Maersk expects cost cutting via digitisation, but all must play ball in supply chain
 It is no surprise that a key to success in shipping is cost control, but what makes this more observant than obvious are new techniques including widespread unified digitisation, says Michael Hansen, vice president, global head of sales at Maersk Line.
What makes digitisation a game changers would be its global, holistic application, throughout the supply chain within the New Normal of low rates, low oil, massive overcapacity and equally massive corporate consolidation.
Add to that, the creation of mega alliances and then to even bigger ones that have changed the rules that govern the industry today.
What makes cost control a game to be won rather than the usual mantra of the ancient mariner is the central role they will play for the winners in dawn of the age of the New Normal.
To Mr Hansen, the enemy to be vanquished is uncertainty. It is this uncertainty more than anything else that is at the root of waste. Not big picture uncertainty of global economics about which we can do little, but uncertainty borne of endless costly counter measures against one's own fear of uncertainty.
Thus low freight rates induce carriers to take short cuts on service. Shippers counter by overbooking, carrying little if cargo turns as promised.
"None of us can live with the current state of affairs," Mr Hansen told the TPM conference in Shenzhen. "Look at our networks, we change the schedules, we change the deployment, we hedge our bets when it comes to our cost. It’s the only lever we can truly control."
The consequences of such behaviour lead to delays and misconnections. "Ultimately we leave more containers behind, either at the origin port, or in the transshipment port, or in the worst cases, both," he said.
"It means additional cost for all of us. For the contingencies we introduce and it leads to additional cost for customers. So very low freight rates actually leads to an overall supply chain cost that is far higher than what is immediately visible," Mr Hansen said.
"During a normal Chinese New Year, we can’t plan our capacity, we’ve got no clue about how much of the cargo will turn up, in certain cases in and around Chinese New Year and Golden Week we have 40-50 per cent of the cargo that never turns up and we don’t know until the last minute. How are we supposed to manage our ships that way?"
A carrier's customer, for all his low freight rate advantage, faces a service that is hard to predict, hard to manage inventory and hard to say when will cargo arrive.
Customer relations have also been undermined by alliances, aka vessel sharing agreements (VSA).
"We do it to lower cost, but it leads to disruption. When you do a phase-in like we did last year of the 2M network with the amount of ships that have to be phased-in to the new schedules and so on, it’s bound to cause challenges, and it’s bound to cause changes in transport plans we sold to customers. It’s true for us; it's true for our competitors."
As Mr Hansen sees it, the outcome of the 2008 world financial crisis for the shipping sector has shown itself in the last year. "We came out of the financial crisis with as many carriers as we went in. Everybody was talking about who was going to go down.
"But in reality, absolutely nothing happened. Everybody made it through with the aid of one shareholder or another. Losses had no consequence. It caused a lot of challenges within the industry, I’m not arguing differently, but everybody made it through," Mr Hansen said.
That was until 2016, the year of the Hanjin debacle.
"Essentially the company imploded on itself and within a couple of weeks, there was no revenue stream. None of us had predicted it would go so fast and the consequences for our customers would be as large as they were - as they are!" he said.
Not only Hanjin, but three other carriers that were up and running as 2016 began are no more - APL, UASC as well as the merger of China Shipping and Cosco into something elses.
"So we’re four shipping lines fewer than we were at the beginning of the year, the largest reduction of carriers that we have seen over the last decade.
"In the short term, rates went up, but the supply and demand situation. We’re back to the same place we were before the Hanjin's demise. There’s nothing structurally that's improved," said Mr Hansen.
Given that supply and demand in unchanged, it is high time to make a structural reduction in costs as there is little scope for action in other areas. With all that has been done to deal with low oil and slot costs, appear to be the new cost cutting frontier.
At Maersk, "there’s no topic that occupies as much leadership time, travel, meetings, discussion and capital. We do believe that digitisation is a very important answer," Mr Hansen said.
Software start-ups took to the stage at the Shenzhen conference and said digitisation would bring about a general acceptance of commoditisation of container shipping, abandoning old fashion notions of service differentiation between shipping lines to meet individual customer's needs.
Part of one start-up's digitisation solution was to download entry data work on the customer who would fill out forms on the website. But this was just another short-term cost cutting measure that was bound to spawn a counter measure from customers that would escalate costs through the supply chain.
Said Mr Hansen: "We need to have transparency. We need to have our prices online as in any other normal industry already have it today. We need to make sure that our customers know that what they pay for is what they get. Similarly, we need to make sure that we as a carrier can rely on the promise that booking, that payment, that our customer had put forward to us.
"We need to make sure that our customers know the full transportation cost and have no need to calculate additionals here and there for contingencies and we need to know what our projected volume is, and also our projected revenue.
"More than anything else, then I think it’s fair to expect that our consignees be they in Germany, be they in the US, be they in Pakistan, that they know when the container arrives. It’s pretty basic and yet so difficult in this industry, but that is what we all must aim to be able to achieve, but there are some fundamentals that need to change if we are to get there," Mr Hansen said. |
