MEL IN THE PRESS

Lloyd's List
April 27, 2005

Box lines warned on 3PL slot deals
Carriers will tighten freight forwarder credit lines, writes Phil Hastings- Monday April 25 2005
 

Container lines should increasingly treat forwarders and third party logistics providers as competitors rather than customers, amid a growing battle for control of global maritime logistics chains, advises a top transport academic.

Specifically, carriers should be more careful about selling their slot capacity to those competitors on a wholesale basis. Instead, the lines should look to improve their utilisation of vessels through greater co-operation with each other, for example by further development of alliances.

And the likely dismantling of the worldwide liner shipping conference system due to political pressures, should help the development of such alliances as carriers seek to balance the loss of rate-fixing mechanisms by securing greater control of their costs.

That, at least, is how the director of the Centre for Maritime Economics and Logistics at Erasmus University in Rotterdam, the Netherlands, Professor Hercules Haralambides, believes the global maritime logistics sector is set to develop over the next few years.

The professor, whose organisation acted as adviser to the European Commission Competition Directorate in its recent re-evaluation of Regulation 4056/86, which exempts liner conferences from anti-trust legislation, said that global maritime logistics chains could either be controlled by forwarders/3PLs or shipping lines.

“The former have very strong networks, large organisations and substantial buying power. In my view, therefore, carriers should be more careful about the way they negotiate the selling of wholesale space on their vessels to such competitors,” stated Professor Haralambides.

He went on to suggest that if shipping lines wanted to improve the utilisation of the space on their ships there were opportunities to achieve that through greater co-operation with other carriers.

“I definitely see shipping lines stepping up their efforts to exert greater control over the maritime logistics supply chain. Many are already investing more in land-related infrastructure so they can do that,” he added.

Speaking privately to Lloyds List, a senior executive with one of Europe’s leading ocean freight forwarders confirmed the view of Professor Haralambides that competition between the forwarding and shipping industries for control of maritime logistics chains was set to hot up over the next few years.

“For instance, I can see the carriers tightening up their credit lines with forwarders, which will have an impact on the latter’s cash flow,” he stated.
Asked whether such competition might lead to more cross-sector acquisition activity, either shipping lines buying forwarding organisations or vice versa, Professor Haralambides said the latter was probably unlikely. “I don’t see forwarding groups like UPS, DHL Danzas, Kuehne & Nagel, etc, buying container ships,” he stated.

As far as moves by shipping lines to acquire forwarders were concerned, he agreed that such developments in the past had not really worked.
However, Professor Haralambides said that carriers were currently investing heavily in land-related infrastructure such as warehousing, distribution and information technology systems.

“Things have changed since the 1980s when shipping lines first attempted to acquire forwarders. Now, everyone is looking for one-stop shop arrangements and carriers are very well placed to offer integrated logistics,” he added.

Professor Haralambides also suggested that current international political moves, for example by the European Union, to try and dismantle the liner shipping conference system could indirectly have a significant impact on the efficiency of maritime logistics operations. “If lines are not able to co-operate in terms of setting rates then they will try and achieve greater operational efficiency and cost control through alliances with each other. Further development of such alliances should improve the efficiency of maritime logistics chains,” he stated.

Even so, warned Professor Haralambides, his organisation was still concerned that the wider long-term consequences of abolishing the conference system had not been fully assessed by the EU.

“We strongly fear that outright competition in liner shipping could be destructive. In our view, some degree of self-regulation and co-operation is absolutely necessary in order to have services which are sustainable in the long-term,” he argued.

Source: Lloyd's List, 25 April Issue