NVOCCs: Rising from the depths

Less than a year ago, the outlook wasn’t so bright for non-vessel-operating common carriers, those ocean intermediaries who pool cargo, ostensibly for smaller shippers looking for any freight rate break available — breaks that typically go only to their larger brethren. “Why NVOs Are Controlling Less of This,” the JOC’s Sept. 30, 2013, magazine cover read, with an arrow pointing squarely at a shipping container.

At the time, forwarders and NVOs, from giants such as Expeditors International of Washington to small mom-and-pop operations, were bleeding cargo in the eastbound trans-Pacific. Like so many of their vessel-operating counterparts, they were victims of the post-2010 rate slide brought about by the combination of middling growth in freight demand out of Asia and an armada of new mega-ships cascading into the trans-Pacific.

Rates fell to such low levels that even small shippers, the bread-and-butter of the NVO industry, could afford to negotiate directly with carriers for full containers, removing the near-constant fluctuations on the spot market, where some beneficial cargo owners can pay up to $500 more per container than contract rates.

Inundated with capacity, carriers opted to go aggressively after all the cargo they could get, leaving less of the pie for NVOs. The result: NVOs’ share of eastbound trans-Pacific trade slid from 39 percent in 2011 to 35 percent in 2012, according to research by PIERS, the data division of JOC Group.

But if an epitaph was being written for NVOs as a group, it was premature. As Peter Leach analyzes in Non-vessel-operating common carriers staging a comeback, NVOs stopped the bleeding in 2013, when they increased their Asia-U.S. volumes by 5.2 percent and their share of the market to 36 percent.

It’s yet another sign of the stakes involved in a containerized shipping industry seeking sustainable growth that goes beyond mere stability. But unlike vessel owners that as a group have lost billions of dollars in four of the last five years, privately owned NVOs don’t have the backing of national governments to keep them afloat. NVOs live and die by the cargo they generate, and that cargo increasingly must come from smaller BCOs shipping 1,000 20-foot-equivalent container units a year or less.

“Wal-Mart will never have an NVO managing its freight,” David Ross, managing director of global transportation at investment analyst Stifel, told the JOC. The nation’s largest retailer, Wal-Mart was the top-ranked containerized importer on the JOC’s Top 100 Importers list, shipping 731,500 TEUs last year, volume that certainly allows it to name its rate with carriers and avoid the frequent general rate increases that have dominated the market to shippers’ great frustration over the past four years.

But assuming the economy gathers momentum, and rates hold or even increase slightly, NVOs will extend the gains they saw in 2013. There are, after all, more smaller importers than large ones. All told, the Top 100 Importers accounted for a little more than 6 million TEUs in 2013, a third of the 18.1 million TEUs in total U.S. containerized imports.

Still, there is only so much cargo to go around, and with more and more of it consolidated into a shrinking number of profitable carriers in an increasing number of mega-alliances, the future of the NVO business is looking very much like that of the asset owners: The strong will dominate, and the little guy will be relegated to the scraps in niche markets — at best.

Contact Chris Brooks at cbrooks@joc.com and follow him on Twitter: @cbrooks_joc.

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