In what is expected to be a long-term trend, smaller, more aggressive non-vessel-operating common carriers (NVOs) are chipping away at the market share of the top five NVOs in United States imports from Asia. That development is gaining momentum as sourcing shifts from China to other countries in the region.
Smaller NVOs say they respond more quickly to price movements in the spot market than the largest NVOs, and as sourcing of consumer merchandise gradually shifts to countries in Southeast Asia and the Indian subcontinent, they can offer tailored services that shippers in those regions have not necessarily had access to in the past.
However, the top five NVOs in the US import trade from Asia — Expeditors International, Apex Group, C.H. Robinson, OEC Group, and Kuehne + Nagel International — are so dominant that any market share erosion they experience in the largest US trade lane will be incremental. As long as China remains the largest source of US merchandise imports, they will continue to control that trade.
An analysis of NVO market share of US containerized imports from Asia in January through June over the past five years by PIERS, a JOC.com sister company within IHS Markit, shows the combined market share of the top five NVOs has fallen from 24 percent to 21.8 percent, while the combined market share of the next tier of NVOs ranked six through 10 increased from 8.7 percent to 11 percent.
But drawing sweeping industry-wide conclusions from the data is risky because each company has its own story to tell. “There’s an anecdote for every situation,” said a carrier representative. Generally, though, the carrier said the trend in the Asia-US trades is that the largest NVOs who serve the large US retailers that import from China will likely experience incremental erosion of market share. Smaller NVOs that pursue business from smaller exporters in Asia will incrementally grow their business.
“The big guys like the big customers and the small guys like the small customers,” he said.
Smaller NVOs are lean, nimble
The gradual increase in market share by smaller, nimbler NVOs, many of which are Asian-based, has been under way for at least the past five years, said supply chain consultant Jon Monroe. “They don’t have the legacy costs of the big NVOs,” he told JOC.com. “They’re lean. They get the spot rates out faster.”
Because NVOs as an industry are mostly non-asset based, and they have contracts with a number of carriers, cost and service are the advantages that NVOs have in dealing with beneficial cargo owners (BCOs). In today’s Asia-US trade lanes, which have been ravaged by Trump administration tariffs on imports from China, “cost is king,” Monroe said. Smaller NVOs tend to move faster to take advantage of sudden downward movements in spot rates than larger NVOs with big-name accounts, Monroe said.
Retailers, large NVOs dominate US imports from China
Merchandise imports from China have historically been controlled by large US retailers, and the largest NVOs, who leverage their volumes with carriers in order to get the lowest contract rates in the trade. Over the past five years, though, US importers have turned increasingly to Southeast Asia and the Indian subcontinent for lower-cost items, such as apparel and footwear. Because volumes are smaller and margins are tighter, the largest NVOs have not been as aggressive as the smaller, locally based NVOs in grabbing that business, small and mid-sized NVOs say.
Kevin Krause, vice president of ocean services at SEKO Logistics, said the small to mid-sized NVOs actively recruit business from small to mid-sized BCOs that the largest NVOs are probably ignoring. “They focus on the larger accounts,” he said of large NVOs. “By nature, that’s how they’re structured.”
Spurred on by the US-China trade war, the eastbound trans-Pacific will see more business controlled locally in Asia, an executive with a larger NVO told JOC.com. “This will have complications for the supply chain,” he said. Carriers are handling smaller volumes from a larger number of NVOs in the region. Each NVO has its own business relationships with manufacturers, warehouses, and transportation vendors in the region, the executive said.
Monroe noted the tariff war is also shaking up payment terms within supply chains as US importers attempt to get overseas producers to absorb some of the increased costs. “They want the factory to be responsible for paying the charges,” he said. Those same factories are therefore looking to cut costs wherever they can, and local NVOs who are able to find lower spot rates are taking more of the business.
In today’s volatile Asia-US trade roiled by the Trump administration’s trade war with China, spot rate movements have been choppy but trending downward. Spot rates from Asia to the US last week declined for the fourth consecutive week, with the West Coast rate 43.1 percent lower than in Week 39 last year. The East Coast rate was down 29.3 percent year over year, according to the Shanghai Containerized Freight Index published in the JOC.com Shipping & Logistics Pricing Hub.
In this type of environment, the pricing advantage that the largest NVOs once had with their named accounts no longer exists. Krause added that with online dynamic pricing tools now available to everyone, the small and mid-sized NVOs have access to the best available spot rates. “I go online, too,” said Krause.
NVOs of all sizes had a good year in 2018 due to the trade war. Retailers front-loaded large volumes of cargo which, at the time, they feared would be caught up in tariffs scheduled to take effect on Jan. 1, 2019, but were eventually delayed until this spring. Cargo was rolled in Asia, spot rates rocketed higher, and importers had trouble securing adequate space on vessels leaving Asia. Truck and intermodal rail capacity in the US was also tight last fall.
NVOs, which have contracts with a number of carriers and oftentimes with truckers and warehouses in the US, increased their business with both large and small BCOs last year. This year, with ocean and overland transportation capacity more than adequate, eight of the top 10 NVOs experienced a decline in total TEU volume in the first half of 2019. The year-over-year declines are expected to be even larger in the third and fourth quarters because much of the front-loading last year began in July and accelerated in the final months of the year.