Xeneta, the Oslo-based benchmarking and market intelligence platform for containerised ocean freight, has quizzed its worldwide database of contributors to uncover the main reasons businesses end agreements with container ship carriers.
Price, risk management and loss of trust were pinpointed as the primary catalysts for calling time on relationships in a market currently riven by instability.
Xeneta is global database of contracted ocean freight rates, with over 600 major international businesses providing the latest crowd-sourced data on their shipping costs. These contributors, chiefly executives with shipping or supply chain responsibility, provide over 12 million contracted rates, covering more than 60,000 port-to-port pairings, on all main global trade corridors. The result is unique market insight.
“One might expect bad service to be the main reason for swapping supplier,” said Xeneta CEO Patrik Berglund, “but that isn’t the case in container shipping. The current state of the industry, with huge capacity oversupply leading to collapsing TEU rates, has effectively created a price war, pushing cost front of mind for anyone shipping large volumes of product.
“Let’s look at the main Far East Asia to North Europe trade routes as an example. Here, the market average price for transporting a 40-foot container has fallen by 45% since 1 July 2014, now standing at $1,487. According to the clients we polled, this has created an environment where price is now the way of measuring an incumbent partner. If they aren’t prepared to offer something that is appropriate and in line with the market, then it’s time to switch carrier.”
Price may be top of the list with Xeneta’s contributors. Berglund notes that one client gave his top three reasons as ‘price, price and price’ but, for some at least, it’s not the sole consideration for switching. Risk management, in terms of supply, is also a factor.
He explained: “According to some of our shippers, shifts in trade lanes due to changing customer needs such as a significant volume increase on one lane and a decrease on another – may result in an inability for an incumbent carrier to provide the requested capacity. If you think of retailers that need to react to changing market demands, it’s imperative that their supply chain is both reliable and flexible. A carrier that can’t meet those criteria is simply too much of a risk.
“In addition, there are signs that the market is now picking up and prices are increasing, this creates a new risk. For shippers that negotiate long-term rates when the market is low there is a danger of rolling cargo, whereby their products are left on the docks to make way for shippers paying higher prices. The resultant loss of sales/supply this incurs is a far more frightening scenario that just paying a few hundred dollars more in rates.”
Loss of trust was the last of the top three, with bad experiences or contractual failures undermining relationships that may otherwise have prospered. Again though, price was often a key factor.
Berglund says that some container ship carriers price strategically to win market shares, but then a few months into the relationship try to adjust rates to meet their business requirements. This could be in the form of rolling cargo or simply hiking their prices.
“In such a cut-throat segment, which seems to be in a constant state of flux at present, many of these carriers are fighting to survive,” he observed. So it’s understandable they want to maximise rates wherever possible.
“However, shippers rely, and base their entire operational plans, on the information provided by their suppliers, such as guaranteed capacity, transit time and pricing, so the commitments that are made during the procurement process must be honoured. If they don’t do that, they don’t keep the business.”
Berglund says that real-time market intelligence is crucial for shippers who want the best prices in such a dynamic segment.
“Container costs are fluid and if you aren’t up to date with price fluctuations and market trends then you won’t be able to optimise your shipping costs,” he concluded. The container ship industry needs greater transparency to achieve some sort of stability, potentially setting commodity prices that everyone can agree on, and we believe the intelligent use of big data will be the foundation for this.”
Companies on Xeneta’s cloud-based software platform update their shipping data either daily, weekly, monthly, quarterly or yearly – depending on their procurement strategy – giving a rolling and real-time insight into the state of the market. This allows the firm’s over 2,000 global users to compare their ocean freight rates against current prices, informing better logistics procurement decision making.