Two of every five trans-Pacific import containers are booked through non-vessel-operating common carriers instead of directly with container lines, and the NVOs’ market share is growing.
NVOs’ share of trans-Pacific imports from China and other North Asia countries shot from 30.3 percent in 2006 to 39.9 percent in 2010, according to Journal of Commerce sister company PIERS. The intermediaries’ market share for all U.S. import trades rose from 24.8 percent to 32.7 percent, measured in 20-foot equivalents.
For the larger shipping industry, the growth of the NVOs goes along with the expansion of third-party business in general, from the intermediaries that book ocean freight capacity to the brokers increasingly relied on to find truck capacity in U.S. domestic markets.
NVOs’ volume outpaced growth in total imports in virtually every trade lane between 2006 and 2010, the PIERS analysis shows.
The growth has been evident in the rapid expansion of the country’s largest ocean forwarder, Expeditors International of Washington. Expeditors built its gross revenue 27 percent from 2006 to 2010 while expanding its net revenue — overall revenue minus direct transportation costs — 44 percent over the same period.
Overall, the biggest gains for NVOs came in U.S. imports from the northern Mediterranean and Middle East, where their five-year market share rose 28.3 percent faster than the overall trade measured in TEUs.
From North Asia, NVOs’ share grew 7.1 percent faster than the overall trade.
NVOs thrived during shipping’s roller-coaster ride through the 2008-09 recession and 2010 recovery.
Many shippers were reluctant to contract for large volumes in an uncertain economy and relied more heavily on NVOs that bought capacity wholesale from carriers and sold it retail to shippers.
The intermediaries benefited further in early 2010 when cargo demand recovered faster than carriers could reactivate laid-up ships. Because NVOs typically have contracts with multiple carriers, they were able to provide shippers with scarce capacity.
Many shippers adjusted their strategy, contracting with NVOs for a percentage of their volume to ensure they’d have alternatives if capacity tightened again. When cargo volume recovered, NVOs retained much of their gains.
“Will that continue? I suspect it will,” said John Morris, a consultant and former senior vice president at Mediterranean Shipping Co. Many cargo owners “had good experience with NVOs and will continue to work with them.”
But NVOs’ growth reflects more than supply-demand imbalances, Morris said. NVOs have long since shed their early reputation as shoestring operators and have developed into a central part of shipper supply chains.
“Today, many of these companies are part of an organization providing services that extend far beyond those we associate with a traditional NVO,” Morris said. Some NVOs still concentrate on basic transportation, but the trend is to provide value-added services including consolidation, deconsolidation, documentation and customs clearance.
That appears to be the case worldwide, as shippers increasingly fold the basics of transportation management into broader supply chain strategies and look to third-party logistics operators to fill more needs.
In the United States, companies such as C.H. Robinson Worldwide, which is the country’s dominant truck freight broker but also operates a significant ocean forwarding business, barely missed a step during the downturn.
Robinson nearly doubled its gross revenue from 2006 to 2010, despite a setback during the 2009 recession, to $9.3 billion. Net revenue for the company grew at a faster rate, from $760,324 to nearly $1.5 billion, a sign of growing penetration in the transportation market.
Expansion of shippers’ sourcing networks also is fueling growth of NVOs, Morris said. As importers diversify their global sourcing, they often use NVOs that can offer flexibility in contract volumes and hands-on services in areas where vessel operators lack coverage.
Expeditors International handled 414,401 TEUs last year, good for a 7.3 percent import market share that was tops among NVOs, according to PIERS. Expeditors also ranked first in imports from North Asia, with 310,439 TEUs, or 7.2 percent of that market’s volume.
The top four NVOs in the import market North Asia market — Expeditors, Orient Express Container, Blue Anchor Line and Phoenix International Freight Service — accounted for 19.4 percent of the trade’s volume.
In the smaller Southeast Asia market, where Apex Shipping and Expeditors ranked one-two, the top four NVOs had a 31.1 percent of import volume.
NVO bookings account for one-third to nearly half of import volume for most major carriers, even at carriers that once minimized NVO business in favor of direct bookings with shippers.
Top users of NVOs include MSC, 48.2 percent; Cosco, 47.1 percent; China Shipping, 43.8 percent; and Yang Ming, 40 percent. Evergreen, Hanjin Shipping, Hapag-Lloyd, Hyundai, CMA CGM, Orient Overseas Container Line, NYK Line, “K” Line and Zim use NVOs for 30 to 37 percent of their import volume, according to PIERS.
Pacific International Lines relied on NVOs for 88 percent of the 58,647 U.S. import boxes it carried last year. The Containership Company, which ceased operation last spring, relied on NVOs for 86.1 percent of its bookings in 2010.
At the other end of the spectrum is APL, whose NVO bookings accounted for only 12.6 percent of the carrier’s total U.S. imports last year. Top-ranked Maersk Line used NVOs for 25.4 percent of its import bookings last year, the PIERS report said.