Although one might expect bad service to be the primary reason for switching suppliers, this is not the case in the container shipping industry, Xeneta CEO Patrik Berglund explained.
Xeneta, a Norway-based company that provides container freight rate benchmarking and market intelligence, revealed the top three reasons freight shippers switch containership carriers are price, risk management and loss of trust.
“One might expect bad service to be the main reason for swapping supplier, but that isn’t the case in container shipping,” Xeneta CEO Patrik Berglund said. “The current state of the industry, with huge capacity oversupply leading to collapsing TEU rates, has effectively created a price war, pushing cost ‘front of mind’ for anyone shipping large volumes of product.”
As an example, Berglund noted that on Far East Asia to North Europe trades, the market average price for transporting a 40-foot container has tumbled 45 percent since July 1, 2014 to $1,487. Consequently, according to clients Xeneta polled, this has formed an environment where price is now the way of measuring an incumbent partner, and if they are not prepared to provide something that is appropriate and in line with the market, then its time to switch to a different carrier, Berglund explained.
Meanwhile, Berglund said that while price is often the primary concern for shippers, for some it is not the sole consideration for switching carriers.
In terms of risk management, shifts in trade lanes due to the changing needs of customers could result in an inability for an incumbent carrier to provide the requested capacity, Berglund said. Its imperative for retailers that need to react to changing market demands have a reliable and flexible supply chain and a carrier that cannot meet those needs is too much of a risk, Berglund explained.
“In addition, there are signs that the market is now picking up and prices are increasing. This creates a new risk,” Berglund said. “For shippers that negotiate long-term rates when the market is low there is a danger of ‘rolling cargo’, whereby their products are left on the docks to make way for shippers paying higher prices. The resultant loss of sales/supply this incurs is a far more frightening scenario that just paying a few hundred dollars more in rates.”
A loss of trust can also cause shippers to switch to a new container carrier, as bad experiences or contractual failures can undermine relationships that could have prospered.
“Shippers rely, and base their entire operational plans, on the information provided by their suppliers, such as guaranteed capacity, transit time and pricing, so the commitments that are made during the procurement process must be honored,” Berglund said. “If they don’t do that, they don’t keep the business.”
Xeneta: Top three reasons shippers switch container carriers
