What Price Service?

I’ve read several good articles recently about the level of service ocean carriers provide. A lot of what I read is accurate, to a point. I took particular note of a quote from a shipper in the JOC’s April 14 Cover Story: “For a carrier that provides better service, I would be willing to pay $20 to $25 per container.”

Not defined here is what constitutes better service, but I think it gets down to what each of us thinks it is. For example, Matson has a service from Shanghai to Long Beach with a 10-day transit time, about two days faster than the typical service that includes additional time saved at the terminal because of the relatively light loads on the 3,000-TEU vessels. Shippers pay more for that, significantly more than $20 to $25 per container.

Does that mean faster transit times will always get more money? We see some differential in the U.S.-Australia trades, with direct and faster services getting a premium over indirect/transshipped and slower services, but overall, I can say no, not always. Sea-Land’s SL-7s in the late 1970s set every speed record to and from Europe and Asia, but didn’t get a premium. Sea-Land marketed the service as the differentiator between itself and the rest of the industry — while oil was $3 a barrel. Then oil prices spiked and the ships went from 33 knots to 22 like everyone else’s vessels, and Sea-Land sold them to the U.S. Navy for rapid deployment forces.  

Others also tried. Maersk Line in the mid-2000s built 30-plus-knot vessels for the Asia-U.S. East Coast garment trade to compete with APL’s “garment train” services that were getting a premium. But fuel costs spiked again, and Maersk slowed down the vessels and put them into other lanes.

Finally, there was FastShip, a drawing-board project with apparent backing to build super-fast ships that several large shippers claimed they would pay a premium for. But those ships never got beyond the blueprint and lab testing stage. A rumored tens of millions of dollars invested yielded nothing, and the company folded under Chapter 11 in 2012.

Beyond that, what are shippers really willing to pay for? Better documentation? Better customer service and problem resolution? Again, I think it comes down to the individual customer and what it values. Is that value enough to pay a premium? Is it the differentiator between several carriers for the valued service?

During my career, I’ve seen multiple market surveys of beneficial cargo owners on the question of what they value most. The results never vary. The assumption going in is that price is a relative given, meaning there is likely some variance but not significant. The surveys consistently found that these were the attributes influencing the decision-making on carrier selection:

  • Reliability: Do what you say you’re going to do. If it’s a 17-day transit time, do it in 17 days. Yes, there may be a 15-day option that isn’t reliable, so we’ll take the reliable 17 days. We can plan around that and not have to scramble to recover or change other plans to accommodate the unreliable.
  • Space and equipment: Give me the amount and type of equipment I need and space on the vessel selected. This is a double-edged sword with issues such as the supplier being late and your forecasts being off, but we need to have the space and equipment to move goods on time, especially around our critical market selling time.
  • Total transit time origin to destination: No goods are manufactured at or consumed at terminals. They’re made and consumed somewhere away from the port, sometimes thousands of miles away. So things such as terminal velocity, access to reliable inland transportation and customs clearance are part of the real transit time equation.
  • Accurate and timely documentation and billing: Get me clean, accurate documentation back in 24 hours. Inaccurate documents slow the processes, cause double work and delay your payment. Get it right the first time, and make sure my bills/invoices reflect what’s in my contract.
  • Good customer service: Take my bookings and confirm them within two hours. Have knowledgeable personnel who can answer questions quickly and accurately. When there are problems, have problem solvers and not excuse makers or message takers.

The amount of time and effort carriers spend on these issues varies. In the midst of losing money four out of five years, many cut headcount in the customer service area, giving less thought to losing more business because of poor overall service. But if these are the decision-making differentiators, then being penny wise is pound foolish.

In this era of alliances, there are differentiators between carriers, even among those in the same alliance. Shippers must look seriously at their company values, do some serious benchmarking on those issues and make decisions based on those objective criteria.

Carriers must do the same. What do your customers value? How well do they grade you in those areas? And what do you need to do to build that confidence in them that says, “I chose you because you deliver what I need better than your competitors”?

That’s really what people will pay more for.

Gary Ferrulli, a 40-year shipping industry veteran, is director ocean product for non-vessel-operating common carrier Ocean World Lines, a subsidiary of Pacer International. Contact him at mrgtf4811@mindspring.com. The views expressed here are his own and do not necessarily reflect those of OWL.

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