This article tells the tale of Zim, the Israeli ocean liner firm, which features Asia to West Coast US routes. The article tells a lot about Zim’s business focus, and its status.
Apparently they earned over a billion dollars, while blanking sailings on some routes as much as 67%. On the ZX2 route, Zim only sailed 9 out of 27 times, blanking the other 18. On the ZX3 route, half the sailings were blanked.
How can you make more money by not sailing as often? Try making the customer wait for the product!
Greg Miller, Senior Editor Follow on TwitterWednesday, November 17, 2021
I keep updating this story as more information becomes available. In the first article Mike Wackett quotes actual evidence that Maersk is going to reject forwarder and broker business soon. We’ve been expecting this for some time, as Maersk has been touting their new software for door-to-door shipping arrangements.
The second article provides more actual evidence, and indicates that some other liner firms are making offers to forwarders.
The forwarders and brokers are right to be annoyed. Many of them have served customers well for years, and their customers won’t necessarily be happy.
But Maersk has a point. The system of the past 20 years or so, where brokers bought large blocks of space from the ocean carriers, hasn’t worked too well either. That system seems to have penalized ocean carriers too much. It’s not clear it rewarded brokers too much, however. Shippers may have got the best deals from the old system. They seem to have been in a position to keep prices low.
There’s a lot of modeling that’s been done in the Operations Research field regarding multilevel supply chains. One thing studied is the effect of pooling, namely selling in blocks, to distributors, while allowing retailers to purchase resold units as they wish. These models are always fraught with assumptions; the type of demand distribution, the pricing conditions at each level, the number of distributors (brokers or wholesalers), and the number and type of retailers (shippers). Most have a product inventory setting, and so are not a direct analogue with the liner industry. However, it’s clear from these studies that relatively small changes in parameters can change the character of who profits most from the contractual arrangement.
So it’s not a surprise that Maersk, or someone, would try to change the nature of the system, to see if they could make one that worked better.
In this type of model, liner firms continue to handicap themselves by building bigger and bigger ships— their lot size, the number of slots they have to sell for one voyage, grows larger and larger. With a larger lot size, you need to sell and fill more and more slots at a time, or else be able to blank a sailing— withdraw an entire lot from the delivery cycle. That causes the service level to fail catastrophically, and for more cargo and for more customers. All the customers that bought that voyage will be angry at once.
Whether this strategy will work as Maersk thinks is up for grabs at this point. I think it’s likely that many will be bent out of shape by the new deal, brokers and shippers alike, and the behavioral consequences of the change may sink it, or at least require reworking over time. And I think it tends to feed the rationale of degrading service whenever you want to. I don’t think most shippers will see that as a good thing.
Whatever happened to keeping customers happy? We teach that goal in supply chain management.
On the heels of a letter to CSX rail seeking explanations for poor service, the chair of the STB wants explanations from NSR. Why have rails in the East been letting their service level decline?
One explanation that’s been offered is a shortage of labor. While it’s true that rail labor is skilled and highly paid work, in the current situation there are plenty of people looking for better jobs. Rail offers those. And with unions to help, training should be available. So some effort should produce more workers, well trained. It doesn’t seem like a good explanation to me.
Perhaps the rail managements are thinking, “If everything else is congested, no one will notice if we have a little congestion too.” Another way to put it: lack of attention, and no desire to take action.
One interesting item in the article is the possibility of reciprocal switching in the US. Canada has had it for years, but the number of rails in Canada is smaller. The generic name for the practice is open switching.
The idea is that a shipper could take advantage of competition between rails if it were allowed to transfer shipments from one rail to another at specific locations where the rails met. There would be charges for the interchange to be sure, but the result might be a lower total cost of shipment.
There are significant hurdles to implement open switching. Workers have to be trained, and there would be multiple inspections required for safety and compatibility. And equipment would be needed to support interchange. Who would pay for it? These are bigger concerns in the US where there are six Class I rails, any pair of whom might be candidates for open switching practice at certain locations.
It’s not clear that allowing open switching or reciprocal switching as the STB calls it would really foster much competitive increase. However, there could be times, such as when there is severe congestion at an origin or destination, that open switching capability would save the day for many shippers.
It’s an example of meeting the need for resilience in our rail-using supply chains. I think the competitiveness aspect is fine, but the overall resilience is a much greater factor. It would put rails in a position to challenge trucking if switching could be done smoothly, even with charges.
Another view of reciprocal switching is presented in the final article below. It’s from the American Association of Railroads President, via Logistics Management magazine. He gives a positive view of rails’ contributions to the great supply chain jam-up of 2021, and talks more extensively about the ongoing discussion about reciprocal switching. It seems rails are not enthused about it.
Supply Chain and Logistics 