The resilient NVO

The resilient NVO

Freight consolidators take on down economy with grit and determination.



By Chris Gillis

      While liner carriers and shippers have been badly bruised and shaken by the severe downturn in international trade, the large non-vessel-operating common carriers managed to stay relatively firm on their feet and may come out of the global recession an even stronger influence in the ocean shipping business.

      No doubt, NVOs ' both pure consolidators and freight forwarder-affiliated ' took their share of punches from the dismal 2008-2009 economy in the form of reduced cargo volumes. But these operators, with their apparent resiliency, scraped by with less injury to their bottom lines than most.

      'You have to remember that we operate in a low-margin sector of the market,' said Klaus Jepsen, president and group chief executive officer for Shipco Transport, a Hoboken, N.J.-based consolidator. 'We've always had to watch our expenditures very closely. If you don't maintain a tight ship in this business you won't survive.'

Klaus

      It's difficult to pinpoint just how much the NVO industry may have lost financially during the past year because most of these entities are privately held. Even with the publicly traded firms, it's difficult to attain actual profits from their NVO activities. Based on recent interviews with various industry players in North America, overall NVO profits by the end of 2009 were down only 5 percent to 10 percent, compared to 2007 record profits, executives insist.

      'Maybe we've gotten smatter as an industry by living within our means or just below it,' said Michael Cadden Troy, owner of Red Bank, N.J.-based NVO Troy Container Line. 'We understand that profit losses will not be tolerated.'

      Hellmann Worldwide Logistics, which operates a forwarder-affiliated NVO service, is a large global outfit with 443 offices across 157 countries. Yet the company remains privately owned. 'This private status allows us to act and adjust quickly to the ever-changing market conditions,' said Thomas Krusin, the company's vice president of product management for ocean freight, based in Miami.

      Two other aspects of the NVO industry that helped these entities hold up under the economic pounding better than liner carriers and shippers are their non-asset-based nature and wide variation of service offerings to their customers.

Michael Cadden Troy owner, Troy Container Lines
'Maybe we've gotten smarter as an industry by living within our means or just below it'

      'We believe the diversification is what helped the NVO community weather the storm better than the liner industry,' Krusin said. 'The NVOs are not just limited to sea freight. Customs brokerage, air freight and contract logistics are often included. It helped us spread the risk.'



Down And Up. This time last year, most NVOs were much less optimistic about their prospects for 2009. Cargo volumes, along with rates, plummeted to near unsustainable levels for both liner carriers and NVOs early in the year.

      For example, U.S. inbound rates from Europe started at about $2,000 per 40-foot box at the start of 2009 and rapidly fell 50 percent in the first quarter. Similarly, U.S. inbound rates from Asia dropped from about $2,000 per 40-foot container to well below $1,000 during the same period.

      NVO full-containerloads suffered the biggest slip in early 2009, off 15 percent to 20 percent from the previous year's levels. Throughout the year, however, liner carriers removed excess capacity to reduce expenses, resulting in less container space. It was not uncommon for NVOs to require from their customers bookings three to five weeks in advance to ensure vessel loading.

      'Toward the end of 2009 and early this year we are seeing (FCL) rates firm up quickly as demand and tight capacity operate in tandem within the carrier community,' said Carmen Gerace, director of transportation and logistics in the Americas for BDP Transport, the NVO operation of Philadelphia-based forwarder BDP International.

      Most NVOs reported a smaller drop in LCL volumes, in the range of 3 percent to 5 percent, since early 2009, according to interviews.

Abisch

      'I believe our LCL volume only had a small drop,' said John Abisch, president of Miami-based Econocaribe Consolidators. 'Volumes to our newer markets of Asia, India, Middle East and Europe grew, while volume to our traditional markets in Latin America and Caribbean dropped a bit.'

      'LCL volumes remained steady throughout the year and in some lanes even trended upward,' Gerace said. 'Sending between five and 10 meters of cargo LCL became a more desirable option where in the past it had been cost efficient to load a full container.'

      Shipco's Jepsen said the drop in cargo volumes was less severe for NVOs than the overall transportation market. 'Towards the end of the first half of 2009, we started to see the downturn even out with bookings creeping up. That was not consistent with the total cargo market,' he said.

      'We attribute that to the fact some carriers have become more restrictive with whom they do business. Small forwarders have swung our way as a neutral NVO,' Jepsen explained.

      He also noted that forwarders in some trade lanes are struggling to load their own boxes and are forced to co-load with neutral NVOs. 'Many forwarders in previous years didn't pay much attention to the cost of handling LCL. Now they're overturning every stone to save costs,' Jepsen said.

      'We are experiencing an increase in LCL volume as export activity begins to pick up,' said Greg Howard, president of Union, N.J.-based CaroTrans International. 'With the steamship lines' rates increasing, the breakpoint between LCL and FCL also rises. Considering that groupage boxes move at a premium and subsequently receive priority handling, all this can potentially mean more LCL volume for the NVO consolidators.

      'The FCL business has also seen increased activity (in early 2010), partly due to exchange rates. But I believe much of this can be attributed to orders placed from quotations/bids made in the last quarter of 2009,' he added.



'Go-To Guys.' Many shippers have found it increasingly difficult to keep up with the hundreds of general rate increases (GRIs), peak season surcharges, bunker adjustment factors and equipment repositioning charges announced by the liner carriers.

      'A rate quote today is good for today,' said Joseph Saggese, executive managing director of the North Atlantic Alliance

Association, a shippers' association of about 40 forwarders. 'NVOs have to be

very nimble and sharp with their rate quoting.'

      Saggese added that cargo volume-starved liner carriers are more reliant than ever on NVOs to serve as their front end to engaging smaller shippers and forwarders for business. 'They're the go-to guys for both shippers and carriers,' he said.

      Since NVOs may be individually working with upwards of 30 liner carriers at a time, the NAAA has developed a computer program to monitor and organize liner carrier rates for both association members and non-member NVOs.

Scovill

      'The level of collaboration between shipper, NVO and even the carrier community is at an all-time high,' said Jeffrey Scovill, corporate vice president of global forwarding for Minneapolis-based C.H. Robinson Worldwide. 'We've been encouraged by the level of exchange of information and openness in the industry. Hopefully, that will transcend as rates move upward.'

      'We expect to have margin pressure as the steamship lines raise their rates and continue to modify capacity,' Howard said. 'We are optimistic that the carrier relationships developed over the last few years will translate to adequate allocation and space guarantees for us, thus allowing us to provide best-in-class service to our clients.'

      North American NVOs are especially monitoring the freight rate activities of the Transpacific Stabilization Agreement. TSA member carriers are seeking substantial rate increases ' $800 per 40-foot container for shipments from Asia to the U.S. West Coast and $1,000 per 40-foot container for all-water and intermodal shipments ' for the 2010 service contract season.

      'Price is driven more by supply than demand and carriers have withdrawn capacity,' Michael Gregaro, Agility's vice president of U.S. ocean freight services, recently told American Shipper. 'When there's a glimmer of growth in the trade and some carrier introduces new capacity, how will that affect the market?'

      Yet, the transpacific inbound trade remains a priority trade lane for many NVOs and their customers.

      'Business in the transpacific may be down several percentage points, but it's still a huge trade with a lot of potential for growth. We're focused on industries such as retail, energy, technology, automotive and life sciences in this market,' Gregaro said.

      'If the carriers' rates go up, the space within each container becomes more valuable,' said Charles Brennan, global chief operating officer of Carson, Calif.-based Vanguard Logistics Services. 'More cargo tends to move in LCL as rates go up.

      'It is business that the carriers have not been able to facilitate for 30 years,' he said. 'We're not taking the business away from them.'



Investments. Like most businesses in 2009, NVOs looked for ways to reduce their operations spending.

      'We didn't do anything in our business that we didn't do in our personal lives,' Troy said. 'We paid down our debt so that we have none and we own the office buildings.'

      Troy has 31 employees between its headquarters and its new branch office in Charlotte, N.C.

      Mergers and acquisitions were not prevalent last year due to lack of available financing and the ocean shipping industry's preference to sit tight through the economic downturn. However, some NVOs did buy out partners or opened offices.

      'You have to take the long-term view to this industry,' Scovill said. 'We didn't cut off our investment mentality.'

      C.H. Robinson acquired London-based Walker Logistics Overseas in July. 'Walker expands our capabilities in the Asia-to-Europe trade and strengthens our distribution and gateway capabilities for two key European markets ' London and Amsterdam,' Scovill said at the time of the acquisition.

Web only content •   Mining NVO data •   An industry check

      'The large neutral NVO industry has consolidated as much as it can already,' Brennan said. 'For us, the focus of acquisitions will be on niche players. Our real ability to capture more market share is through our global footprint.'

      Last year, Shipco added about 100 staff and opened five new offices overseas ' two in China and one each in Ho Chi Minh City, Slovenia and Istanbul. 'We got our staff more motivated to go the extra mile. There were no layoffs, only minor adjustments,' Jepsen said.

      Shipco also credited its ability to offer 1,250 LCL export services globally to its involvement in the WorldWide Alliance, an entity launched two years ago by Shipco to link strong regional NVOs while maintaining their corporate independence. 'It's absolutely fundamental to who we are at Shipco and how we're going forward,' said Fiona Govan, the alliance's executive director.

      The NAAA has experienced similar activity among its member participation. 'During good times when people were making money, the NAAA was acceptable. Now we're really pulling together. We're stronger than we've ever been,' Saggese said.

      All the NVO executives interviewed for this article said they continued making varying degrees of information technology investments in 2009.

      For instance, Ocean World Lines, an NVO which moves more than 100,000 TEUs of shipments a year, recently launched OWL360', an order, shipment and inventory tracking portal powered by Management Dynamics.

      'A lot of companies have so-called track-and-trace systems where they enter the data into their system as it comes in and the customer has to go to the Web site to get that information,' said Alan Baer, president of Lake Success, N.Y.-based OWL, in an interview.

      OWL's tracking system was once a highly manual process in which operations personnel entered data received from carriers and performed manual queries.

      Baer explained that OWL360' provides electronic data interchange links to its carrier base, including liner and landside transportation providers, who in turn regularly feed the system with the latest updates as cargo moves through the supply chain.

      'We're actually pushing the information to the customer rather than the customer going to search for it,' Baer said. 'We're now not just moving their freight but offering them visibility across their supply chain.'

Charles Brennan global chief operating officer, Vanguard Logistics Services
'The large neutral NVO industry has consolidated as much as it can already. For us, the focus of acquisitions will be on niche players. Our real ability to capture more market share is through our global footprint.'

      'Good IT and systems are no longer very expensive or difficult to implement,' said Albert Saphir, president of ABS Consulting, a Weston, Fla.-based consultancy specializing in the forwarder and NVO industry. 'Many are even available on a 'software as a service' basis and thus require very little upfront investment and you pay as you use.

      'I think the IT solutions are the easy part today, unless you were sleeping under a rock for the last few years,' he added.

      In addition to Management Dynamics, other IT systems providers to the North American NVO industry include IES, TradeTech, Kewill, FourSoft, ASCI and Magaya.

      While IT upgrades have further improved the NVOs' nimbleness, they still rely on the ability to offer customer service at a more personal level.

      Michael Burke, vice president of East Rutherford, N.J.-based SeaMates, said the decrease in freight volumes in 2009 gave his company 'an opportunity to remind us of the 'get back to basics' mindset. For SeaMates, that meant that we needed to offer our customers excellent customer service, something that was harder to do in 2008 due to the increased volumes and workloads we had to deal with, as well as the competitive pricing.'

      SeaMates maintains a receptionist to direct incoming customer calls to the right people on staff. 'We are constantly exploring and researching new systems that have potential down the road, but most importantly, we are investing in our staff to make sure they are providing customer service we are proud of,' Burke said.

      'Our strategy has been to integrate and spend more time with our customers,' Hellmann's Krusin said. 'The profitability on a port-to-port move is very limited and we have been focusing on services beyond these areas, such as contract logistics and distribution services.'

Challenges Persist.    The NVO industry generally expects a difficult 2010, where freight rates continue to increase across all trade lanes as liner carriers initiate further capacity cuts and trade lane exit strategies in an attempt to recover steep financial losses incurred in 2009.

   'Over the next few months our industry will continue to experience regular price increases on the key trades and space capacity will remain at a premium,' Krusin said.

      'Space protection worldwide is a key challenge for shippers in 2010,' Gerace, of BDP Transport, said. 'A third party NVOCC such as BDP Transport will be able to help shippers mitigate the effects by taking advantage of its volume procurement relationships in numerous lanes.'

      For now, Saphir said downward pressure on rates and margins will    cause NVOs to experience lower ocean freight revenues for some time. But he remains optimistic in the resiliency of the NVO industry to weather this economic recession and come away stronger as the market improves.

      'Business volumes should stabilize,' he said. 'Those that made the required investments and focus on servicing their customers should do just fine in 2010.'