Random thoughts on the news

Random thoughts on the news

Who's next? Which carrier will buy out another? Certainly CMA CGM and China Shipping have their eye on expansion, and it's likely several others have the same thoughts after watching the Maersk and TUI actions. But apparently the purchase of CP Ships by Hapag-Lloyd parent TUI has created a price benchmark that may have some taking a deep breath.

Looking at the deal on a per-TEU basis (as one would when purchasing or building ships) or based on existing returns, what TUI paid for CP Ships far exceeded what A.P. Moller paid for P&O Nedlloyd. But it sets a new benchmark for those who follow. They'll need to ensure that there are good assets to acquire and that synergies are readily available.

And the issue of complementary services will become more important. While virtually all of the larger carriers are "global," they tend to be stronger in some trades than in others, so logic would dictate that the mergers be between carriers that have different strengths.

Adding Up? Recent articles on ocean-carrier surcharges are ironic to those of us who have been around a bit. During the 1980s, when the supply-demand cycle favored shippers, carriers found it virtually impossible to secure rate increases to cover rising costs of ships, equipment, fuel and other expenses. Liner conferences would announce an increase, and before the executives who attended the meeting caught their planes home, they were calling their favorite customers and saying, "Don't worry, this won't affect you." It was a pure market-share mentality, encouraged by less-than-full ships.

Those of us who had strong relationships with cargo interests often met with select accounts before conference meetings to advise them of our thoughts and direction. We began to hear a repetitive response: "Show us the numbers - what costs have gone up, and by how much? And how does it really affect your overall costs?"

These were partially common-sense responses, and partly just another way of saying, "You aren't going to raise my rates because if you do, carrier X, Y or Z won't." But it made many of us rethink our strategies. We took the shippers' lead and began to isolate those beyond-our-control costs (fuel, terminal handling, congestion, etc). Over time, we were able to establish a few surcharges, usually based on indexes that would allow the charge to float up or down.

Once the exercise began, it spread to some activities that were partially within our control but that also were influenced by shippers' actions, such as the use of carriers' containers as no-cost warehouses. Documentation was another such area. Many forwarders and shippers changed shipping instructions multiple times, or submitted documents with errors or omissions that required carriers to correct them multiple times.

When the global markets heated up, the supply-demand ratios changed, and the carriers used what shippers had taught them to do: Isolate costs and increase the charges when those costs increase. And the ability to "hide" these differences through the use of service contracts - wasn't that another idea that came from shippers?

NVO Contracting. This story is certainly interesting, if not amusing. Some third-party suppliers felt that they were disadvantaged in not being able to offer service contracts, so they petitioned the Federal Maritime Commission to alleviate this apparent disadvantage.

I say "apparent" for several reasons, not the least of which is this: Did anyone pay close attention to who wasn't involved in the FMC proceedings? The truly major NVOs in global trades are multibillion-dollar-a-year entities that do not rely on small-package delivery as their primary revenue source. They are primarily full-containerload movers of goods, relying on the margins between their high-volume service contract prices and smaller-volume contract or tariff rates.

But were these players involved in the FMC proceedings? No. Why not? Wouldn't they be as disadvantaged as those who petitioned the FMC? Not really. For years they had used their own contracts, sometimes called Contracts for Logistical Services or any number of similarly worded documents. They weren't disadvantaged because they found a "workaround" to the problem. And with the added advantage that they don't file them with any regulatory agency. Problem solved?

Quality vs. Quantity. Several readers contacted me after my article on Quality vs. Quantity in shipping. As might be expected, the "customers" of carriers were in agreement and had their own tales of woe. The few from the carrier side who chimed in said their company was excellent and had resolved all of their customer-service issues. But one response from a carrier said: "You close by saying the

solution is, 'Better processes supported by more efficient systems used by better-trained and more-experienced people.' It's not that simple." It should be, and it can.

It's been said by many that finding problems is easy; finding solutions is difficult. The closing remarks in my article were simplistic, similar to the 10-second sound bites in political advertisements.

So let me try to put some meat on the bones. The first step to a real solution is admitting that problems exist and winning a management commitment to address the issues. Then create a project team that analyzes all of the processes that are "first points of contacts" with customers (and there are certainly multiple first points of contact in all organizations). Recognize that these are not independent functions, but are critically connected functions that if looked at in a single line create a "first-points-of-contact" process, usually the in the sales and order-to-cash processes. Find the inefficiencies, the redundancies, the bottlenecks; refine the processes and define a new, more-efficient and -effective process. Using business-knowledgeable people, design and implement systems that support the new process; do not try to simply automate the existing process. Use technology that minimizes paper, such as imaging; and create databases that relate to each other, are intuitive and eliminate the need to continually recreate data. Design effective training programs and ensure that all associates are well-trained and familiar with the company and what it does, not just what they do. Design a suite of systems that are accessible and truly helpful to those who are your customer's first points of contact.

While doing all of these things, use those who are knowledgeable and experienced. Value that experience, and take advantage of it. If they need training on newer systems, etc., make it available. Use them and their knowledge to train others and to coach and encourage younger workers. The young people are your future. Take the time to find those people who are truly interested and want to help you and your customers. They are out there. Take advantage of them. You'll benefit and so will your customers.

Gary Ferrulli is president of Global Logistics Consulting in Chandler, Ariz. He can be contacted at ferrullig@mindspring.com.