions made by an importer of houseware products. Although the importer books most of its cargo with core carriers that have proven to be consistently reliant, the vice president of global transportation said he reserves some cargo for NVOCCs that use other carriers. “We get to test various carriers’ level of service without having to make a long-term commitment to them,” he said.

In many cases, BCOs rely on NVOCCs to handle the total transportation move, including purchase order management and cargo consolidation in Asia, ocean transportation, and deconsolidation and inland transportation in the United States. For those small and mid-size shippers, it makes sense for the BCOs to rely on sophisticated NVOCCs with comprehensive information technology systems.

This is even more the case today with BCOs selling their products not only at stores but through e-commerce and omni-channel outlets as well, said Tony Barnes, COO and senior vice president of ocean services at SEKO Logistics. NVOCCs that provide a full menu of value-added services will be especially effective in large volume commodities such as fashion, sportswear, toys, and furniture. In fact, the PIERS numbers show that NVOCCs gained 0.2 percent share in furniture and 0.1 percent in plastic articles, but they lost share in electric machinery, TV and sound equipment, and vehicles and vehicle parts. NVOCCs do not have to compete with carriers on price, but rather with their ability to deal with the complexity of multi-channel distribution, Barnes said.

It is not only BCOs who rely on NVOCCs and forwarders. Pacific International Line (PIL) works closely with NVOCCs to provide seamless transportation on both sides of the ocean move, said Ernie Kuo, senior vice president of PIL USA Agency Services. “We see the NVOCC as a complement to our service, not as a competitor,” Kuo said. PIL does what it does best, which is to offer reliable ocean transportation, and its NVOCC partners handle the inland portions of the move in Asia and the United States. “We each have our ‘A’ teams on the field,” he said.

Sophisticated BCOs, be they large or small, do not use NVOCCs purely as a price play, even in the current market where overcapacity causes carriers to be flexible on pricing. It is generally true that NVOCCs can get their customers prices that are lower than service contract rates during slack periods, such as post-Lunar New Year when factories are closed in Asia. However, the gains made during slack periods are given back, plus some, during peak season and right before Chinese New Year, the home furnishings importer said.

An importer of hardware products added that when vessel space is tight during the busy periods, low-rated NVOCC cargo is the first to be bumped from vessels. Furthermore, carriers the past few years have filed for general rate increases (GRIs) almost on a monthly basis. Even though the GRIs deteriorated rapidly, rates do spike somewhat in the first week, and the smaller BCOs who booked their shipments with NVOCCs are the ones paying the GRI, he said.

Freightos is looking for increased volatility this year. “The carrier-forwarder battle will likely escalate in 2018,” Schreiber said. He expects carriers that have developed digital platforms will aggressively seek to capture “the long tail of of small and midsize shippers.”

Jensen sees the battlefield involving cargo owners with relatively simple transportation needs who in the past did not receive the customer service they demanded. “Digitization provides an opportunity for the carriers to regain some of these customers, but the same tools can be used by forwarders,” he said. These BCOs will book their cargo with those carriers and NVOCCs that give them the particular services that meet their needs, Jensen said.





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