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Liner competition shifts focus to NVOCC’s

Today’s launch of CMA CGM’s SEAPRIORITY go and SEAPRIORITY get by CMA CGM reveals the confidence carriers have that the current surge in cargo on the Pacific will continue, but also shows the lines’ newfound ability to manage capacity, bolstering rates and carrier income.

SEAPRIORITY go will offer fast, 12-day, transit times from Yantian to Los Angeles with priority given to cargo out of Yantian to receive equipment and space on board the vessel. SEAPRIORITY get gives priority to cargo in the system for early discharge and chassis availability in the US port.

The French operator is offering a money back guarantee if the line fails to meet its obligations under the SEAPRIORITY contract. SEAPRIORITY effectively establishes a tiered system for designated cargo.

“Customers have expressed a need for fast transit times on certain products especially electronics, garment and outdoor furniture,” CMA CGM Group told Container News, adding that reefer cargo was not targeted on this service.

Six vessels will operate the service, beginning today with the departure of the 6,350TEU APL Florida. Another five vessels ranging in size from 4,500TEU to 6,500TEU will join the service. However, CMA CGM were shy about where these ships have come from, whether they are added capacity on the Pacific or whether the vessels have been shifted from another service.

APL Florida appears to have been operating in the Asian trades, calling at Port Klang, Haiphong and Yantian in October and Long Beach in mid-November. It is currently not been revealed which other ships will operate the loop, though what is clear is that there will be cargo to carry.

Ship operators are expecting the fourth quarter of 2020 to be more profitable than the previous three months as demand remains strong on both the major tradelanes, the Pacific and Asia/Europe services.

Pacific rates have effectively flatlined over the last month, following the intervention of regulatory authorities, but rates on the Asia/Europe trades have risen substantially over the last month, from US$2,119/FEU on 30 October to US$2,722/FEU on 27 November, a 28% increase over the month, according to the FBX.

It has been well logged that the restriction on capacity and the consequent knock-on effect of an equipment imbalance has contributed to the stratospheric rate rises seen on the major trades, but look behind this superficial vista and the picture becomes a little more complex.

A picture is emerging of a struggle between the larger freight forwarders and the lines as beneficial cargo owners (BCO’s) look to forwarders to find the space on ships that has been denied them by the lines. Clearly this is not due to the fact that the forwarding community is able to extend vessel capacity at will. Rather it is because the traditional buying power of the larger forwarders to buy capacity in bulk at low rates.

Marry this strength in the market with a developing and sophisticated digital capability and the and the forwarders will be a formidable competitor for the lines, which will need the market power of Maersk, MSC and CMA CGM to resist the evolving primacy of the NVOCC’s.

Otto Schacht, the executive vice president at Kuehne + Nagel, remains adamant that the forwarder is not in competition with its carriers. “We have a perfect relationship,” Schacht said earlier this month, adding, tongue in cheek, “We have competed for 20-30 years, but we love each other.”

One of the world’s largest freight forwarders and one of the most sophisticated, K+N has developed a system for tracking vessels and that system recently showed up to 11 large vessels at anchor outside Los Angeles/Long Beach waiting for a berth.

That system will allow the forwarder to know which vessels will be available for loading in China, later and to offer shippers space for their shipments.

Consultant Jon Monroe said this week, “BCOs continue to shop the NVOCC market looking for space and equipment to move their product. In some cases, BCOs are using multiple NVOCCs to spread their business out in order to move a greater volume of containers.”

Monroe argues that shippers are booking and moving cargo early to compensate for the delays, building a time lag into the system. “Containers booked in December are apparently intended to arrive before Chinese New Year. Spring and summer merchandise will move early to avoid missing the season due to delays,” he said.

As demand spirals ever upwards the stories of delayed cargo also increase, with one container said to have been on the quayside awaiting rail transportation from the LA for two weeks.

“NVOCCs are paying premium rates with their customer’s approval in order to get space and equipment to load onto a vessel. Unfortunately, onboard does not guarantee arrival,” explained Monroe.

It remains unclear whether the carriers believe they are ramping up the competition with forwarders or not. But it is not a new discussion. In 2018, at Maersk’s capital day Vincent Clerc, now the company’s CEO of Ocean & Logistics, told financiers, that 42% of the line’s freight came from forwarders, and that he did not believe this would change in years to come.

According to Clerc forwarders had specific needs that are evolving, they need increased productivity, more data integration, more seamless interaction with carriers which was becoming increasingly important then.

“Is Damco a threat to the forwarders?” Asked Clerc, answering his own question, he added, “Personally I don’t think so, I don’t think that this percentage is going to move a lot in the years to come, and certainly not by design. Both forwarders and ourselves have been used for decades to be vendors, customers and also sometimes to be competitors.”

SEAPRIORITY may not be a direct challenge to the forwarding community, but recent moves by major shipping lines could keep the industry asking the questions about the competitive nature of the shipper/forwarder relationship and which direction it is heading.

Meanwhile, CMA CGM’s money-back guarantee “is a reimbursement if the SEAPRIORITY go and SEAPRIORITY get service is not performed as agreed on the contract,” clarified CMA CGM.

Sceptical shippers may argue that they are already paying a premium on contracts through added costs such as congestion surcharges, peak season surcharges and substantially inflated rates on previous year’s levels. And the expectation is that the upcoming contract negotiations will see a substantial increase in contract rates.

That could mean shorter contracts, a greater reliance on the spot market and more work for freight forwarders as they compete with carriers for cargo.

Source Jon Monroe Consulting.

Nick Savvides
Managing Editor

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