OSRA Made Fantastic Changes In Shipping
The Ocean Shipping Reform Act of 1998 (OSRA), which took effect on May 1, 1999 contains provisions that are letting ocean carriers, shippers, freight forwarders, and consolidators get creative with the services they offer and the way they work with each other. For example, OSRA allows groups of unaffiliated shippers, ocean consolidators, and freight forwarders to form shippers associations. These are voluntary associations of companies that pool their freight volumes in order to negotiate favorable rates with ocean carriers. There even is one joint venture in which a shipper, DuPont Global Logistics, and a freight forwarder, BDP International, have formed an association that will allow smaller shippers to obtain the benefits that large multinational shippers like DuPont can achieve.
Several carriers and shippers have reported that they are taking advantage of OSRA’s freedoms by looking beyond the traditional boundaries of port-to-port transportation to develop full-service logistics capabilities. Although none of the carriers or third-party service providers will give specific details, conversations with both sides indicate that in the near future, more ocean carriers will be providing third-party logistics services, either on their own or through partnerships with existing providers.
Some carriers already have been doing so through logistics subsidiaries, such as APL’s ACS Logistics and Maersk-Sealand’s Maersk Logistics. The ocean carriers see contract logistics as a growth area and are throwing significant resources into business development. Maersk Logistics, formed by consolidating the former Sea-Land subsidiary Buyers Consolidators and Maersk subsidiary Mercantile, now has 160 dedicated offices in 55 countries. ACS Logistics, meanwhile, is rapidly expanding from its Asian stronghold into Europe and Latin America in order to have a global presence. Its parent company, APL, recently hired Mercer Management Consulting to help it plot a growth strategy that focuses on supply chain management and has added another logistics division, APL Business Logistics. It seems certain that other carriers and even ocean consolidators will follow their lead.
Online freight auctions will also have a significant impact on the shipping industryaspecifically, on how shippers buy and carriers sell ocean freight services. Until now, carriers have largely sold space through visits by sales representatives to large shippers. Service contracts were negotiated with ocean carrier conferences, and developing new rates was a long, drawn-out affair. With online auctions, by contrast, shippers can electronically post a request for a quote that includes the necessary shipment details, then wait for several carriers to make a bid. Shippers can then compare rates, transit times, service, and other details to find the best deal in hours rather than days.
These auctions won’t eliminate service contracts. Shippers will still want to lock in rates and service levels with their preferred carriers. But the electronic bid systems work well for spot shipments, particularly for shipments to unfamiliar destinations. They also make it easy for smaller and mid-sized shippers that don’t normally get a lot of attention from carriers to obtain the information they need quickly and easily, and most likely get a better rate than they otherwise would. As for freight forwarders that are charged with finding reasonable rates and good service for their clients, online auctions help them search far more efficiently than is possible with telephone and fax.
Shippers and carriers alike clearly are taken with online freight auctions. Some of the Internet-based services say they now have hundreds of participants. A concern for many shippers, though, is whether the online purchase and sale of ocean transportation will reduce transactions to numbers on a computer screen with no relationship behind them. Is it in a shipper’s best interest to buy transportation the same way agricultural and mineral products are traded? Or is the trend toward developing strong partnerships with carriers a more valid model for ocean shipping? The most likely scenario is that online dealing will remain largely the province of the spot shipment and the small to medium-sized shipper, while larger shippers will continue to rely on long-term relationships and direct negotiations.
Information technology will increase its influence on ocean shipping in other ways. At the SingaPort 2000 conference in Singapore earlier this year, Jim Poon, managing directoraAsia for OOCL, said that technology would allow ocean carriers to get closer to their customers while cutting transaction costs and enabling them to offer more value-added services. Shippers in particular will benefit from the ability to gain access to detailed shipment information down to the purchase-order level, which they can use to create customized reports that are useful in forecasting demand and managing inventory, he said.
Shippers also should keep a sharp lookout for further consolidation in the shipping industry. One might wonder what could be left after several years of “big name” mergers like those of Neptune Orient Line and APL, P & O Containers and Nedlloyd, and Maersk and Sea-Land. But as long as the global and regional economies reward growth and broad-based service portfolios, mergers will continue. Recently, mid-sized carriers have been the targets, with CP Ships snapping up Lykes Lines, Ivaran Lines, Contship Containerlines, Australia-New Zealand Direct Line (ANZDL), and TMM Lines. Hamburg SA[fraction one-quarter]d, parent of Columbus Line, last year purchased competitor Crowley American Transport’s South American business. Hamburg SA[fraction one-quarter]d also recently bought several other South American carriers, including Transroll and Alianca Line. Most recently, P & O Nedlloyd announced that it had purchased Farrell Lines, which serves the U.S. East Coast-Mediterranean trade (see Page 21).
Interestingly, most of these acquisitions have left the smaller carriers intact, including their national flags and names. Michael Beard, president and CEO of ANZDL, believes that’s because niche carriers have a cost and flexibility advantage over global behemoths. “Efficiencies on overhead costs are much more a function of information technology and work-process simplification than one of size,” he said in a speech to the International Trade Club of Southern California earlier this year. “The niche operator of tomorrow will be lean, flexible, and professional and will fill an important role in the global transportation network.”
Further change may be in the offing. With new entrants in the trans-Pacific trade and the recent cooperation between the Grand Alliance (Hapag Lloyd, NYK Line, OOCL, and P & O Nedlloyd) and Americana Ships (Lykes Lines and TMM Lines) in the trans-Atlantic trade, anything can happen. Although capacity is increasing on those routes, rates are not heading downward. Instead, trade volumes continue strong, and carriers are raising rates and surcharges to compensate for soaring fuel and operating costsaproving once again that shippers can’t be too sure of exactly how the market will behave. “Expect the unexpected” should be shippers’ guiding principle, at least for the near term.