[170118.EN.BIZ] NVOs Feel Pinch From Shipping Lines' Move to Offer Digital Products

NON-VESSEL operating common carriers (NVOCCs) increased their market share of US imports from Asia by just 0.4 per cent to 43.1 per cent in the first three quarters of 2017, down from 1.8 per cent growth in 2016. The decline was attributed to the larger shipping lines attracting smaller shippers with digital product offerings.

If the growth rate in Asian import share holds for the calendar year, it will be the slowest growth for NVOs since 2012, when NVOs lost 3.5 points of share. In the decade from 2006 to 2016, NVO share of Asian imports recorded a 3.4 per cent compound annual growth rate, reported IHS Media.

NVOCCs in the first nine months of 2017 increased their share of all US imports by 0.7 per cent year on year to 38 per cent, according to PIERS, a sister product of JOC.com within IHS Markit.

However, the winners in the market share battle between carriers and NVOCCs (forwarders) will be the transportation providers with the best service. "Digitisation, no matter how well executed, has to go hand-in-hand with the ability to provide customer service whenever things do not proceed according to plan," SeaIntelligence CEO Lars Jensen was quoted as saying.

Carriers such as Maersk Line, CMA CGM, and Hapag-Lloyd have signalled their intention to leverage digital platforms and go directly to beneficial cargo owners (BCOs) to boost market share, said Freightos CEO Zvi Schreiber.

"With low rates and chronic oversupply, carriers are certainly feeling the pressure to increase direct market share and keep some of the [NVOCC] markup for themselves," Mr Schreiber said.

The majority of the biggest carriers tended in the past to focus on their largest customers for most of their business, conceding to NVOCC cargo supplied by smaller shippers. NVOCCs therefore increased their share of US imports from Asia to 43 per cent in 2016, up from 29 per cent in 2006, according to PIERS.

"I expect that we will continue to see at least a modest continued growth in [NVOCC] share as [the leading] carriers consolidate, grow larger, perhaps become less agile and focus mostly on just their largest customers," said the president of the Americas at a large carrier. He added that he would not be surprised if the US trade grows to resemble the Asia-Europe trade, where forwarders play a dominant role.

However, a number of digitised products offered by carriers and third parties have simplified the booking process and enabled carriers to reach mid-size and smaller shippers they may have failed to go after in the past. Last year Maersk, for example, reportedly restricted rate provisions for named BCO accounts in forwarder contracts, making it more attractive in some instances for the BCOs to deal directly with the carrier.

In many cases, BCOs rely on NVOCCs to handle the total transportation move, including purchase order management and cargo consolidation in Asia, ocean transportation, and deconsolidation and inland transportation in the US. For those small and mid-size shippers, it makes sense for the BCOs to rely on sophisticated NVOCCs with comprehensive information technology systems.

This is even more the case today with BCOs selling their products not only at stores but through e-commerce and omni-channel outlets as well, said SEKO Logistics COO Tony Barnes. NVOCCs that provide a full menu of value-added services will be especially effective in large volume commodities such as fashion, sportswear, toys, and furniture.

In fact, the PIERS numbers show that NVOCCs gained 0.2 per cent share in furniture and 0.1 per cent in plastic articles, but they lost share in electric machinery, TV and sound equipment, and vehicles and vehicle parts. NVOCCs do not have to compete with carriers on price, but rather with their ability to deal with the complexity of multi-channel distribution, Mr Barnes said.

Sophisticated BCOs, be they large or small, do not use NVOCCs purely as a price play, even in the current market where overcapacity causes carriers to be flexible on pricing.

An importer of hardware products said that when vessel space is tight during the busy periods, low-rated NVOCC cargo is the first to be bumped from vessels. Furthermore, carriers in the past few years have filed for general rate increases (GRIs) almost on a monthly basis. The smaller BCOs who booked their shipments with NVOCCs are the ones paying the GRI, he said.

Freightos expects increased volatility this year. "The carrier-forwarder battle will likely escalate in 2018," Mr Schreiber said. He expects carriers that have developed digital platforms will aggressively seek to capture "the long tail of of small and midsize shippers."

Source : HKSG.