The world’s largest carrier, Maersk Line, hopes to capitalise on a historic moment in the container industry’s development to pull off a fundamental shift in the way shippers and carriers meet to discuss long-term contracts.
With freight rates at record levels in nearly all trade lanes, the next round of long-term contract negotiations represent a momentous opportunity to move from sea freight as a commodity to focus on the value the industry provides to the global supply chain, according to Robert van Trooijen, Maersk’s senior vice president, head of Latin America and the Caribbean.
Spot rates and box volumes are soaring according to data from Xeneta. A box on the Asia to US east coast trade lane is being shipped for US$4,670/FEU on the spot market and US$3,228/FEU on long-term contracts closed in the last three months, the upcoming contract negotiations – responsible for more than two-thirds of the industry’s annual volumes – are likely to be the most significant in history.
Speaking at the TOC Americas Virtual Expo, van Trooijen said it was time, once and for all, for the industry to do away with the “old conversation about buyers and sellers markets” towards a more long-term vision focused on customer needs.
For Maersk, in particular, the negotiations will represent validation (or not) on their much-publicised shift away from being a shipping line to an end-to-end logistics provider.
“We come from a culture where all of the calendars had ships on them, and we’ve transformed ourselves to the point where it’s all about the customer;” he said. “Of course we have ships and we have container terminals but those are there to support the customer and not the other way around.”
Creating long-term value for its customers in return for guarantees on delivery and reliability is likely to be crucial in the forthcoming negotiations.
“That’s certainly something we’re going to talk about in the next couple of months,” said Van Trooijen. “We’re trying to change the way we talk about these things. We’re trying to find long-term value rather than, if you will, cyclical value. For us we have a long-term vested interest in ensuring a solid customer supply chain and we want to work with our customers to supersede that cyclical approach.”
“It’s a discussion about de-commoditising. If you think of supply chain value that is not a commodity it is coming very close to the core of what any enterprise has that trades so if we can take the discussion to supply chain value rather than ocean freight as a commodity then I think we’re getting to the point,” he said.
Shifting to a value conversation away from a freight rate commodity is a moot point for shippers, currently, who find themselves paying record rates to ship boxes whilst receiving the lowest levels of reliability since people started tracking the industry’s collective punctuality in 2011.
According to the latest data released by Copenhagen-based research specialist, Sea-Intelligence, container reliability is at an all-time low with only 63.7% of container vessels reaching their destination on time.
“I think the reliability is unacceptable,” said van Trooijen. “We should as an industry improve our reliability we have just had a discussion about that today in our board meeting. It is something that we need to work on.
“I also think we need to change the discussion about traditional dynamics. Part of the reason for unreliable services is overbooking and part of the reason for overbooking is downfall. I don’t want to get back into the old paradigms of if everybody shows up at the same time then we don’t have overbooking and if we don’t have overbooking then we can be more reliable.”
“I think we need to change the dynamic. When we stop having the discussion about the commoditised product and start having the discussion about the value proposition which is of mutual interest then I think reliability will follow.”
Rainbow Blue Nelson
Americas Correspondent
