Ocean Freight – Time for Change?

If recent comments are any indication, Maersk Line CEO Eivind Kolding seems intent on pushing his company, and the ocean carrier industry, in a bold new direction. Mr. Kolding’s “call for change” has been widely quoted in the international trade press this year, and he has delivered his message personally at industry conferences as a keynote speaker.

The message may sound familiar to some, i.e. the industry has to change, performance has to improve, we’re on the brink of a new era, etc. But there are some crucial differences this time. To begin with, Mr. Kolding is CEO of Maersk Line, the world’s largest ocean carrier, so when he speaks on industry matters, people tend to listen.

Furthermore, his message is not what you might expect. Rather than simply issue another corporate blandishment about challenging times and how Maersk intends to weather the storms on the horizon, Mr. Kolding has decided to address substantive issues head on. He’s not pulling any punches either, inferring, if not stating outright, that the industry is in danger of being overtaken by technology, carrier performance is terrible, the booking process is difficult, and customers are not being serviced. Not at all what one might expect from the CEO of the world’s largest ocean carrier.

In essence, Mr. Kolding is warning that the industry is in danger of being left behind by a customer base that needs something his industry is no longer providing: consistency, reliability and convenience. But rather than simply sounding alarm bells, he is wisely couching his message as one of opportunity, one that is attainable, not lost. A large part of what Maersk is trying to achieve involves the services it provides to customers, specifically looking at various service offerings and deciding which are essential to its core competency, and which are simply “custom of the trade”, and therefore costly and burdensome. “Costly” in the sense that they erode profits from other service offerings, and “burdensome” in that they tie up resources that could be put to better use satisfying real customer needs.

Mr. Kolding undoubtedly knows that any message resulting in service changes will be criticized by some as an excuse to reduce services. Nonetheless, he has taken his message to the industry with determination. One need only look at recent changes to appreciate Maersk’s attempts to reshape its marketplace.

The issue of truck chassis in the U.S. is a prime example. Unlike most countries around the world, ocean carriers in the U.S. developed a practice of supplying trucks chassis to their customers for container moves. This has a been a routine practice for almost 50 years, and while convenient for shippers, it placed ocean carriers in the land transportation business, adding significant cost and administrative burden to their marine operations.

Whether due to the cost factor alone, or influenced by the 2009 decision by the FMCSA (Federal Motor Carrier Safety Administration) to require additional inspections of ocean carrier chassis transporting containers on public highways, Maersk announced its intention to stop providing truck chassis, implying the service should more appropriately be administered by shippers and land carriers. It may be several years before a final industry business model is in place for handling container chassis in the U.S., but many other ocean carriers have followed Maersk’s lead on this issue. (A list of ocean carrier announcements regarding chassis operations in the U.S. can be found on the OCEMA web site (Ocean Carrier Equipment Management Association, a U.S. based association of twenty major ocean common carriers).

This year Maersk took another step towards change by announcing its intention to charge shippers a “load protection fee” for failing to deliver booked containers. Unlike many carrier surcharge implementations however, Maersk is an active partner in this one, promising to pay the same charges to a shipper if it fails to load a container on a scheduled ship. That’s the difference between being a stakeholder (someone who stands to gain) in your customer’s business operations, and being a partner (someone committed to improving operations for all concerned).

To further demonstrate how serious it is about finding a new approach to the way ocean transportation is conducted, Maersk has set up a web site (changingthewaywethinkaboutshipping.com) to invite dialogue from the industry. Readers are treated to a candid assessment of the ocean transportation industry, and it’s not very flattering. There’s more than enough blame to go around, and Mr. Kolding isn’t afraid to point out where customers and shippers can do a better job.
Some of the more revealing facts on the Maersk web site include:
• The industry only delivers one out of two containers on time
• Three out of ten confirmed containers don’t turn up when the ship is ready to sail
• Only 56% of customers live up to the volume commitments they make to Maersk
• One-third of container delays are caused by vessel operations and weather conditions at sea and two-thirds are the result of terminal operations
So the stage is set for a frank discussion. Based on the above, there seems little doubt of the “need” for change, the real question is how, and when, can it be accomplished?
Mr. Kolding’s message for the marine industry, and perhaps for all of us in the transportation business, is that we need to rethink the way we construct our business models, the method in which we connect with our customers, by anticipating their needs and being proactive, rather than reactive.

The Maersk web site features a downloadable “manifesto” that outlines its rationale for this initiative, and describes some compelling examples of how other companies have successfully anticipated customer needs. For example:
• Ryanair launched a website in 2000 enabling it to sell directly to customers. At the time, many industry insiders thought passengers would shun the online approach in favour of the traditional travel agent connection. But Ryanair astutely predicted that what passengers really wanted was a new business model that provided a fast and reliable booking process. Today, Ryanair is Europe’s second-largest airline, and passengers can only book seats online, or through the company’s call centre.
• Apple revolutionized the mobile phone market by forecasting that customers would “need” greater access to online services. Convenience and ease of use became essential parameters, far outweighing price considerations.
The importance of dialogue regarding these issues cannot be overestimated. Shippers traditionally shun volume commitments, and carriers are reticent to commit vessels and/or vehicles following the 2008-2009 recession. These aren’t popular topics in transportation circles, but at some point shippers and carriers have to come to terms with volume/capacity commitments if they ever expect to see significant improvement in on-time performance metrics.

The message may not be entirely new, but Mr. Kolding should be commended for pushing the envelope and prodding industry participants by highlighting faults on both sides of the desk. His central theme, one that should be heeded not only by marine carriers but all transportation service providers, is that the industry is lagging in providing adequate services to shippers in today’s global business environment. And shippers also have a critical role to play in improving industry performance, as they often have unrealistic expectations in terms of carrier resources, especially in uncertain economic times.
We have an opportunity to change it, and if we don’t do it together, we may find it changed for us. Or as Maersk states in its manifesto: “We really could be so much more; we must make the industry of tomorrow, today.”

Posted by: Laurie Turnbull, CITT, P.MM – Supply Chain Consultant, Cole International

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