The renaissance of carrier logistics operations raises the question of whether customers will benefit

Maersk was first out of the box with plans to integrate its supply chain and ocean transport businessses

THE saying that “what’s old, is new again” could be a somewhat prophetic description of what is happening in the container-shipping world, albeit in a slightly different guise.

A few of the biggest liners have made some noteworthy moves of late that leave open the question as to whether there is an overall shift towards getting back to the pre-downturn business models of trying to offer a greater end-to-end supply chain portfolio, or will it mostly be the few at the top of the heap able to do this?

The most high-profile examples are Maersk’s decision to integrate its Damco supply chain services arm in with the company’s ocean services, alongside other recent announcements of related logistical enhancements, and CMA CGM acquiring global third-party logistics company, CEVA Logistics.

The term “integrate” may be the key change over what was happening prior to 2008’s global economic meltdown that, after the recession hit, ended up having a devastating impact on carriers as they started shedding many of their logistics and related business units to focus more on stripped down port-to-port services with best-rate commoditisation seemingly becoming the new normal for containerised transport.

Now that the global economy has tangibly improved, lines appear to be investing again, but the devil is in the details of how they are doing it. In Maersk’s case, its business “transformation” involved a breakup of businesses with the sale of its energy group and a demerger of its drilling rig unit.

Maersk’s breakup streamlined its focus on shipping, ports, and logistics. Chief executive Soren Skou also made it clear to investors last year what integration now means.

“We’re building this company that is a global integrated container business, a company very similar to UPS and Fedex.”

A similar refrain was sounded by CMA CGM chief executive Rodolphe Saadé in early April.

“We can now offer our customers a complete range of solutions that meet all their needs and set us apart from the competition,” he said.

Being competitive, as Mr Saadé said, could be partly fuelledby adapting to some evolving realities in the shipping industry.

“The idea is to differentiate. I would say it’s a question of sustainability in the long run,” said CMA CGM Canada general manager Jean-Baptiste Longin in an interview with Lloyds List Containers.

While Mr Longin said he was not ready to proclaim things were back to as they were pre-recession, he did see a trend.

“I think the trend now is more about integrating transport and logistics into one product, a one-stop shop.”

The precarious nature of global trade issues, such as the ongoing, and troubling, tariff war between the US and China – two of the biggest trade partners in the world – is also factoring into the integration thought process, according to Mr Longin.

“After all the merger and acquisition activity, the industry has to better balance supply and demand,” he said. “We are very dependent on global trade and being more integrated in more solutions will definitely help us.”

The 3PL response

The perspectives of some competing third-party logistics firms on carrier integration are a bit more divided.

“I would only say that the question customers should ask is if these acquisitions will enhance the service they are getting,” said a source at a well-known US-based 3PL, who spoke on condition of anonymity.

“It may be a segmentation strategy,” he said. “Give the point-to-point shippers over to the NVOs, and target the shippers with more strategic, end-to-end supply chain needs, that prioritise service over bottom-feeder prices.

He added that it may also be a response to many retailers and importers trying to speed and simplify their supply chains.

“One strategy is to use fewer service providers,” he said.

On the latter point, CMA CGM’s Mr Longin was in agreement.

“A lot of beneficial cargo owners are asking for it,” he said. “Many of them are spending too much energy on each step of the supply chain – looking for less engagement and fewer intermediaries. Our customers are regularly coming to us asking if we offer custom brokerage, and can we offer last mile delivery.”

Maersk head of global logistics Klaus Rud Sejling concurred back in February, when commenting on his company’s acquisition of the customs house brokerage, Vandegrift.

“Customers have been asking us to simplify the complexity of their global supply chains and reduce their risk so we analysed the North America market to see who had the best reputation in the brokerage/trade compliance industry and deliver immediate results to all vertical segments of our account base.”

There is at least one other 3PL, and a customer of the container lines, who isn’t quite ready to declare for the ocean liner integration trend.

“I think the carriers are dysfunctional, and some have administrative challenges,” said Globe Express Services president David Bennett.

“I left Asia nine days ago and thought I had 90 percent of my [ocean freight] contracts in hand, and I should have had those contracts [in place] seven days ago,” Mr Bennett said. “I have cargo in transit, on the water, with my customers wanting to know when it’s landing.”

Mr Bennett said larger ship sizes had made ocean freight a commodity.

“It all seems to be more market-share focused, over value-add focused,” he said. “It doesn’t matter who you are, you know the rate. We bring visibility, vendor management, customs management, distribution – an all-in, one-stop solution. I’m not optimistic about carriers’ success with integration.”

Digital demands

Whether or not a critical mass of shipping lines moves towards integration at the scale of a CMA CGM, or Maersk – Cosco, for example, is starting to make more noise concerning end-to-end integration – there are other disruptions occurring in the freight marketplace that are causing shifts in strategic thinking for anyone engaged in shipping, especially digital transformation.

The huge growth of e-commerce and the forces driving this supply chain disruption, most notably the behemoth online shopping platforms like Amazon and Alibaba (with the former seeming to rapidly become its own supply chain integrator), coupled with the emerging proliferation of digital freight forwarders/brokers, is causing many industry ripples that look to become bigger waves of change.

Mr Longin said CMA CGM planned to become 100% digital by the end of next year at the latest, with the recent launch of the shipping line’s new eSolutions product that aims to, among other things, offer real-time access to rates and spot quotations, simplified automated booking and fully digital bills of lading.

“It is a revolution for us,” he said. “We need to gain productivity by being digital, much more than we are. We need to adapt to this new reality. It is easier to integrate more activities when they are linked to digital transformation.”

Maersk has made, perhaps, the biggest digital splash with the investment into its combination with IBM and the subsequent launch of the liner’s TradeLens blockchain product. More recently, Maersk funded $21.9m into a New York-based digital brokerage startup, Loadsmart, and just the end of April, announced the launch of a new digital customs clearance platform.

Whether its enhanced digital solutions or offering more robust third-party logistics-type services, Globe Express Services’ Mr Bennett still wonders if the shipping lines will be prepared to effectively compete, and if customers will pay.

“There’s absolutely no value in simply getting the best price on 100 containers out of Shanghai,” he said. But US importers trying to get their freight into the Ohio Valley, or the Chicago corridor, for example: there’s a price attached to these services.”