Category Archives: Managerial Econ

Interesting interview with several supply chain experts on the shipping arena.  Can suppliers play a bigger role in promoting some solutions to the dysfunction?

2015 Ocean Cargo Crisis Calls for Collaboration – Supply Chain 24/7.

Carriers and shippers definitely need to collaborate more.  This so called ‘downstream’ collaboration with shippers was highlighted by Lam and van de Voorde in a 2011 paper which analyzed how ocean carriers collaborate.  They identified collaboration with customers as the activity that did not happen. Other research has shown, as well, that the biggest payoffs occur with collaboration with customers, not with ports and other upstream partners.  Ocean carriers need to emphasize service to the real customer, the shipper.

I think that NVOCCs and other 3PL players are providing better service for shippers, as well as better information on comparative rates and routes.  That is why they are succeeding, particularly for the smaller shipper who doesn’t have much market power.  But because agency has been introduced into an otherwise direct relation, there is ‘slippage’– the 3PL or NVOCC has a motivation to give a bit suboptimal service to both carrier and shipper as it works to improve its profit.  So rates can’t be kept low; some of the surplus must be given to the agent to keep her on the ball and give the service wanted most of the time.  and there are monitoring costs, that also reduce the surplus available, which are incurred by carriers, shippers, and the NVOCC itself.

In short, information and service have their price, and it will be paid.  It will either be extracted by agents, or through competition.  In perfect competition, the surplus winds up in the hands of the factor providers.