The unaccustomed buoyancy of recent freight rate increases on U.S. trade lanes is giving third party logistics providers a sense that the worst may be over. But it’s too soon to call the coast clear, because they are still reeling from the impact of bad winter weather that caused delays and fueled higher costs.
“Rates have been stabilizing somewhat on the trans-Pacific this year, so I think you will see increased rate levels year-over-year with a steady demand for (vessel) capacity,” said Frank Guenzerodt, president and CEO of Dachser USA, a subsidiary of the large German logistics provider, No. 8 among the Top 40 Global 3PLs, which is expanding its global operations.
But any rate improvement is likely to fuel still more competition. “You get to a rate level that is attractive and you will have other players reentering who have been withdrawing because of low rate levels,” he said in an interview with the JOC.
Although vessel capacity is tightening to an extent, non-vessel-operating common carriers operated by logistics providers are no longer increasing their market share on U.S. trade lanes as they did in 2010, when carriers laid up so much capacity that rates skyrocketed. Nevertheless, there is room for growth of NVO business with smaller shippers, who may no longer be booking directly with carriers that have cut back on the customer service operations that they depend on to track their cargo.
“Luckily for NVOs you don’t see that many extremely small contracts that much,” Guenzerodt said. Beneficial cargo owners with volumes of from 100 to 1,000 containers per year are turning to NVOs, while BCOs with over 1,000 are signing direct contracts with carriers, he said. “Carriers’ customer service is more and more focused on large customers, so your smaller exporters are turning to NVOCCs.”
The NVO side of Dachser’s business is focused on smaller to medium-size shippers. For its larger customers, Dachser’s activities are focused more on freight management, including purchase order management and cargo consolidation.
Dachser rolled out the contract and rate management services provided by CargoSphere throughout its network of 187 branches in 36 countries this month. “It gives us a way to react more quickly to customer tenders and rate and surcharge changes,” Guenzerodt said.
He worries about the possibility of labor action on the West Coast during contract negotiations with the International Longshore & Warehouse Workers this summer. Dachser is working closely with customers to prepare contingency plans to divert cargo to the East Coast in case of disruptions.
Guenzerodt doesn’t think the advent of the P3 Alliance and the expansion of the G6 and the CKYHE alliances will affect freight rates much, because “you still have fairly healthy competition.” He thinks the advent of the expanded networks will improve service levels.
He said service levels in container shipping to and from the U.S. were hard hit by bad winter weather in the first quarter. “Your access to the port and waiting times were a disaster at the time,” he said. Deliveries to the Midwest from both coasts were also delayed by shortages of chassis. “We paid double and triple for inland deliveries and had to terminate certain deliveries at the East Coast because it was just too much of a delay. It’s been a crazy first quarter.”
The cost of these delays ate into Dachser’s first quarter margins, but will even out during the rest of the year, which he expects to be “stable.” While east-west container shipping has become increasingly commoditized by the major shipping lines, Dachser is focusing on how it can add value to its customers’ supply chains by providing visibility, handling order management, and consolidation. This is particularly important on the U.S. West Coast, “where you have 20 million hole-in-the-wall logistics providers,” he said.
Family-owned Dachser does not issue quarterly earnings reports. In its 2013 fiscal year Dachser increased its gross revenue by 13.2 percent to $6.8 billion. Dachser generated about $150 million in revenue from its U.S. logistics activities. “We are growing up in the U.S, where we still have more opportunities to grow market share,” Guenzerodt said.