In comments heard from Mediterranean Shipping Co. during and after The Journal of Commerce’s Trans-Pacific Maritime Conference this month, something has seemed out of place, not entirely adding up. It is not simply that carriers are rarely confront customers publicly. Even if the comments had been made in private, they would still have seemed a bit odd, at least as directed toward U.S. shippers.
In other words, when Geneva-based MSC executive Caroline Becquart told shippers speaking at TPM that she was “offended by what has been said about carriers,” there was more going on than just simply a release of tension at a low point in shipper-carrier relations.
In my view, the comments were actually misinterpreted as being directed at U.S. shippers. Instead, I think her comments — and subsequent ones from her boss Gianluigi Aponte a few days later — were those of a Europe-based carrier directed at Europe-based shippers. That’s an important distinction that gets to the heart of the very real differences that exist in business practices in different parts of the world despite the global nature of shipping and supply chains.
Unlike in the U.S., where shippers and carriers have an occasionally tense but generally businesslike relationship, in Europe the relationship is more frequently cold, bitter and sometimes confrontational.
Look at recent history: In the U.S., shippers struck a deal with carriers outside the legislative arena to create the Ocean Shipping Reform Act in the late 1990s; OSRA advanced deregulation in the industry while retaining antitrust immunity. Although exporters have criticized the law, it has worked well for importers, and there have been no serious efforts to repeal or change it.
By contrast, European shippers pushed for, and obtained over carrier objections, the eradication of antitrust immunity in European trades in 2008. Carriers have blamed the change for exacerbating last year’s collapse in rates.
The divide has been starkly evident in the debate over the Rotterdam Rules involving international cargo liability standards. U.S. shippers strongly support the new international convention, while the European Shippers’ Council has stridently opposed the rules, which, it argues, leave shippers open to potential carrier abuse in contracting.
When Aponte told the Financial Times this month, “Shippers are concerned solely by the price,” he had a point — about European shippers. Price is certainly important to U.S. shippers, but the issue is more complicated. Equally important is service, particularly the ability to obtain containers and capacity when and where they need them to keep their goods flowing.
It makes sense that U.S. shippers have reacted negatively to the recent introduction of the container freight derivative contract — it was developed in Europe — with one large U.S. shipper uttering, “I wouldn’t touch that with a 10-foot pole.” Translation: service is such an important consideration that shippers don’t want to see container shipping commoditized.
Furthermore, while U.S. shippers negotiate hard on price, their biggest concern often isn’t the absolute rate, which for imports can be a fraction of the value of the goods, but the rate relative to that of their competitors. Shippers in the U.S. have even complained in the past year about receiving unsolicited rate discounts from carriers that some shippers said they turned down.
European shippers tend to be smaller — big-box retailing is not as widespread in Europe. They are more apt to take the initiative in driving down rates than shippers in the U.S. As trade volumes froze last winter, reports circulated about European rates sinking to zero, something not heard in the United States. So when Aponte said shippers “worry always who will ship for $50 less,” that description does not fit the typical U.S. shipper.
And when Becquart told TPM speakers Pat Moffett of Audiovox and Bjorn Vang Jensen of Electrolux, “I don’t think you know anything about shipping,” she was making a point, in a roundabout way. Moffett and Jensen know plenty about shipping — between them they have decades of experience. That they represented their industries at TPM shows the respect they have within their respective organizations.
But U.S. shippers stick closely to the idea that they are in the business of retailing, consumer products or manufacturing, not shipping. That is why shippers who think strategically, including many in the U.S. and those such as Electrolux that operate globally, say they want stability and predictability, not wild volatility, in freight rates.
It’s when shippers seemingly dive into the intricacies of the shipping business, putting their company’s supply chain at risk by trying to play the freight rate market to their advantage, that they get into trouble and find out what happens when capacity suddenly dries up.
MSC has not grown to be one of the largest U.S. carriers by thumbing its nose at shippers in this country, and I don’t believe they were doing it now. I think this was a cultural difference that shows how different the shipping environment is in the U.S. and Europe.
Peter Tirschwell is senior vice president for strategy at UBM Global Trade. He can be contacted at email@example.com.