NVOs? favored treatment leads to resiliency

NVOsÆ favored treatment leads to resiliency       I read with interest the March cover story ('The Resilient NVO,' pages 16-23 or www.AmericanShipper.com/links). Resilient, meaning flexible and elastic, is a great way to put it. The non-vessel-operating common carriers' business model affords them a great deal of resiliency. And by fiat from a certain segment of the underlying service providers, they have a unique business model that allows them to thrive in virtually any market condition.
      As in any business, the best and the brightest achieve more than the average. Consider:
      ' NVOs provide services that require significant capital expenditure with concomitant risks, yet they participate in neither the capital outlay nor the risk; other entities do that for them.
      ' NVOs' service providers, the same ones who have the capital outlay and take the concomitant risks, give the intermediaries favorable rates that virtually ensure gross margins regardless of market conditions.
      In 2009, while asset-based companies lost a combined $20 billion, NVOs had marginally reduced profits. Their favorable position with rates and services with certain asset-based companies, the (relative) lack of capital requirements, and their flexible business model puts them in a very unique position.
      They have grown over the decades from local, sometimes 'mom and pop' operations, to large sophisticated firms with multigeographic locations; from essentially consolidators, to movers of large volumes of primarily containerload freight; from customers of ocean carriers to direct, head-to-head competitors as well as customers.
      The industry's growth is tied to the quadrupling of global containerized freight during the past 20 years, and offering a menu of services using multiple ocean carriers, that the single ocean carrier cannot offer. Some carriers have created logistics firms to compete with NVOs' broader menu, but it is hard to convince most cargo interests they are dealing with a logistics firm that is an independent entity from its parent.
      As long as NVOs receive favored treatment from certain asset-based companies, their resiliency and results are almost assured. As in any other industry, there will be those who are more resilient, possibly from investing in better systems, and will thrive while others fail. I look forward to reading the next chapter of this story, say, in three years?

Gary Ferrulli
principal, Global Logistics & Transport Consulting LLC,
Chandler, Ariz.