CSAV right sizes 28

Exports hoist U.S. fl ag 30

SmartWay imitators 36

Dirty drayage’s exit 40

www.americanshipper.com

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MARCH 2012

Redrawing competitive

NVOs won ocean freight market

share in 2010 and held it in 2011

24 AMERICAN SHIPPER: MARCH 2012

the race to secure shipper customers.

According to figures provided to Ameri-

can Shipper by the trade intelligence firm

Zepol Corp., NVOs handled 19.6 percent

of U.S. inbound volume in 2007, increasing

to 19.7 percent in 2008, and 20.1 percent in

2009. That share jumped to 24.6 percent in

2010 and stayed precisely at 24.6 percent

in 2011.

So 2012 could well tell a bigger story in

terms of where this breakdown between

direct carrier bookings and NVO bookings

is headed. In the last five years, the shift

to NVOs in 2010 was clearly the outlier.

“Considering the comments we’ve re-

Non-vessel-operating common carriers wrested a

significant cut of U.S. inbound ocean transporta-

tion market share from liner carriers from 2009

to 2010 — a 22 percent increase, to nearly one quarter of all

U.S. import volume.

From 2010 to 2011, NVOs largely held onto their newfound

share of the market, a sign that the economic tumult of 2009

might have permanently redrawn the competitive lines in

NVOs won ocean freight

market share in 2010

and held it in 2011.

BY ERIC JOHNSON

Redrawing competitive

AMERICAN SHIPPER: MARCH 2012 25

TRANSPORT / OCEAN

ceived from customers, and input we’ve

received from our carrier partners, the

shift in market share from vessel-owning

carriers to NVOs appears to be permanent,”

said Bob Connor, vice president of global

transportation for Mallory Alexander.

“The NVO community certainly picked

up market share in 2009 from the carri-

ers, in part associated with vessel-idling

programs instituted by the shipping lines

in the transpacific trade,” he continued.

“However, it must be recalled that vessel-

idling really only impacted the U.S.-Asia

and Asia-Europe trades. The volatility

and commotion which occurred in the

transpacific trade in 2009 was really not

as significant a factor in the transatlantic

and South and Central American trades,

and it wasn’t as dis-

ruptive an issue in the

adjacent transpacific

U.S./Australia-New

Zealand trade lane

either.”

Rather than just the

disruptions caused by

vessel-idling in early

2010, Connor said a

larger factor may have been the economic

knock-on effects on shippers that still

persist today.

“We believe that the downturn in the U.S.

economy during the same period, and the

effect it had upon importers and exporters

to generally reduce overhead, including

staffing in their logistics departments,

contributed to a shift away from dealing

with the shipping lines individually,” he

said. “By dealing with integrated OTIs

(ocean transportation intermediaries),

importers and exporters could gain access

to a multitude of carriers in a given trade

lane, in many cases with a common rate

per port pair.”

That NVOs held onto market share gained

in 2010 last year underscores Connors’

point, especially given there was no growth

in U.S. inbound volume from Asia in 2011.

The statistics bear out that 2011 looked very

much like 2010 in total.

“We have experienced sustained support

from our client base which employed this

strategy,” said Greg Howard, global chief

executive officer with the NVO CaroTrans.

“The lessons learned will remain a valuable

reference point as the landscape in 2012 is

showing similar conditions as those of 2009.

The key here is that our position with our

core carriers remained strong as a result

of our loyalty and commitment to mutual

support of each other during the tumult of

2009 until present.”

Anecdotally, it appears carriers have

retrenched in their sales efforts too.

more FCL shipments means NVOs are at-

tracting boxes that would have ordinarily

been booked directly with carriers.

When considering this rise in FCL ship-

ments for NVOs, it’s important to note the

distinctions between the two basic NVO

business models: neutral and integrated.

The customer base for neutral NVOs are

predominantly other freight forwarders

or OTIs, whereas for integrated NVOs, it

tends to be manufacturers, importers and

exporters, or their agents.

“The integrated NVO’s service is part

of a broader 3PL service offering,” Connor

said. “The market strategy of neutrals and

integrated NVOs is significantly different,

and the shipping lines’ dealings with the

two types are markedly different.

“The integrated NVO generally is work-

ing with its customers to try to develop a

long-term relationship where ocean trans-

portation is part of a broad transport solu-

“Perhaps (the market share shift) was

passing, but we do see fewer steamship sales

people in the field compared to the past,”

said Peter Gruettner, president of Extra

Logistics, though he did add that NVOs

will always be limited to a certain point.

“The carriers will maintain the control to

the point that they own the vessels,” he said.

“While NVOs may look to negotiate rates

and services, in the final analysis, it will

be the carrier who determines the services

offered and investment into the trade.”

A subset of this subtle shift to more use

of NVOs is just exactly how shippers are

using those NVOs. Last year, American

Shipper reported that NVOs began handling

more full-container load (FCL) volume than

less-than container load (LCL) volume.

That shift has a lot to do with the perma-

nence of market share gains for the NVO

industry as a whole. LCL shipments are a

staple of the NVO business, but securing

• Large shippers can use NVOs to diversify their transport options

as carriers are likely to restrict capacity in the coming months.

• Small shippers benefit from scale provided by NVOs, especially as

carriers focus on accounts moving at least 10,000 TEUs annually.

• Shippers should decide what NVO model — neutral or integrated —

best fits their business.

Shipper takeaways

All NVO shipments(2011 market share by % TEU)

Expeditors International

of Washington Inc.

Blue Anchor Line

Phoenix International

Danmar Lines Ltd.

Orient Express

Container Co. Ltd.

Apex Shipping Co.

Schenkerocean Ltd.

Seamaster Logistics Inc.

Topocean Consolidation

Service Los Angeles Inc.

Hecny Shipping Ltd.

Others (less top 10)

2.6%

8.1%

59.7%

6.3%

4.0%

4.0%

4.0%

3.9%

2.6%

2.6%

2.3%

Source (for all charts): Zepol Corp.

Connor

26 AMERICAN SHIPPER: MARCH 2012

TRANSPORT / OCEAN

tion. The goal is to secure rates fixed for

a longer period of time — minimally six

months — and to provide the customer with

multiple carrier options at a common price.

The neutral NVOs tend to live in more of

a market rate environment — 30-day rate

terms being common — and approach

the marketplace with a more speculative

attitude.”

Liner carriers prefer to focus their sales

efforts on shippers that move more than

10,000 TEUs per year, while NVOs tend

to attract shippers moving less than that.

But with even large shippers looking at

diversification strategies, integrated NVOs

are seeing more FCL business.

“It is not uncommon for an OTI to be

asked to offer pricing in the less

active trade lanes of a major

BCO (beneficial cargo owner),”

Connor said. “It should also be

pointed out that the larger NVOs

are well recognized and solicited

by the carriers, for which some

of them have formed specific

sales teams to deal with the NVO

community.”

He added that some so-called

“master loader” NVOs in Asia

often get the benefits of larger

shippers with the volume they

bring to the fore.

“Some carriers effectively treat

the freight handled by the larger

Asian co-loaders as base freight,

and have offered some of their

lowest rates in the transpacific

eastbound market on a spot basis

(30 days) to these master load-

ers,” Connor said. “These con-

tracts generally have minimum

quantity volume commitments

exceeding 4,000 FEUs. However

we are starting to hear that some

of the major transpacific carriers

are rethinking the strategy of

giving the master loaders such

unrestricted access to the trade,

despite the large volume commit-

ments. The shipping lines more

and more have seen these lower

‘wholesale’ rates finding their

way to their BCO customers in

the form of rate offers.”

The precarious financial state

of the liner industry no doubt af-

fected the market share situation

between vessel operators and

NVOs in 2009. And some NVOs

are seeing similar signs this year.

“Depending on which article

you read and the day of the week

it is read, you get mixed signals

on what the carriers intend to

do,” Howard said. “The issue of balancing

supply and demand has been a challenge

for the lines for years. As larger vessels are

delivered from the shipyards and as more

frequent sailings are offered, it is difficult

to imagine how carriers can afford the

costly exercise of ‘cold lay-up’ of vessels.

The real question is not about carriers pull-

ing capacity but rather which carriers will

survive another year like 2009.”

If lines do pull capacity on major east-

west trades (particularly the transpacific

for North American shippers) then NVOs

with size and scale would stand to gain, as

they did in 2009.

“Scale is an integral part of an NVO’s

ability to provide sustainable and best in

class service,” Howard said. “The chal-

lenges associated with space, equipment

and line-haul costs are felt by everyone.

However, with proper scale, these are often

better managed due to the relationships

and commitments the NVO has with the

ocean carriers, draymen and intermodal

operators.”

Connor agreed, but said volume isn’t

the only factor when it comes to logistics

companies that act as more than simple

wholesalers.

“Scale, or volume potential, certainly

plays a significant role in the level of at-

tention and cooperation an NVO receives

from the shipping lines,” he said. “However,

in the case of integrated NVOs the volume

of freight tendered as an NVO is

not the defining component of

the relationship with the ship-

ping line. Certainly the volume

of shipments that Mallory pro-

cesses as an NVO, a forwarder,

and a customs broker impacts

our relationship with our select

carrier partners.”

Aside from external mar-

ket dynamics, there’s another,

simpler reason shippers turn

to NVOs: it’s hard for smaller

shippers to get a rate.

“The shipper who has the

same commodity from point A

to point B with little variation is

a good carrier candidate,” said

Gruettner said. “But if a shipper

has different needs in their scope

of business, an NVO is a good

option. Obtaining carrier pricing

is not easy, as the turnaround

time and clarity of quotes can

be a challenge.”

That was borne out by research

last summer from the maritime

analyst SeaIntel, which found

that only five of 22 liner carri-

ers responded to a rate request

for a shipment of two 40-foot

containers from Hong Kong to

Southern California. However,

only four of 11 major global

forwarders responded to the

same request, suggesting even

larger forwarders aren’t always

responsive.

Small and mid-sized forward-

ers are more responsive, but often

lack the scale to secure the best

rates on the market, said Lars Jen-

sen, chief executive at SeaIntel.

“We did find that NVOs are

gaining control over an increas-

ing part of the cargo — par-

ticularly cargo stemming from

An LCL view

While the market share struggle between carriers and

non-vessel-operating common carriers centers on

full-container loads, NVOs that focus on less-than

container loads (LCL) continue their own expansion.

The major integrators, like DHL, Panalpina, and Kuehne

+ Nagel, announce new LCL port pairs almost weekly, and

they’re joined by LCL-only companies with an intense focus

on transit times, cost reductions, and shipment visibility.

“Service, reliability and competitive rates are paramount,”

said Kris De Witte, chief executive of the LCL player Ecu

Line. “The industry simply expects the global NVOs to

provide this and we expect no change in this. The customer

base of Ecu Line remains the freight forwarder. We continue

taking our neutral position in the logistics chain very serious.”

De Witte said Ecu Line “cannot have enough direct

services.

“Direct services, versus using hubs — 99 times out of a

100 — allows us to offer the market the best transit time,

reduced handling and best rates,” he said. “During the last

three years we added approximately 250 new direct services

for our clientele. Our customers want to feel they work with

one company worldwide at origin and destination.”

De Witte said he sees the LCL industry evolving on the

same path as the express industry did before it.

“If we look back 10 to 15 years ago, we had to compete

with hundreds of smaller competitors,” De Witte said. “The

vast majority were specialized in a few trade lanes and only

offered services from one or two origins, a bit similar to the

courier/express package business way back. And using this

comparison, we all know that right now this market has fully

consolidated and less than a handful of major companies

divide the pie. A similar thing is happening with the LCL

segment. Already now, we notice that only a very limited

number of companies are at play and considered by the

medium-sized and multinational freight forwarders. This

will continue.

“The future to remain successful as an organization in

this industry is to manage ever-increasing volumes of LCL

combined with a low internal cost per transaction, and of-

fer a fully transparent end-to-end product for the freight

forwarder and their customer base,” he said.

AMERICAN SHIPPER: MARCH 2012 27

TRANSPORT / OCEAN

small to mid-sized cargo owners,” Jensen

told American Shipper in February. “One

reason is simply purchasing power. If you

are looking to ship just a few containers you

can not get as good a rate from a carrier

as an NVO shipping thousands of boxes.

“The second, more important, reason is

that it has become increasingly difficult for

small cargo owners to do business directly

with the carriers. Carriers have increasingly

focused on making their processes more

efficient, but this has also resulted in less

time to deal with small cargo owners who

typically need more hand-holding, whereas

this type of business is more core-territory

for the NVOs.

“The carriers’ approach to this is often

mixed. On one hand they do not like the

NVOs stepping in as the middle man, ef-

fectively taking some of the value in the

value chain. On the other hand, they do

recognize that having the NVOs as good

clients allows them a much better reach

into the segment of smaller cargo owners,

while at the same time allowing the carrier

to reduce costs associated with sales and

customer service.”

As for the 2012 outlook, NVOs largely

expect the highs and lows to continue. But

as asset-free businesses, they’re often best

at navigating such choppy waters

“There is no doubt that the transpacific

trade, particularly the eastbound, domi-

nates the landscape of our industry,” Connor

said. “In a way, it is unfortunate as in the

other U.S. trades, where capacity and de-

mand have been reasonably balanced, there

is significantly less volatility with rates.

“Overcapacity in the transpacific trade

contributes to keeping freight rates in the

trade depressed. Until action is taken to

permanently bring capacity in scope with

demand — in short, consolidation within

the carrier industry through merger, acqui-

sition or insolvency — we should expect

nothing more than an ongoing roller coaster

ride regarding freight rates in the trade.

Also, there should be no doubt that if and

when the time comes that vessel space and

demand is brought in balance, freight rates

in the trade will on average be much higher.”

Connor said Mallory Alexander expects

rate increases secured by lines in the lead up

to Chinese New Year will have dissipated

by March. That aligns with research from

American Shipper, which polled 124 ship-

pers and intermediaries in late January and

found 60 percent expect rates to drop on the

eastbound transpacific after Chinese New

Year, compared to 20 percent who expect

rates to increase.

Intermediaries are even more expectant

of a drop in rates on the trade in the coming

weeks, according to the survey, with nearly

three-quarters anticipating rates will fall.

Yet intermediaries are also more wary of

carriers pulling eastbound transpacific

capacity in the coming months, with 72

percent expecting capacity withdrawals,

compared to only 58 percent of beneficial

cargo owners.

“The only option the carriers have to avert

a slide in rates is to remove capacity,” Con-

nor said. “However, as seen during the 2009

vessel-idling program, the revenue gains

and cost savings realized by the carriers

while vessels were idled in no small part

were gobbled up with the costs incurred

to bring the idled ships back into service.”

As Gruettner put it, NVOs learn to roll

with the punches.

“There will always be trade and the vol-

umes will rise and fall with uncertainty,” he

said. “The carriers with the larger invest-

ments will surely protect those investments,

while others who came to the table and

played a few losing hands may walk before

putting more capital on the table. We will

just have to find the solutions with the is-

sues that come our way.”

NVO shipments by load type (%, in millions)

2007 2008 2009 2010 2011

53%

52%

51%

50%

49%

48%

47%

46%

45%

2.101.81

1.82

1.67

1.98 2.051.74

1.70

1.53

2.04

Less-than-containerload

Full-containerload