Parcel carriers to press container lines for business, IBM forecast says
Full-service container shipping lines that provide door-to-door deliveries will need to improve customer service and technology capabilities if they want to compete with logistics integrators for shippers looking for greater reliability and one-stop shopping for their outsourced supply chain needs, according to a study by IBM’s business consulting division.
Vessel operators that are not able to globally standardize and integrate their product offerings and processes, and offer value-added services through better data management, will be relegated to the low-margin sector that focuses on port-to-port line haul, the IBM team found in its study on the future of the container shipping industry.
The greatest long-term threat to container lines comes from the package delivery providers, such as UPS, DHL, TNT and FedEx, that have leveraged their customer-first approach and shipment tracking capability to become integrated transportation and logistics providers, the study said.
“Package delivery providers, with brand names synonymous with the speed and reliability customers seek, are likely to target container shipping lines’ customers,” the study said. “And they may even target container shipping lines as potential acquisitions to protect their own products.”
Meanwhile, large trucking companies like Yellow Roadway are aggressively expanding into freight forwarding and third-party logistics.
“A decade from now, land-based providers will have acquired the capabilities necessary to offer door-to-door services with parcel industry standards of reliability — largely in collaboration with some container shipping lines that are focused port-to-port providers,” the study said.
To fend off this challenge, vessel operators will need to establish deeper relations with their customers and focus on customer service.
Shipping lines that want to grow will need to change their culture from one of near-term asset optimization in which customer requirements are subordinated or ignored to a customer-driven model characterized by flexibility and nimbleness to respond to changing market conditions. Many shippers and transportation intermediaries complain that carriers have cut back on customer service in an effort to consolidate and reduce costs.
While efficiency is important to be competitive, high income growth will accrue to those companies that have the ability to weed out non-profitable customers and trade lanes, accurately forecast demand and then map it to a constantly updated catalog of products and services. As capacity has tightened in the trucking industry, for example, motor carriers are reserving business for customers who are willing to pay decent rates and take steps to help the truckers get quicker turns through their facilities.
Yield management principles dictate that carriers use variable pricing based on capacity levels and customer density at inland delivery points. By driving service to those areas where most of its customers are located carriers reduce the distance their trucks must travel. A doubling of volume in dense delivery areas can reduce total land transportation costs by 25 percent, which amounts to 5 percent of total revenues going straight to the bottom line, IBM said.
The trick for container lines will be strike the balance between standard and customized offerings.
“Each carrier will have to figure out how to create scale out of a customized approach,” Naresh Hingorani, an associate partner with IBM Business Consulting Services and co-author of the report, said in an interview.
“When you invest in a customer, your ability to create higher value allows you to gain the confidence of a customer a lot more because now you can provide an extra value that cannot be easily displaced. It becomes more than just a relationship,” he said.
The study said the container industry will continue to consolidate with the top 10 carriers controlling about 80 percent of the market a decade from now compared to 53 percent today. The next 20 players will control about 80 percent of the market and the remaining companies will share the remaining five percent.
IBM’s Business Consulting Services unit is the outgrowth of its acquisition of PricewaterhouseCoopers. Last year’s acquisition of Maersk Data from A.P. Moller-Maersk enabled the company to build up consulting expertise in the shipping industry.
