Glance around the business world and you’ll see any number of industries making enormous strides in improving products and enriching customer experiences. Consumer goods, financial services, entertainment and technology have made innovation central to their business models. Even many asset-intensive transportation sectors have transformed their customer experience over the Internet. FedEx and UPS have made tracking systems for the supply chain world with detailed, rapidly updated information.
Yet container shipping, one of the great transportation innovations of the past century, seems to have drifted backward. There’s been innovation in the underlying technology regarding the vessels, of course, with the scale and operating efficiency breaking new barriers. But the business itself is another, far older, story.
Most easily seen in the buyer-seller relationship, distrust between carriers and shippers is widespread, and pricing is increasingly taking on the characteristics of pure markets rather than on service and value.
Any semblance of discipline and responsibility can’t take hold in this environment. Maersk is hardly unique in noting a third(!) of booked containers never turn up. But the industry has been unable to muster even the most rudimentary will to impose a fee on no-show containers.
Working under signed service contracts, shippers regularly fail to tender the minimum quantity they agreed to, yet almost never face financial consequences. Maersk says only 41 percent of its customers have delivered on their minimum quantity commitments so far this year. What passenger who misses or doesn’t show up for a flight doesn’t fully expect to be out money as a result?
In fact, the industry has traveled so far down the road of commoditization that it now faces the potential of being trapped by the advent of spot market indexes and derivatives trading. Derivatives haven’t taken hold, but if their use by shippers becomes widespread, it may become impossible for the industry to ever evolve into that of a proper service provider.
“The core issue is that the focus is too narrow and transactional on freight rates, and that has been a frustration for us for some time,” Eivind Kolding, CEO of Maersk Line, said in an interview with Journal of Commerce Senior Editor Peter Leach (To listen to the interview, go to www.joc.com/container-shipping/maersk-ceo-explains-details-manifesto).
If there’s one company capable of assuming a leadership role, it’s Maersk, the world’s largest carrier. Kolding and his boss, A.P. Moller Group CEO Niels Andersen, have taken bold steps away from longstanding industry practices, whether by imposing fees for chassis use in the U.S., introducing a no-show fee on containers or agreeing to pay when it doesn’t load a booked container.
The company is set to introduce a one-click e-commerce platform called Youship that already has competitors fretting about how to respond. Although Maersk controls only 15 percent of global capacity, according to Alphaliner, many carriers see the company as a market leader. That was clear in comments last week from Wan Hai Lines Vice President David Kao, who expressed concern to the Taipei Times about Maersk’s decision to delay a bunker surcharge. “We hope Maersk can successfully increase the surcharge, as that will make it easier for other companies, including us, to hike the surcharge, offsetting the pressure of high oil prices this year.”
In other words, carriers are watching what Maersk is doing.
That’s why Maersk’s “manifesto,” unveiled on June 7, needs to be taken seriously. It’s the most assertive declaration of commitment to elevating the industry in years, if ever. The message is about re-imagining how the industry should raise customer experience and the delivery of value to shippers and shareholders to world-class standards.
One area in Kolding’s sights, for example, is carriers’ on-time arrival. Drewry’s on-time arrival index for the first quarter of 2011 shows only 51 percent of ships arrive as scheduled, down from 55 percent a year earlier. Airlines in the U.S. have averaged 72 to 82 percent on-time arrival since 1995, according to Transportation Department statistics, and airlines arguably have a lot more factors outside their control than does shipping.
Maersk has a competitive edge in this category of service because its ships are on time 80 percent of the time, second in the ranking behind CSAV, but Kolding is making an industry case: The better the schedule reliability, the more value shippers receive in being able to reduce buffer stock and overall inventory costs.
Kolding points to certain key elements that will underpin an industry overhaul: long-term contracts, perhaps with pricing variability based on certain indexes; one-click shipping, making buying container capacity as easy as it is to buy an e-book on Amazon.com; and visibility on carbon footprint — shippers should know the impact of shipping and the differences from one carrier to another.
Container shipping helped create globalization and transformed economies worldwide. Yet as much as it’s helped advance the world, it’s hardly advanced itself. It’s about time that changed.