Maersk brings time-definite to Asia/Europe

   Maersk Line on Monday unveiled a new concept for its westbound Asia/Europe customers aimed a providing a fixed transportation time for goods shipped from four key Asian ports to three northern European ports.
    The product, Daily Maersk, will provide shippers a daily cutoff at each of the four Asian ports, compared to less frequent cutoffs from its competitors. That, Maersk said, will allow it to meet promised arrival times at the three European ports.
    Maersk will offer the product independent of its alliance partners, meaning only Maersk vessels will be used. The line’s fleet size and dominant position on the trade, where it says it enjoys a more than 20 percent market share, give it the ability to offer a service that other lines can’t match on its most important trade.
    “This is a complete Maersk product, not done with any alliance partner,” Maersk Line Chief Executive Eivind Kolding said in a webcast presentation from London Monday. “We have the scale and operational capabilities to go it alone, so we won’t have a need for partners.”

Kolding

    When asked whether other lines might ponder a similar product, Kolding said it would be tough for its rivals to build the fleet of vessels necessary to offer such a service.
    “We can speculate over competitors, but we know that this requires 70 large containerships,” he said, adding that other lines would need to consolidate to have such scale on the Asia/Europe trade.
    The product works like this: Maersk will offer daily cut-off times (the latest a shipper can deliver its cargo to a terminal gate to make a sailing) at Shanghai, Ningbo, Yantian and Tanjung Pelepas.
    The line guarantees delivery of cargo at Rotterdam, Bremerhaven and Felixstowe after a specific number of days, depending on which origin port the cargo leaves from. For instance, transportation time from Shanghai to any of the Northern European ports is 34 days. From Yantian it’s 30 days, and from Tanjung Pelepas it’s 26 days.
    On shipments that are one to three days late, Maersk will pay a $100 per container penalty. On shipments four or more days late, it will pay $300 per container. The line is rolling out a no-show/late arrival plan where it assesses penalties to shippers who book space but fail to show and pays them penalties if their cargo is rolled.
    The product has been launched on the head-haul Asia/Europe lane not only because it is Maersk’s key trade, but also because it is tailor-made for the trade, Kolding said.
    During his presentation, Kolding made the distinction between transportation time and transit time. He said carriers have routinely sold transit times (such as 28 days from Shanghai to northern Europe) to customers, when that doesn’t accurately represent total transportation — the time from cutoff in the origin port to cargo availability in the destination port.
    Maersk said a typical 28-day transit time doesn’t take into account the roughly three days containers sit in origin and destination terminals after cutoff and before availability at destination. Further, if a carrier only offers one cutoff time per week, that box could spend up to six extra days at the origin port.
    “Today what we sell in container shipping is transit time — the time the container is loaded on a containership,” Kolding said. “It makes sense for the container line but it’s completely irrelevant to the customer.
    “For instance, if you buy a book at Amazon.com, and UPS is handling the delivery, are you concerned with when package has boarded the UPS plane or when it arrives in your country? Not at all. You’re concerned with when the package is delivered to you. This is really what is relevant. What we’ve been selling for decades, transit time, is a kind of proxy, but not an accurate one. We will now focus on the transportation time. This is our promise to the customers.”
    The service is meant to address what Kolding called the industry’s “appalling” global on-time record, with about half of arrivals occurring more than one day late. The line’s salespeople will spell out cost savings of using a long-haul ocean freight service with time-definite arrivals.
    “You don’t need to store what you produce during the week,” he said. “On the receiving end, you don’t have to think about keeping inventory because you know exactly the day it will arrive.”
    The idea of day-definite services is not new — on the transpacific, a couple of lines have partnered with U.S. trucking or logistics companies to offer delivery on specific days. Those products, however, are aimed at higher rate brackets, in the sweet spot between ocean freight and air freight.
    Kolding said Maersk will attempt to extract a premium price from its customers for the service.
    “We have something that no one else can offer,” he said. “We will be poor salespeople if we cannot get some extra dollars for what we do. We will have to follow the swings in the market even though it is a premium product. Right now, the Asia/Europe trade is suffering quite a lot from very low freight rates. The majority of new ships can only go into Asia/Europe. So we’ll probably see some tough conditions, even with Daily Maersk, through the next 12 months. But what this brings to customers gives us an advantage even in a tough market.”
    The product is aimed primarily at larger shippers and forwarders, customers that Kolding said would realize major supply chain cost savings by using Daily Maersk within a long-term contract structure.
    “It will be difficult for spot customers to truly take advantage of Daily Maersk,” he said. “They will, of course, still have our promise. But for one week or two, they can’t really redesign their supply chains. We’re looking for shippers to partner with on longer terms of one year or even two years.
    “Over time, the composition on our ships will change. We’ll see more of the bigger accounts with complex supply chains, and less transactional business. But we’ll still need spot business to arrive at the full utilization of our ships.”
    Maersk will use its largest ships in operation, including its Emma Maersk class vessels (with a 15,500-TEU capacity), for Daily Maersk, and will deploy its to-be-built 18,000-TEU vessels (due for delivery from 2013) as well.
    The product doesn’t involve a radical rearranging of Maersk’s fleet, rather a more organized use of its existing Asia/Europe vessels so that daily arrivals at the four Asian origin ports are offered.
    Maersk plans to roll out the product from Oct. 24, with Kolding saying the line is targeting Jan. 1 Asia/Europe contract negotiations. It has been testing the product internally after developing it based on interactions with some key customers on the trade.
    One of those, Adam Rashid, international solutions manager at Sony Europe, said in a video during the demonstration that defined transportation times can eliminate major costs for a large importer in Europe. He said if a vessel is one to two days late, the situation is largely fixable, but also expensive, as shippers have to employ doubly-fast ground transportation to make up lost time.
    “Daily Maersk offers us inventory reduction,” he said. “You go from once or twice weekly departure to daily, that’s a big change. Efficient and reliable planning is really everything. It also offers us a lot of simplicity. If we want to approximate something similar, we’d have to work with eight port pairs or lanes. If this becomes the industry standard on Asia/Europe, I think it will change the shipping industry.”