Small shippers need not apply
Monday, July 25, 2011
SeaIntel finds carriers, large NVOs mostly uninterested in rate quotes for small transpacific, Asia/Europe shippers.
By Eric Johnson
Shippers groups have long bemoaned the treatment that small shippers get from container lines. Now they have a little more ammo.
A report in mid-June from Danish maritime analyst SeaIntel outlined the difficulties new, smaller shippers can face in getting carriers and large non-vessel-operating common carriers to respond to rate requests.
It also highlighted how jargon-heavy and difficult to comprehend rate quotes from carriers can be.
In the report, SeaIntel posed as a small shipper interested in shipping two standard dry 40-foot containers from Hong Kong to Southern California and from Hong Kong to Rotterdam.
The results of the investigation were underwhelming. Only nine of 33 carriers and large NVOs responded to SeaIntel’s rate request on the transpacific. And only 11 of 27 did so on the Asia/Europe request.
“That there would be carriers unresponsive was not a surprise, but the number that was unresponsive was a surprise,” said SeaIntel Chief Executive Officer Lars Jensen, a former executive with Maersk Line. “It surprised me that so many larger NVOs were unresponsive. It seems if you are a smaller shipper, it doesn’t matter whether you go to a carrier or a larger NVO.”
Jensen said the investigation intentionally focused on large NVOs “to get an apples-to-apples comparison” with carriers. He said the carriers SeaIntel examined control 90 percent or more of capacity on the two key east/west trades.
“I’m not saying it is right or wrong to serve small BCOs (beneficial cargo owners) directly,” he said. “What I find problematic is a lack of responsiveness. It doesn’t leave a very good impression for a small cargo owner that may or may not be a big one down the line.”
Jensen said some companies that did not provide a rate often had good justification.
“Of the 24 companies (on the transpacific) that did not provide a rate quote, five responded saying they were not interested in quoting — three, because of the low volume; one insisted on a contract and would not provide a tariff rate; and one requested details which were not yet known by the importer,” he wrote in the report.
He said the mere courtesy of explaining why a quote wasn’t given was noteworthy.
|“It seems if you are a smaller shipper, it doesn’t matter whether you go to a carrier or a larger NVO.”
chief executive officer,
“Some of the really positive feelings we had were the few ones who honestly came back and said we were too small and recommended NVOs,” Jensen said. “That would be a good experience we would remember.”
Of the other companies that didn’t provide rates:
• Some acknowledged receipt of the requests within 30 minutes, but then never responded.
• Some sent requests for further details, but then never responded once they were given the additional details.
• Some were sent reminders and did not respond.
• “One suggested the importer contact their foreign office for the rate, but did not attempt to assist by redirecting the request or bridging the communication between the importer and the foreign office.”
• Five companies “should have received the request for rates via their online Web portals, but since the importer had not received e-mail acknowledgements for the submitted requests (automatically or otherwise) it is not entirely clear whether they had even received them. It seems Web forms often result in the inquiry disappearing into a ‘black hole.’ ”
Smaller forwarders inevitably would argue they would be more responsive than carriers or large global forwarders, but Jensen said those small forwarders often aren’t able to garner the preferential rates that bigger NVOs are.
“What this showed is it’s very tough to go to them directly,” he said. “Larger NVOs would hypothetically get the best rates because of their volumes, but small BCOs weren’t able to benefit.”
Interestingly, on the transpacific request, SeaIntel found that some of the carriers and NVOs who did respond gave very competitive rates. Wan Hai, for example, quoted a rate of $1,650 per FEU including the bunker surcharge. Four other lines quoted from $1,850 to $2,000 per FEU including surcharges.
“We were surprised at some of the lower end quotes we were getting,” Jensen said. “It seems to suggest the price war is pretty fierce out on the front lines.”
In the report Jensen admitted he didn’t expect to get any competitive rates for his mythical shipper, given its small volume. The idea wasn’t to secure bargain rates, but rather to gauge how easy it would be for a new shipper to get a comprehensible rate and good customer service.
When asked whether it made sense that some carriers and large NVOs shied away from giving rate information to a small shipper they knew little about, Jensen replied that shielding rates is all but impossible.
“That’s always been the argument,” he said. “They don’t want that transparency. But when you look at how markets work, the players know the rates because they are benchmarking. This thing about people not knowing what the rates are in the market doesn’t fly. People do know what the rates in the market are.
“You always want to have a reasonable feel for the price in the market. I can certainly understand carriers not wanting to make the time to give quotes that may or not be taken. But some carriers have provided a quote in minutes. The quotes don’t have to offer the sharpest rate in the market — this is a small shipper.”
He added that the reticence of carriers and large NVOs to respond to small shippers leaves a “fantastic business opportunity for small and mid-sized forwarders.” Though Jensen doesn’t see why carriers fail to more regularly harvest such business.
“I don’t understand why carriers don’t try to tap into these markets,” he said. “You could set up a reasonably simple transactional product.”
Another troubling finding in the report: carriers and NVOs sometimes offered different rates on the same quote sent to different offices of the same carrier or NVO.
“We obtained two quotes from Panalpina,” the report said. “We had contacted their U.S. office, and we had also requested a similar quote for Hong Kong to Los Angeles from the Europe office. Even though the information submitted was identical, the quotes were not. One quote was for $1,400 (per FEU) base rate and $568 (bunker surcharge), and the other was for $1,332 (per FEU) base rate and $468 (bunker surcharge).”
Jensen said providing different rate quotes on an identical request is obviously not ideal from a customer standpoint.
“If you have a decentralized organization, it gives local offices more latitude to offer rates,” he said. “There can be quicker response time, and the offices can be more savvy to the local market. The alternative is a more rigorous structure, but you control the rates more effectively.”
Yet more confusion arose when SeaIntel tried to secure rates via the online rate system of several carriers versus asking for a rate via e-mail or a rate request form.
Matson’s quote for the Hong Kong-to-Los Angeles shipment via the carrier’s online system was $3,600 per FEU base rate. When SeaIntel inquired about the rate via e-mail, the rate was $1,515 per FEU base rate. That’s an extreme example, but SeaIntel found without exception that the rates generated by automated rate systems were higher and not commensurate with current indexed rate levels.
“In comparison with the actual quotes we have received, we must, as in the case of Matson, conclude that the rates posted online seem unlikely to reflect actual pricing in the market,” the report said.
SeaIntel got a little further using online Web forms to request rates rather than e-mailing a specific address.
“Online Web forms were clearly a case of going into a black hole of information,” Jensen said.
The analyst also found that many quoted rates were indecipherable for a company not used to shipping containers. From Asia to Europe, rates included as many as 24 acronyms, while some included charges in multiple currencies. Other rates included currency surcharges based on percentages, but did not specify if the percentage was applied to the base rate or rate including other surcharges.
“Reading the feedback on most quotes is only possible if the importer is intimately familiar with shipping abbreviations and the interpretation of surcharges,” the report said. “The norm is a significant usage of unexplained abbreviations.”
The process left Jensen to conclude that carriers and NVOs are largely uninterested in targeting ad hoc small shipper business.
“Based on the many carriers and NVOs we have contacted, we have to conclude that overall it is extremely difficult to be a small cargo owner looking for a simple price quote,” the report said. “In the majority of cases you are simply ignored, and when you finally do get a response, it is unlikely you will be able to completely understand what price you are actually being quoted.”