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.
Ocean carriers are suddenly waking up to the fact that supply chain disruptions for their customers are bad for relations. Now they’ve decided that they blanked too many voyages. And thehoarding of containers by customers who usethem to store goods they’ve already taken possession of has disrupted things further. There just aren’t enough containers and chassis to get cargo from China and to move it about.
They should have thought about the repercussions in the supply chains when they started out reducing service.
The main advantage of ocean shipping is the cost and large quantity; if the service becomes marginally reliable in terms of time of delivery, naturally people are going to look for alternatives like buying larger quantities, beyond storage space, and using the containers to help out.
Supply chain performance is about matching supply to demand, and ocean carriers should continue to remember that it’s not about them, but about their customers’ needs.
Supply Chain and Logistics 