Ship guys vs. bean counters

Ship guys vs. bean counters

Peter Spiller president, Florida Shipowners Group Inc.

   Maersk Line Chief Executive Officer Eivind Kolding is bravely searching for the right questions and answers to assure Maersk Line's future ('Maersk CEO Eivind Kolding’s ‘manifesto’ '). Many would agree with the Shippers' Voice, ' ' you surely cannot but admire the nerve of Maersk. It is a big, bold and brassy initiative ' '
   IBM's publicity in connection with its 100th year anniversary draws parallels Maersk's (the Danish company is as old). IBM hammers home with urgency that a company must move viably forward to survive: 'Nearly all the companies our grandparents admired have disappeared. Of the top 25 industrial corporations in the United States in 1900, only two remained on that list at the start of the 1960s. And of the top 25 companies on the Fortune 500 in 1961, only six remain there today. How does a company confront relentless commoditization? ' the hand of commoditization spares few ' Our lesson learned: You have to keep going to the future.' To capitalize on their finding that ' ' a profitable idea can come from many sources' IBM is searching at 'population scale via social media.' Similarly, Maersk has created an 'online forum' as their idea magnet.
   I fully agree with Kolding's approach. It's about time! I do think, however, his assertion that containerized shipping 'has not changed much' since its beginning is an under appreciation of a myriad of smaller revolutions that were stimulated by containerization's “creative destruction” (a term identified with Austrian-American economist Joseph A. Schumpeter). Many changes that took place over the past 35 years were positive for all players, while others are decidedly negative.
   Kolding lists three areas needing improvement: reliability, ease of doing business and sustainability. We'll look at the progress made in each of his categories, then suggest a fourth with significance for future strength.
   Reliability: Maersk's first nine fast container vessels (delivered 1975-1976) were almost always precisely on the time versus the only 50 percent on time today admitted by Kolding. For more than 10 years the Maersk sailing schedules, bulk-mailed monthly, gave the exact hour of arrival, not just a date. I remember often inviting customers to come see the docking of a ship carrying their cargo. 'Be at Tioga Terminal by 8 a.m., the Saturday after next, that's when she'll dock.' And dock at 8 a.m. she would! In those early years, Maersk Line's service was ranked by customers as the 'gold standard,' the 'Cadillac' of the industry. Market shares grew and significant rate premiums were the norm. Today's slow steaming provides significant reserve capacity to speed up if delayed, an ace in the hole enabling return to on the hour punctuality.
   Ease of Doing Business: In the late 1970s and through the mid-1990s, a customer wanting a rate would call the local Maersk office and almost always get a quote on the spot, or occasionally within 24 hours, from a booking clerk who may have assisted him many times before and therefore knew his business. They may even have shared a martini lunch or two (that was O.K. then!). While not the 'one-click shipping' sought by Kolding, from the customer's perspective it was 'seven-click shipping' — the seven digits of a local telephone number to reach the Maersk clerk. Easy and pleasant for the customer, yes. Cost saving for the carrier, or easy on the liver, no.
   Contrast 'seven-click shipping' (and the human relationships this built) with SeaIntel's recent findings ('Tough times for small shippers'), about how frustratingly difficult it was to get rates for two dry containers moving port to port from Hong Kong to Los Angeles and Rotterdam. SeaIntel asked 60 vessel and non-vessel-operating common carriers to quote. Only 20 of the 60 rate requests were even answered. Of those companies who answered, some gave two different rates (from offices in two different countries or from the carrier's online rate system versus asking via e-mail). In one case the difference was more than $2,000. SeaIntel found many quotes indecipherable, including up to 24 acronyms.
   Of course since early days of containerized shipping, carriers have dramatically streamlined internal processes and saved back office cost. When Maersk began its first container line, cargo manifests were typed by hand and mimeographed. Neither Internet, e-mail (remember Telex?), nor practical fax machines had been invented. Container tracking was done by moving 'T' cards from slot to slot in large moveable racks and by communicating changes via hand-typed Telex. Error prone, and expensive, yes. But seldom a problem for the customer.
   Containerization's “creative destruction” pushed hard on many supporting technologies, especially data processing, and yielded much improved access to data at a cost of less manpower.
   While data automation has helped carriers save costs, from the customer's perspective, new technology has not yet made every aspect of dealing with shipping lines easier. Kolding's goal to make it as easy to book a container as booking a flight online should be within reach, although those of us who book our own flights using airline or third-party automated systems might hope for a performance bar set higher. And the frustration dealing with an airline when something goes wrong is not at all my idea of a good time. Container carriers ought to be able to do better.
   Sustainability: Maersk's first nine container vessels had capacity of about 1,400 TEUs, just one-tenth of today's modern and efficient vessels. Initially they were powered by fuel-thirsty turbines. Today's big new ships might burn less than a quarter of the amount of fuel per ton-mile, an amazing carbon footprint improvement!
   Containers originally were made of expensive, energy-intensive and easily damaged aluminum, and were only eight feet high. Newer high-cube (both higher and longer, sometimes wider) steel containers carry a lot more cargo for similar cargo-handling energy expended. Double-stack trains were unimagined (unit trains were taking shape, however) and yielded dramatic rail energy efficiency. For sustainability, Kolding's assertion that containerized shipping 'has not changed much' is a dramatic understatement.
   Bob Lutz's latest book, Car Guys vs. Bean Counters, provides seeds of insight that may help Kolding look in a fourth direction when deciding how Maersk must evolve.
   Lutz held senior positions at General Motors, Ford and Chrysler for 47 years, ending up as vice chairman of global product development at GM from 2001 to 2010. He had the cat bird's seat to observe, participate in, and share responsibility for the decline of major U.S. industrial companies. He recounts hard lessons learned.
   A core culprit Lutz points at is de-emphasis of the 'product guy (or gal)' at GM in the 1950s and 1960s and the 'ascendancy of 'professional management,' often individuals with a strong financial background.' He tells us that 'senior GM managers did not necessarily dislike cars ' it was a generalized consensus that we were, after all, primarily in the business of making money, and cars were merely a transitory form of money: put a certain quantity in at the front end, transform it into vehicles, and sell them for more money at the other end. The company cared about 'the other two ends' — minimizing cost and maximizing revenue — but assumed that customer desire for the product was a given.'
   'I maintain that without a passionate focus on great products from the top of the company on down, the 'low cost' part will be assured but the 'high revenue' part won’t happen, just as it didn’t at GM for so many years,' he said.
   Lutz tells with sadness about the cheapening of GM's flagship brand, high-margin Cadillac, that once was 'without a doubt the U.S. standard, technologically ' part of a strong brand identity. Cadillac was synonymous with power and luxury ' '
   Again he fingers ascendancy of professional management over the car guys who were 'aware of what had gone before, genuinely loved Cadillac cars and owners.'
   What Lutz shared about the collapse of GM suggests that in addition to improving reliability, ease of doing business, and sustainability, Kolding should rebalance his management's skill profile. Effectiveness of today's ascendant professional manager must be strengthened by assuring all are ship guys with a passion for providing a great product for customers they love.

Peter Spiller
president,
Florida Shipowners Group Inc.
Fort Lauderdale, Fla.