In the heat of the action, few attendees at last month’s Trans-Pacific Maritime Conference may have realized they were witnessing a defining moment in shipper-carrier relationships. But that’s often true in any partnership: It takes a singular, explosive exchange to put both sides on the path to progress, in this case on the path to resolving space shortages that have frustrated exporters and sparked tit-for-tat finger-pointing on both sides.
But progress can be arduous, and while there may be no resolution in this dispute for some time, there appears to be a growing belief on both sides that the only way to resolve shipper-carrier differences, and help ease the shortage of vessel space and container equipment, is through better communication.
It was communication — and not the positive kind — that led both sides down this path toward progress when the festering dispute broke into the open at The Journal of Commerce’s TPM Conference last month. Traditionally tightly held feelings on both sides boiled over, with exporters complaining about carriers canceling vessel bookings secured weeks earlier and carriers complaining about exporters overbooking space and regularly failing to deliver promised cargo.
Was this any way to greet President Obama’s proposed export initiative that aims to double exports in five years? How could exporters and the transportation industry possibly meet those demands when they struggled with a spike in volume that would pale by comparison to what the initiative aims to achieve?
Battle lines were quickly drawn: A congressional hearing into exporters’ grievances asked the Federal Maritime Commission to investigate the shortage of space — an investigation, while not formal, that had all the undertones of a look into whether antitrust laws had been breached.
But almost as quickly, an air of conciliation moved in. The Westbound Transpacific Stabilization Agreement, the discussion group of 10 carriers in the U.S.-to-Asia export trade, will meet with its members’ customers on April 19 to discuss the issue.
That meeting comes in the wake of the WTSA, which can discuss rates and other market dynamics but has no enforcement powers over its members, recommending an April 1 general rate increase — and just as carriers and shippers should be finalizing critical contract negotiations that undoubtedly will address service as much as rates.
And then wading in was Maersk Line, the world’s largest container carrier, which has dictated the industry’s direction in a big way over the last decade. In a rare instance of blame-sharing — and what looks like an olive branch to shippers — the Danish carrier said it is launching a pilot program under which it will impose a $10 fee on every booked container that fails to show up, while penalizing itself $10 for every container it “rolls,” or bumps from a booked slot.
The test, which will start on May 1, applies to exports of forest products, lumber, paper and pulp, wastepaper and scrap metal booked on the outbound leg of its TP-8 service out of Oakland and Los Angeles.
Those exports, along with agriculture, account for the lion’s share of U.S. containerized exports out of the West Coast. And more than a third of the companies on The Journal of Commerce’s ranking of Top 100 containerized exporters for 2008 were wastepaper, scrap metal, paper or forest products companies that shipped more than 1.5 million TEUs. Heavier, and certainly of lower value than smaller retail and electronics goods, the industrial products comprising the bulk of U.S. exports are a prime reason the inbound leg of U.S. trade is the head-haul for container shipping companies — higher-value imports equate to higher volumes, rates and revenue.
Exporters and other carriers praise the concept, although some exporters, perhaps predictably, say the $10 fee for rolled containers isn’t nearly enough, and other carriers say the $10 penalty for no-shows is peanuts.
Maersk’s goal is to see if the fees make any difference on the rate of no-show containers and to find out why they don’t show up. It plans to charge a flat fee of $10 per container, no matter what the size, in order to make the test easy to administer internally.
“This in no way is meant to be punitive or an attempt to raise revenue . . . but to test a theory on what drives customer behavior in the area of no-show cargo,” said Tom Sproat, senior vice president of Maersk Line’s North American customer service, who is running the test. “In fact, we would be more than happy to pay out some if it eliminated all of the rework and lost revenue opportunities from cargo not being available as scheduled.”
Maersk estimates as much as 25 percent of the containers booked on its vessels become no-shows. “We want our customers to book only what they need and reduce the dependence on speculative bookings, which impact our ability to offer space to customers that need it,” Sproat said.
Maersk, no stranger to controversial, industry-changing initiatives — it is a renowned pricing leader, launched a revolutionary chassis pool last year, and its dramatic 2007 reduction of inland intermodal points frustrated shippers and forced some other carriers to follow its lead — measures the efficiency of its booking system in two ways: It maintains a ratio of the number of containers booked to the number of booked containers actually loaded, and it tracks the number of containers it rolls because its ships don’t have enough space.
“If the two measurements show a marked improvement, and we can demonstrate it is a result of the no-show and roll fee, then it will likely expand to other U.S.-based trades,” Sproat said.
Overbooking is a difficult issue to resolve, and one that points to the ongoing tug-of-war between shippers and carriers of all modes over the size, weight and nature of shipments and the equipment operators’ attempts to manage capacity. Domestic truckers take in shipments with weight declared, and then reweigh the pallets fitted with scales. Shippers, meanwhile, book positions on aircraft and ocean vessels days or weeks in advance knowing that if they wait too long for clear plans their goods may end up waiting for days.
It’s a highly indelicate balancing act that seems to have tipped over into something close to chaos for the container shipping industry.
Some customers have told Maersk one reason their boxes may end up as no-shows is because they lack visibility into which containers are actually booked.
For example, INTTRA, the electronic booking portal launched by carriers a decade ago, does not track no-shows or containers rolled by carriers. “It’s not readily available, though we probably can get some data from the system,” said Andy Barrons, INTTRA’s vice president of marketing.
The company is looking at ways to track which booked containers are “confirmed” as arriving at the load port and not being loaded onto a ship. “If I can see the volume of bookings coming in and then not being confirmed by the carrier, then we can see if there is a rise in bookings not being confirmed or turned down,” Barrons said. “This may or may not be an indicator of pressure in capacity.”
Also complicating the process are exporters’ complex supply chains that create “multiple points of failure,” and carriers’ failure to supply the containers needed for their exports, shippers say.
“There are many variables here, including equipment shortages and vessel integrity deviations that will make the administration of this pilot very difficult,” said Donna Lemm, director of global client services for Mallory Alexander International Logistics, a Memphis-based forwarder and non-vessel-operating common carrier that specializes in agricultural shipments.
Exporters hope the test helps Maersk understand why some of their booked containers don’t show up — that is, because of the difficulty they have getting containers for their exports. “We can’t get our hands on equipment, so why do you penalize exporters for that?” Lemm said. “Every week we’ve got all these notes in the booking: no equipment, no equipment. You can’t penalize for that.”
Lemm said she was encouraged by Maersk’s effort to look at both sides of the equation, charging for no-shows as well as paying a fee for rolled containers.
“Having said this, it is going to be very tough to impose new rules on exporters already struggling with major GRIs, canceled and rolled bookings, increased transit times and tight equipment,” Lemm said.
She questioned whether the $10 fee would modify shipper behavior, but said the test does set a precedent for no-shows and should be taken seriously for just that reason. “It is amazing how fast $10 becomes $100 if this pilot proves to be effective,” she said.
Peter Friedmann, a Washington, D.C., attorney and executive director of the Agriculture Transportation Coalition, also praised the test, but said Maersk would find “the only reason shippers are making ghost bookings is that they have the experience with that particular carrier that they are unreliable when it comes to providing the equipment and the space on the ship after taking the bookings.”
He said making bookings is an arduous task — “not like you or I going onto Orbitz to book a flight” — and that shippers don’t overbook unless they have to because the process is “very difficult and time-consuming.”
Maersk’s fees in the test, however, are too low, Friedmann said. “The penalty a shipper pays for overbooking should be much higher, and the fee Maersk Line pays for rolling cargo should be much, much more because the carrier will get cargo from somebody else, so they are not really damaged,” he said.
“But when the carrier cancels and leaves a shipper without an option because the ships are full, the shipper will often lose the entire value of the cargo in that container and often lose a customer forever.”
Still, many see it as a $10 down payment on a larger effort. “Let’s try it and see what happens,” said Hayden Swofford, independent administrator of the Pacific Northwest Asia Shippers Association and a vocal critic of the carriers’ record of canceling bookings in the last few months.
Swofford said he recently “blew up” at a carrier because a member of his association could not get any space on a vessel, so the member went to an non-vessel-operating common carrier with plenty of slots on the same vessel. “The NVO had booked space with no cargo behind it,” Swofford said, seemingly making the carriers’ point.
The shippers association, which represents numerous forest products exporters, saw 15 to 20 percent growth in export demand this year even before the Feb. 27 earthquake in Chile resulted in a drop in exports from that country and additional growth opportunities for Swofford’s members.
“We can’t get space,” he said. “Anything that gets rid of the fall down is a good thing.”
Although the $10 penalty may not change behavior in all cases, it may work for high-volume shippers such as NVOCCS when multiplied 50 or 100 times.
Swofford said Maersk is doing the right thing by compensating exporters when it is at fault and overbooks. “It has to work both ways,” he said.
But few other carriers appear ready to steer into Maersk’s wake. Ed Zaninelli, vice president of trans-Pacific westbound trade at Orient Overseas Container Line, said no-shows are a “serious problem that needs to be addressed by the shipping public and the carriers,” but it remains to be seen if charging fees for no-shows or carrier overbookings will change behavior.
If the Maersk test is successful in reducing no-shows, however, other carriers will have to consider such an approach, either individually or through the WTSA.
North America is an especially difficult region because so many shipments originate inland, and weather and intermodal exceptions affect deliveries. OOCL, for example, recently had a ship fully booked, but a train bringing a number of containers to the terminal was delayed. Therefore, the vessel left for Asia light, and the next week’s voyage was overbooked because of the containers dropped off by the tardy train the previous week.
For carriers, it’s a “roulette game” deciding how much to overbook a vessel to bring a ship its full volume. A hard understanding that booking 107 percent of vessel capacity would bring 100 percent space utilization with no rolling would help planning, carriers say, but circumstances vary greatly from week to week.
“North America is not easy,” Zaninelli said.