LETTER: Risk and reliability balance in liner shipping

By Trevor Heaver 
professor emeritus, Centre for Transportation Studies
Sauder School of Business 
University of British Columbia
Vancouver, Canada
  
   In 2001, Flemming Jacobs, then president of NOL, pointed to the need to find opportunities to change the old way of working in liner shipping, to replace the simple reliance on rate negotiations. In 2002, C.C. Tung, CEO of OOCL expressed concern about rate competition among “commoditized” shipping lines. They were searching for a better way of doing business.
   The decade since then has not only seen the “normal” cycle of boom and slump. In 2004-2005, supply chains, particularly those dependent on North American West Coast ports, faced severe capacity constraints. During the 2008-2009 credit crisis, ships at berth were unable to load because of the absence of credit. In 2011, natural disasters disrupted supply chains severely. They are still recovering and adjusting.
   The result is a heightened awareness of risk and a new search for reliability by executives in all parts of supply chains. New approaches to managing international logistics chains are evident in various ways. They include: the search for shipping options with greater but differentiated levels of reliability and price; and a recognition that greater collaboration can result in gains in logistics efficiency. The roots of change were evident in liner shipping during the decade.
   The absence of a sea-air service from Asia to North America, equivalent to the sea-air service through Dubai with Europe, encouraged APL Logistics in 2006 to offer guaranteed LCL port-to-door service from China to the United States in collaboration with APL and Con-way Freight. It was extended geographically in 2007 and a full-container guaranteed service was introduced in 2008.  In 2009, Hanjin and MOL introduced time-guaranteed services on routes from Asia through the U.S. West Coast. 
   The role of collaboration to achieve greater efficiency and therefore reliability has come to the fore more recently. The absence of service elements from confidential service agreements in U.S. trades is now being addressed with some shippers by the introduction of provisions in service agreements dealing with shipper shortfalls against container shipment orders (overbooking) and shipping line roll-over of containers available (delayed shipping). In the Asia-Europe trade (and others) lines appear to be introducing load protection fees and payments to shippers in the event a booked container cannot be loaded. In June 2011, Eivind Kolding, CEO of Maersk, encouraged a debate about the focus of the liner shipping industry by outlining the New Normal in liner shipping. The central question is how will reliability be improved in maritime logistics chains? 
   It will likely require greater efforts in liner operations and more collaboration between supply chain participants to manage and share risks differently. Greater reliability of shipping services should be more practical with the current capacity situation of the lines but it still requires a commitment of lines to a heightened level of service. It could be made more practical by collaboration with shippers and may require shippers to pay rates differentiated by service level. It remains to be seen whether container shipping will evolve with service and price differentiation, comparable to fare classes on passenger aircraft, or service reliability as the weapon in the market share game.