The container shipping industry in the past was comprised of a wide mix of carriers. For instance, some were known for having the cheapest rates, while others were known for their extreme reliability and service levels for those willing to pay a premium for the service. There was also much less sharing of space on vessels between carriers, with each having their own unique routings. However, with the abolishment of the conference system and as carriers began sharing space on vessels, carrier services and offerings became narrower in scope.
Fast forward to today’s market and the gradual decline of service levels across the board is the reality. While there are still shippers looking for reliable and timely services, the market has changed and it’s becoming less feasible for carriers to provide these types of premium services.
As a result, the shipping industry is quickly heading towards shipping services becoming commoditized, making services between different carriers indistinguishable. How then are ocean carriers going to be able to differentiate themselves? As more and more carriers have rightfully focused intensely on cutting costs over recent years, it is in fact the ones that have stuck to having a customer centric focus that look to win the long game and are able to truly separate themselves from the crowd.
We spoke with Mr. Lars Jensen, CEO & Partner at SeaIntelligence Consulting, whose insightful knowledge of the container shipping industry makes him and his organization a great resource for learning more about what carriers can do to survive and even thrive in both current and future market conditions.
The Fight for Efficiency
While there are nuances between carriers and trade lanes, especially across the main global carriers, the difference in on-time performance and service levels has continued to shrink in general over the past few years. This is part of an overall trend we’ve seen with carriers looking to cut costs. Often that means saving on fuel by slowing down ships, cutting jobs and outsourcing, and automating tasks wherever possible.
Mr. Jensen explained that, “What we have seen the carriers do over the past several years is spend a lot of time and effort in becoming more efficient and with that talk about digitization has been at the forefront. Not that any of that is wrong, it’s necessary for carriers to do this if they want to remain competitive in terms of cost, but it is insufficient. If a carrier becomes successful, efficient, digitizes and automates all their processes, what is to prevent the other carriers from doing the exact same thing? So, the whole efficiency drive will only create a temporary advantage for any carrier that does it, but it will not generate a sustainable long-term advantage. The logical end-point we’re heading towards is a commoditized product and carriers will not be able to achieve a margin on that.”
It’s not hard to see why carriers have been placing such an emphasis on cost savings. Through the abysmal results of 2016 and year’s prior, carriers have been reeling and are only now beginning to find their footing again. Carriers have understandably then been keenly focused on managing costs, but the results of the second half of 2017 showed that some of them have recovered enough to a point where they can begin thinking about other investments.
If what Mr. Jensen says comes to fruition, what is the way out of this track? The simple fact may be that there isn’t a way out of it. Whether we like it or not, the services carriers provide are headed towards commoditization. While some may greet this with dismay, there is a silver lining to be had.
As those who work in this logistics and supply chain industry may know, there are ample opportunities where things can go wrong. Perhaps a ship is delayed because of a storm, or a port strike is underway, or a number of other circumstances can happen and it’s here where a personal touch is needed. This is exactly where carriers can differentiate themselves.
A Local Touch
The current negative cycle we’re in is eroding the trust between shippers and carriers. As the commercial relationship becomes more transactional and less loyal, it’s hard for either party to have satisfactory KPIs. Both parties want the cheapest price and highest returns, making it tough to negotiate and maintain high service levels.
To break this cycle requires both communication and people adept at negotiating acceptable compromises. Because service providers have been so focused on cost savings and automation, the need for a local human touch with customers has been put on the back burner. However, as Mr. Jensen said, “Carriers are now beginning to wake up to the fact that it’s not an either-or; they have to both automate and focus on the customer service element at the same time. The past few years have been so focused on cost savings that we’ve seen many jobs phased out due to automation or outsourced to service centers. Currently, carriers are now in a much better position to figure out how to invest in more people around the world but changing the mindset does take time though.”
It’s here in the trenches at the local office level where carriers stand to benefit the most from their investments. Local offices are better in touch with the community, are more in tune with customers and are better able to find a solution that best fills the gaps.
Mr. Jensen said, “Most carriers today are already capable of sending an automated message to a customer informing them of late cargo. However, that’s only one part of the equation. The other, and arguably more difficult task, is figuring out what you are going to tell the customer and what you can do about it. That’s why we’re coming back to putting an emphasis on what are the local contingencies that carriers can put in place.”
“For instance, perhaps one day a few rail carriages are broken, and I can only load 80% of the containers that were supposed to go, which ones am I to prioritize? That’s where skilled local people would have a better feel for what the impact would be on different customers. They can liaison with the customers because they will have a reasonable knowledge on who is devastated if you delay their cargo and for whom it will just be an annoyance but not a major problem. This is just one example where having a local on the ground person has a big impact on improved service levels for customer satisfaction.”
Training for Future Success
Even with the best automated systems and local teams in place, without proper training staff aren’t going to be performing at their expected levels. Mr. Jensen explained, “When you bring in a new person to train, a large portion of time is focused on handling the normal process, so when things go wrong they have a good feel for what that normal process is in order to get everything on back on track. Today, if you hire a customer service rep they are going to spend 90% of their time dealing with business as usual and 10% dealing with exceptions. A decade into the future when everything has been automated that customer service rep will now spend 0% on normal functions and 100% on the exceptions. How do you train a new employee? They will never get a hands-on perspective of what constitutes being back on track.”
“One approach I’ve seen integrates technology into training. For example, in high risk environments like automated terminals, things break down and someone needs to fix it. You don’t want to shut down the entire operation to teach this person how to move into the environment in a safe manner and training on-site would be highly risky. Through the development of VR simulations staff can efficiently be trained in how to move through the real-world environment safely.”
In the end, this should be happy news with those employed in the industry, as they are definitely needed. All the jobs that were moved and outsourced into service centers years ago may have been an oversight. While automation is of course important, it is reassuring to see that many carriers are recognizing that local offices can still play an important role in the overall global supply chain and that this industry is still a people focused business.