Drewry’s Philippe Salles considers whether container shipping is ready for guaranteed services and prices.
International shipping is going through uncertain times — digital technology disruption, freight volatility, trade wars, new maritime regulations and increasing cybersecurity risks. Despite this, shippers, forwarders and carriers are striving for more certainty and transparency regarding guaranteed services and prices.
Container shipping has embraced the trend toward enforcing commitments from contract stakeholders, whether carriers, forwarders or shippers. One of the recent and significant developments is Kuehne + Nagel’s launch of the KN Pledge product. The service provides a 100% money-back guarantee on lead time, as well as extended cargo liability, instant pricing and a carbon footprint offset, valid for full container shipments on an extended scope of 96 countries and for 60,000 port pairs.
Some may argue it is not the first time a service-level commitment has been offered. More than a decade ago, Maersk launched Youship.com, which provided a space guarantee with immediate confirmation and clear all-in price to customers. A few years later, the premium Daily Maersk service offered a differentiated product with customers, giving guaranteed delivery times in return for higher freight rates. Daily cutoffs and agreed pickup times allowed cargo to be shipped without additional storage buffer time and gave final compensation to customers when their containers did not arrive on time. However, the service was decommissioned four years later in 2015 as the experience revealed that although Maersk could deliver on its promises, the customers were not willing to pay for it.
And this week Maersk said it had launched Maersk Spot to provide customers with guaranteed equipment and loading so they can avoid having their cargo rolled if a ship is overbooked.
So has liner shipping suddenly mutated to now be ready for guaranteed services and prices? What are the initiatives? Is technology the main enabler of these new attempts at premium services?
In fact, this is more of a continuum, as container shipping is not suddenly “disrupted,” but incrementally changing. We can clearly start to see service quality promises being engineered through technology-enabled products.
The priority shipment, “no-roll” service of APL, called Eagle GO, gradually has expanded through the years to cover Asia, Latin America and North America. The pay-on-demand offering is designed to give shippers certainty in their supply chains, with additional guarantees on speedy discharge or day-definite arrival at selected destinations.
The industry’s notorious lack of service reliability and persistent rollover practices have created a market gap for these premium services. Poor performances are still witnessed today, with only 75% of the vessels arriving on time. Notably, 10% to 15% of export booking requests made to shipping lines are delayed or canceled. In addition to problems getting the boxes “shipped as booked,” shippers also may find an average difference of $13.50 per TEU between booking price and final invoice, based on Drewry’s recent consultancy project work.
Volatility and lack of reliability in lead times and the associated risk of rollovers are some of the biggest challenges customers face in managing their inventories. The transpacific trade has naturally become the growing field for these premium services in response to liner shipping commoditization and rising expectations from BCOs.
Enforceable, binding bookings, capacity commitments and prices were enabled by the NYSHEX platform in the transpacific trade for a small market niche of shippers and NVOCCs, with the support of most transpacific carriers, avoiding the no-shows that easily can represent 25% of bookings.
Turning a carrier booking into an enforceable contract also is possible by using the deposit service provided by blockchain solution 300cubits. Based on Ethereum blockchain, 300cubits operates an escrow account to receive, keep and redistribute booking deposits. Asian technology is expected to bring comprehensive solutions driven by established players such as CyberLogitec. And the era of third-party platforms like Freightos, which enables secure online bookings, space as well as payments, has made its way addressing both air and sea cargo in a more real-time and transparent way.
The trend toward differentiated services is not only driven by platforms but also by carriers directly offering products on their own websites, including additional premium functions such as cargo insurance or guaranteed spot bookings. CMA-CGM’s Serenity and Maersk’s Value Protect maritime insurance products are expanding the portfolio of value-added services for BCOs, crossing the boundaries with 3PLs in this respect.
What is different from previous years? Customer segmentation and analytics lead to digital premium service offerings.
These new guaranteed offerings are designed to meet service expectations and delivery for specific market segments. NYSHEX plans to handle no more than 15% of the container market. The targets are time- and cargo-sensitive sectors such as retail, refrigerated goods, automotive, electronics and the growing cross-border e-commerce business, which requires a minimum of 95% transport reliability. Behind these services, new technologies enable carriers and logistics providers to build customer-centric strategies. The intention is to match expectations and services, not just pricing.
The development of instant quoting and online booking provides the opportunity to market these value-added products such as KN Pledge. Online instant services have become the common denominator of these new customers’ touchpoint strategies and where we find other forwarders like Agility, Schenker and Geodis as well as carriers led by Maersk, CMA CGM and Hapag-Lloyd.
A good example is Maersk’s “fixed spot product” applied to port-port dry cargo bookings. It provides an online firm booking confirmation with a two-way commitment with penalty fees for both customer and carrier in case of noncompliance (i.e. no-show, amendment or rollover).
Consequently, it is very much the spot and small and medium account markets and their high volatility that benefit from these guarantee offerings. Carriers and NVOs are engineering stickier service through quality promise differentiation and ease of doing business. The adjacent benefits for carriers are the enforcement of data quality entry from shippers and, above all, upfront payment.
Larger, contract BCOs also are tempted to try these online platforms. However, the intensity of customer care required by the main contract accounts is not completely served by these new digital offerings. Agreeing on space protection or commercial compensation is already part of their quarterly business reviews with their providers.
What matters to shippers is how to ensure the predictability of their supply chains. When operational issues occur, logistic providers must react proactively to support the shippers. Actually, the use of a freight expert team to back up automated services, handle exceptions and keep up the promise has become a must, as mentioned by Freightos. Indeed, Drewry assessed that about 40% of transport bookings have physical operational issues that need to be fixed.
Predictability and performance monitoring are what brings higher certainty. The guaranteed lead time presented in KN Pledge is calculated by algorithms, closer to the median of real lead times. The analytical exercise on operational transport point of failure result is key. It identifies the root cause of risk and sometimes automatically improves the performance by just monitoring it and challenging the reason among the organization.
Making a supply chain more reliable can simply be based on better forecasting. According to CMA CGM, some customers have been overforecasting volumes by as much as 40% to 45%. A control tower and PO management solution used by Walmart and Expeditors has increased on-time delivery by 10% by providing better volume forecast to the carriers where POs can be assigned to vessel sailing 14 weeks before vessel departure. It allows the planning of carriers’ capacity six to eight weeks in advance as well as the assessment of carriage constraints at destination.
Technology is increasing the ability to commit based on data from exporter/importer orders, asset physical moves, documentation cycle and customs statuses. Data aggregators, whether operated by large operators or third-party platforms, should play a key role in the ability to deliver business quality promises and premium services. But the critical point may still be what the data mean.
Can the data be trusted? What constitutes a reasonable or unforeseeable exception from the plan? What are the definitions of events and data points such as ETA and on-time delivery?
Standard definitions and a clear understanding of quality promises are essential. The move of carriers toward further industry standards will certainly favor the development of differentiated and guaranteed services.
Philippe Salles is the head of e-business, transport and supply chains at Drewry Supply Chain Advisors. He may be contacted via email at salles@drewry.co.uk.
