Report: Container terminal operators should consider variable pricing

The improved productivity resulting from the institution of variable pricing would be worth $2 billion to $3 billion annually, according to estimates from management consulting firm McKinsey & Co.

   The management consulting firm McKinsey & Co. suggests in a recent in a recent article that container terminal operators should look at a variable pricing for their services.
   “Much remains to be worked out, but we estimate that if the industry instituted variable pricing, the improvement in productivity would be worth $2 billion to $3 billion annually,” said the article written by Timo Glave and Steve Saxon, who work at McKinsey’s Copenhagen and Beijing offices, respectively.
   Most container terminals charge customers a flat rate per container handled, perhaps with an adjustment based on whether the container is laden with cargo or empty or if it is being transshipped, they wrote.
   As ships increase in size, “terminals need to invest in new cranes, additional yard space and equipment, dredging, and strengthened quay walls. Larger ships also take up more space, naturally. When they’re delayed, the knock-on effect is bigger. Their boxes also take longer to unload because the crane trolley must move farther to reach the opposite side of wider vessels, reducing efficiency.”
   Yet despite those increased costs, the McKinsey consultants said “the number of containers loaded and unloaded onto each vessel hasn’t increased much. Terminals are not receiving more income per ship, and their investments are not generating a sufficient return.”
   Productivity when working a ship depends on how cargo is stowed on a ship and Glave and Saxon said “terminals should price to encourage productive behavior by their customers.”
   Their recommendations include:
     • Basing berthing fees on a combination of a vessel’s length and per box handled. That way, if a carrier redesigns its network “to unload more boxes from each vessel, they would wind up paying less.”
     • Charging more for popular berthing slots.
     • Giving discounts for efficient stowage. If containers being discharged in a port are distributed throughout a ship, multiple cranes can be used, the consultants noted. Containers stowed above-deck or close to the quay require a short crane move.
     • Charging for delays and errors if, for example, stowage plans have errors, arrive late, or are amended at the last minute.
   The consultants also suggested terminals offer rebates if they make mistakes like, for example, not having a berthing slot available as promised.