Non-vessel-operating common carriers faced a higher degree of ocean freight rate hikes in May than beneficial cargo owners (BCOs) who booked directly with ocean carriers, according to research from American Shipper.
The results of American Shipper’s latest Transpacific Pulse survey, released in early June, reported that 76 percent of shippers who indicated their rates rose significantly in the last month were 3PLs or intermediaries. Shippers — whether retailers or manufacturers — accounted for the remaining 24 percent.
The figures jive with anecdotal rate information conveyed to American Shipper in early June from a number of NVOs, who said they have been subject to carrier rate increases in the previous three to four weeks that far exceed those assessed to direct shipper customers.
Carriers in the transpacific have been focused on increasing revenue levels on the trade, mostly by implementing a series of rate hikes and surcharges since the start of the year. Transpacific Stabilization Agreement member lines are seeking another increase, a recommended peak season surcharge of $600 per 40-foot container, from July 1.
NVOs contacted by American Shipper said the prevailing rates for a 40-foot container from base China ports to the U.S. West Coast are around $1,600 to $1,800 all-in for BCOs, but $2,000 to $2,500 per 40-footer for NVOs.
Typically, NVOs pay higher rates than BCOs, but the split tends to be $100 or $200 higher, not $400 to $600. The NVOs characterized the carriers’ diligence in collecting higher rates from them as an attempt to wrest market share back from the non-asset operators.
Rumors of different rate standards for NVOs and BCOs have swirled through the latter half of May, just weeks after the conclusion of an annual contracting season that was considered mediocre for transpacific carriers.
A spokesperson for the U.S. Federal Maritime Commission said that “FMC staff has heard from a couple of NVOCCs with this concern but has not received an influx of complaints.”
Martin Dixon of the London-based consultancy Drewry told American Shipper the company’s index of transpacific spot rates hasn’t shown the blip that NVOs say they’re seeing.
“Eastbound spot rates have remained largely unchanged in recent weeks,” he said. “However, we expect carriers to make all attempts to force through the (peak season surcharge) which will impact NVO rates but also, more importantly, smaller BCO rates.”
One NVO that American Shipper spoke to said he’s expecting the July 1 surcharge to be “significantly mitigated,” though he admitted no carrier yet has “diverged or talked mitigation yet.”
American Shipper reported in its March cover story (“Redrawing competitive lines,” pages 24-27) about how NVOs won sizable market share from carriers in 2010 and held that share in 2011. Market share growth has been a defining characteristic of the NVO-carrier dynamic in the last decade, but there remains a fragmented NVO industry serving U.S. inbound container markets.
According to data from trade intelligence firm Zepol Corp., the biggest single U.S. import NVO, Expeditors International, had only an 8.1 percent share of the market in 2011.
NVOs have gradually gained market share as the industry on the whole has increased its ratio of full-containerloads (FCL) to less-than container loads (LCL), a trend American Shipper and Zepol highlighted in March 2011.
The market share gains by NVOs on the transpacific might have reached an untenable threshold for carriers, given their own financial worries. NVOs have long been perceived by carriers as somewhat parasitic, able to glom onto their business without footing the heavy asset bills that come due for physical operators.
That, of course, is an overly simplistic view, and one that doesn’t pay heed to the investments NVOs have made to provide technology and services that shippers want. Nor does it take into account the huge variations in size and focus that exist among the dozens of NVOs in the trade.
Alternatively, it has been suggested that ocean carriers might actually be better served by essentially outsourcing some or all of their sales and service functions to NVOs, and focusing on their core business — ocean transportation. In that view, the ocean freight industry would more closely resemble the air freight industry, where direct contracts with shippers are the exception, not the rule.
Delving further into the latest TP Pulse results, 51 percent of overall shipper respondents (3PLs and direct shippers) said their rates increased in May. But the number of retailers and manufacturers who saw their rates rise modestly was double that of those who saw it rise significantly. Put another way, retailers and manufacturers were more than twice as likely to see modest rate hikes than significant ones.
3PLs, on the other hand, were twice as likely to see significant rate hikes as modest ones.
Of 98 shipper respondents to the question about rates, 39 were 3PLs, 29 were retailers, and 27 manufacturers (three fell into the “other shipper” category). Only six total retailers or manufacturers said their rates rose significantly in the last month (before early June).
There was a fairly even breakdown among total shipper respondents in terms of how their rates behaved. Nearly 26 percent said their rates rose significantly, another 26 percent said they rose modestly, 22 percent said they remained the same, and 14 percent said they decreased modestly. Four percent said their rates decreased significantly. Bear in mind, these divergent trends (with nearly 52 percent of shippers’ rates increasing and nearly 41 percent staying stable or falling) occurred in May.
This suggests that different classes and sizes of shippers are indeed being treated differently by carriers — perhaps an argument against the idea that container shipping is veering single-mindedly down the path toward commoditization. — Eric Johnson
NVOs subject to punitive rates?
