AS March2012 NVOfeaturea - CaroTrans...full-container loads, NVOs that focus on less-than container...
Transcript of AS March2012 NVOfeaturea - CaroTrans...full-container loads, NVOs that focus on less-than container...
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MARCH 2012
Redrawing competitive
NVOs won ocean freight market
share in 2010 and held it in 2011
24 AMERICAN SHIPPER: MARCH 2012
the race to secure shipper customers.
According to figures provided to Ameri-
can Shipper by the trade intelligence firm
Zepol Corp., NVOs handled 19.6 percent
of U.S. inbound volume in 2007, increasing
to 19.7 percent in 2008, and 20.1 percent in
2009. That share jumped to 24.6 percent in
2010 and stayed precisely at 24.6 percent
in 2011.
So 2012 could well tell a bigger story in
terms of where this breakdown between
direct carrier bookings and NVO bookings
is headed. In the last five years, the shift
to NVOs in 2010 was clearly the outlier.
“Considering the comments we’ve re-
Non-vessel-operating common carriers wrested a
significant cut of U.S. inbound ocean transporta-
tion market share from liner carriers from 2009
to 2010 — a 22 percent increase, to nearly one quarter of all
U.S. import volume.
From 2010 to 2011, NVOs largely held onto their newfound
share of the market, a sign that the economic tumult of 2009
might have permanently redrawn the competitive lines in
NVOs won ocean freight
market share in 2010
and held it in 2011.
BY ERIC JOHNSON
Redrawing competitive
AMERICAN SHIPPER: MARCH 2012 25
TRANSPORT / OCEAN
ceived from customers, and input we’ve
received from our carrier partners, the
shift in market share from vessel-owning
carriers to NVOs appears to be permanent,”
said Bob Connor, vice president of global
transportation for Mallory Alexander.
“The NVO community certainly picked
up market share in 2009 from the carri-
ers, in part associated with vessel-idling
programs instituted by the shipping lines
in the transpacific trade,” he continued.
“However, it must be recalled that vessel-
idling really only impacted the U.S.-Asia
and Asia-Europe trades. The volatility
and commotion which occurred in the
transpacific trade in 2009 was really not
as significant a factor in the transatlantic
and South and Central American trades,
and it wasn’t as dis-
ruptive an issue in the
adjacent transpacific
U.S./Australia-New
Zealand trade lane
either.”
Rather than just the
disruptions caused by
vessel-idling in early
2010, Connor said a
larger factor may have been the economic
knock-on effects on shippers that still
persist today.
“We believe that the downturn in the U.S.
economy during the same period, and the
effect it had upon importers and exporters
to generally reduce overhead, including
staffing in their logistics departments,
contributed to a shift away from dealing
with the shipping lines individually,” he
said. “By dealing with integrated OTIs
(ocean transportation intermediaries),
importers and exporters could gain access
to a multitude of carriers in a given trade
lane, in many cases with a common rate
per port pair.”
That NVOs held onto market share gained
in 2010 last year underscores Connors’
point, especially given there was no growth
in U.S. inbound volume from Asia in 2011.
The statistics bear out that 2011 looked very
much like 2010 in total.
“We have experienced sustained support
from our client base which employed this
strategy,” said Greg Howard, global chief
executive officer with the NVO CaroTrans.
“The lessons learned will remain a valuable
reference point as the landscape in 2012 is
showing similar conditions as those of 2009.
The key here is that our position with our
core carriers remained strong as a result
of our loyalty and commitment to mutual
support of each other during the tumult of
2009 until present.”
Anecdotally, it appears carriers have
retrenched in their sales efforts too.
more FCL shipments means NVOs are at-
tracting boxes that would have ordinarily
been booked directly with carriers.
When considering this rise in FCL ship-
ments for NVOs, it’s important to note the
distinctions between the two basic NVO
business models: neutral and integrated.
The customer base for neutral NVOs are
predominantly other freight forwarders
or OTIs, whereas for integrated NVOs, it
tends to be manufacturers, importers and
exporters, or their agents.
“The integrated NVO’s service is part
of a broader 3PL service offering,” Connor
said. “The market strategy of neutrals and
integrated NVOs is significantly different,
and the shipping lines’ dealings with the
two types are markedly different.
“The integrated NVO generally is work-
ing with its customers to try to develop a
long-term relationship where ocean trans-
portation is part of a broad transport solu-
“Perhaps (the market share shift) was
passing, but we do see fewer steamship sales
people in the field compared to the past,”
said Peter Gruettner, president of Extra
Logistics, though he did add that NVOs
will always be limited to a certain point.
“The carriers will maintain the control to
the point that they own the vessels,” he said.
“While NVOs may look to negotiate rates
and services, in the final analysis, it will
be the carrier who determines the services
offered and investment into the trade.”
A subset of this subtle shift to more use
of NVOs is just exactly how shippers are
using those NVOs. Last year, American
Shipper reported that NVOs began handling
more full-container load (FCL) volume than
less-than container load (LCL) volume.
That shift has a lot to do with the perma-
nence of market share gains for the NVO
industry as a whole. LCL shipments are a
staple of the NVO business, but securing
• Large shippers can use NVOs to diversify their transport options
as carriers are likely to restrict capacity in the coming months.
• Small shippers benefit from scale provided by NVOs, especially as
carriers focus on accounts moving at least 10,000 TEUs annually.
• Shippers should decide what NVO model — neutral or integrated —
best fits their business.
Shipper takeaways
All NVO shipments(2011 market share by % TEU)
Expeditors International
of Washington Inc.
Blue Anchor Line
Phoenix International
Danmar Lines Ltd.
Orient Express
Container Co. Ltd.
Apex Shipping Co.
Schenkerocean Ltd.
Seamaster Logistics Inc.
Topocean Consolidation
Service Los Angeles Inc.
Hecny Shipping Ltd.
Others (less top 10)
2.6%
8.1%
59.7%
6.3%
4.0%
4.0%
4.0%
3.9%
2.6%
2.6%
2.3%
Source (for all charts): Zepol Corp.
Connor
26 AMERICAN SHIPPER: MARCH 2012
TRANSPORT / OCEAN
tion. The goal is to secure rates fixed for
a longer period of time — minimally six
months — and to provide the customer with
multiple carrier options at a common price.
The neutral NVOs tend to live in more of
a market rate environment — 30-day rate
terms being common — and approach
the marketplace with a more speculative
attitude.”
Liner carriers prefer to focus their sales
efforts on shippers that move more than
10,000 TEUs per year, while NVOs tend
to attract shippers moving less than that.
But with even large shippers looking at
diversification strategies, integrated NVOs
are seeing more FCL business.
“It is not uncommon for an OTI to be
asked to offer pricing in the less
active trade lanes of a major
BCO (beneficial cargo owner),”
Connor said. “It should also be
pointed out that the larger NVOs
are well recognized and solicited
by the carriers, for which some
of them have formed specific
sales teams to deal with the NVO
community.”
He added that some so-called
“master loader” NVOs in Asia
often get the benefits of larger
shippers with the volume they
bring to the fore.
“Some carriers effectively treat
the freight handled by the larger
Asian co-loaders as base freight,
and have offered some of their
lowest rates in the transpacific
eastbound market on a spot basis
(30 days) to these master load-
ers,” Connor said. “These con-
tracts generally have minimum
quantity volume commitments
exceeding 4,000 FEUs. However
we are starting to hear that some
of the major transpacific carriers
are rethinking the strategy of
giving the master loaders such
unrestricted access to the trade,
despite the large volume commit-
ments. The shipping lines more
and more have seen these lower
‘wholesale’ rates finding their
way to their BCO customers in
the form of rate offers.”
The precarious financial state
of the liner industry no doubt af-
fected the market share situation
between vessel operators and
NVOs in 2009. And some NVOs
are seeing similar signs this year.
“Depending on which article
you read and the day of the week
it is read, you get mixed signals
on what the carriers intend to
do,” Howard said. “The issue of balancing
supply and demand has been a challenge
for the lines for years. As larger vessels are
delivered from the shipyards and as more
frequent sailings are offered, it is difficult
to imagine how carriers can afford the
costly exercise of ‘cold lay-up’ of vessels.
The real question is not about carriers pull-
ing capacity but rather which carriers will
survive another year like 2009.”
If lines do pull capacity on major east-
west trades (particularly the transpacific
for North American shippers) then NVOs
with size and scale would stand to gain, as
they did in 2009.
“Scale is an integral part of an NVO’s
ability to provide sustainable and best in
class service,” Howard said. “The chal-
lenges associated with space, equipment
and line-haul costs are felt by everyone.
However, with proper scale, these are often
better managed due to the relationships
and commitments the NVO has with the
ocean carriers, draymen and intermodal
operators.”
Connor agreed, but said volume isn’t
the only factor when it comes to logistics
companies that act as more than simple
wholesalers.
“Scale, or volume potential, certainly
plays a significant role in the level of at-
tention and cooperation an NVO receives
from the shipping lines,” he said. “However,
in the case of integrated NVOs the volume
of freight tendered as an NVO is
not the defining component of
the relationship with the ship-
ping line. Certainly the volume
of shipments that Mallory pro-
cesses as an NVO, a forwarder,
and a customs broker impacts
our relationship with our select
carrier partners.”
Aside from external mar-
ket dynamics, there’s another,
simpler reason shippers turn
to NVOs: it’s hard for smaller
shippers to get a rate.
“The shipper who has the
same commodity from point A
to point B with little variation is
a good carrier candidate,” said
Gruettner said. “But if a shipper
has different needs in their scope
of business, an NVO is a good
option. Obtaining carrier pricing
is not easy, as the turnaround
time and clarity of quotes can
be a challenge.”
That was borne out by research
last summer from the maritime
analyst SeaIntel, which found
that only five of 22 liner carri-
ers responded to a rate request
for a shipment of two 40-foot
containers from Hong Kong to
Southern California. However,
only four of 11 major global
forwarders responded to the
same request, suggesting even
larger forwarders aren’t always
responsive.
Small and mid-sized forward-
ers are more responsive, but often
lack the scale to secure the best
rates on the market, said Lars Jen-
sen, chief executive at SeaIntel.
“We did find that NVOs are
gaining control over an increas-
ing part of the cargo — par-
ticularly cargo stemming from
An LCL view
While the market share struggle between carriers and
non-vessel-operating common carriers centers on
full-container loads, NVOs that focus on less-than
container loads (LCL) continue their own expansion.
The major integrators, like DHL, Panalpina, and Kuehne
+ Nagel, announce new LCL port pairs almost weekly, and
they’re joined by LCL-only companies with an intense focus
on transit times, cost reductions, and shipment visibility.
“Service, reliability and competitive rates are paramount,”
said Kris De Witte, chief executive of the LCL player Ecu
Line. “The industry simply expects the global NVOs to
provide this and we expect no change in this. The customer
base of Ecu Line remains the freight forwarder. We continue
taking our neutral position in the logistics chain very serious.”
De Witte said Ecu Line “cannot have enough direct
services.
“Direct services, versus using hubs — 99 times out of a
100 — allows us to offer the market the best transit time,
reduced handling and best rates,” he said. “During the last
three years we added approximately 250 new direct services
for our clientele. Our customers want to feel they work with
one company worldwide at origin and destination.”
De Witte said he sees the LCL industry evolving on the
same path as the express industry did before it.
“If we look back 10 to 15 years ago, we had to compete
with hundreds of smaller competitors,” De Witte said. “The
vast majority were specialized in a few trade lanes and only
offered services from one or two origins, a bit similar to the
courier/express package business way back. And using this
comparison, we all know that right now this market has fully
consolidated and less than a handful of major companies
divide the pie. A similar thing is happening with the LCL
segment. Already now, we notice that only a very limited
number of companies are at play and considered by the
medium-sized and multinational freight forwarders. This
will continue.
“The future to remain successful as an organization in
this industry is to manage ever-increasing volumes of LCL
combined with a low internal cost per transaction, and of-
fer a fully transparent end-to-end product for the freight
forwarder and their customer base,” he said.
AMERICAN SHIPPER: MARCH 2012 27
TRANSPORT / OCEAN
small to mid-sized cargo owners,” Jensen
told American Shipper in February. “One
reason is simply purchasing power. If you
are looking to ship just a few containers you
can not get as good a rate from a carrier
as an NVO shipping thousands of boxes.
“The second, more important, reason is
that it has become increasingly difficult for
small cargo owners to do business directly
with the carriers. Carriers have increasingly
focused on making their processes more
efficient, but this has also resulted in less
time to deal with small cargo owners who
typically need more hand-holding, whereas
this type of business is more core-territory
for the NVOs.
“The carriers’ approach to this is often
mixed. On one hand they do not like the
NVOs stepping in as the middle man, ef-
fectively taking some of the value in the
value chain. On the other hand, they do
recognize that having the NVOs as good
clients allows them a much better reach
into the segment of smaller cargo owners,
while at the same time allowing the carrier
to reduce costs associated with sales and
customer service.”
As for the 2012 outlook, NVOs largely
expect the highs and lows to continue. But
as asset-free businesses, they’re often best
at navigating such choppy waters
“There is no doubt that the transpacific
trade, particularly the eastbound, domi-
nates the landscape of our industry,” Connor
said. “In a way, it is unfortunate as in the
other U.S. trades, where capacity and de-
mand have been reasonably balanced, there
is significantly less volatility with rates.
“Overcapacity in the transpacific trade
contributes to keeping freight rates in the
trade depressed. Until action is taken to
permanently bring capacity in scope with
demand — in short, consolidation within
the carrier industry through merger, acqui-
sition or insolvency — we should expect
nothing more than an ongoing roller coaster
ride regarding freight rates in the trade.
Also, there should be no doubt that if and
when the time comes that vessel space and
demand is brought in balance, freight rates
in the trade will on average be much higher.”
Connor said Mallory Alexander expects
rate increases secured by lines in the lead up
to Chinese New Year will have dissipated
by March. That aligns with research from
American Shipper, which polled 124 ship-
pers and intermediaries in late January and
found 60 percent expect rates to drop on the
eastbound transpacific after Chinese New
Year, compared to 20 percent who expect
rates to increase.
Intermediaries are even more expectant
of a drop in rates on the trade in the coming
weeks, according to the survey, with nearly
three-quarters anticipating rates will fall.
Yet intermediaries are also more wary of
carriers pulling eastbound transpacific
capacity in the coming months, with 72
percent expecting capacity withdrawals,
compared to only 58 percent of beneficial
cargo owners.
“The only option the carriers have to avert
a slide in rates is to remove capacity,” Con-
nor said. “However, as seen during the 2009
vessel-idling program, the revenue gains
and cost savings realized by the carriers
while vessels were idled in no small part
were gobbled up with the costs incurred
to bring the idled ships back into service.”
As Gruettner put it, NVOs learn to roll
with the punches.
“There will always be trade and the vol-
umes will rise and fall with uncertainty,” he
said. “The carriers with the larger invest-
ments will surely protect those investments,
while others who came to the table and
played a few losing hands may walk before
putting more capital on the table. We will
just have to find the solutions with the is-
sues that come our way.”
NVO shipments by load type (%, in millions)
2007 2008 2009 2010 2011
53%
52%
51%
50%
49%
48%
47%
46%
45%
2.101.81
1.82
1.67
1.98 2.051.74
1.70
1.53
2.04
Less-than-containerload
Full-containerload