A shipper consortium from New York claims Maersk failed to provide space the consortium had contracted for, and instead sold the space to others at higher spot prices. So the consortium members had to procure their slots on the spot market too.
The consortium, U Shippers Group, claims Maersk also offered their space to another shipping consortium, in violation of the contract. U Shippers believes the damage is over $180 million.
The contract with U Shippers had a volume incentive3 program (VIP), based on the number of containers shipped. Because space was not provided, U Shippers did not get credit for payments they would have received had the space been available.
It’s a nasty dispute. I suspect that this was a result of a local office of Maersk taking some liberties. The picture may not be totally clear, either; perhaps some of the shipments were a little iffy.
It will be interesting to follow up and see the FMC decision in the case. It won’t be settled for over 6 months.
This news service called ‘Loaded and Rolling’ is aimed at the trucking sector. The article here is intriguing. The author has postulated the downward swing of spot trucking rates compared to negotiated or contract rates as the driver for an apparent movement by owner-operator drivers back to large truckers rather than staying on their own. The evidence they cite comes from several large firms’ quarterly reports, which indicate how many drivers and tractors they have.
It’s easy to understand why drivers might want to do this. With fuel prices through the roof, they’d rather let the trucking firm foot that bill. And they can’t get a spot premium anymore for working alone. So signing on reduces their risk. It may also let them take advantage of fleet buying prices for services and for tractors themselves, which are quite pricey right now.
This doesn’t imply anything about the drivers’ status regarding independent contracting. While some drivers might become employees, many will remain independent contractors. It’s only California at present where the status of employee versus contractor is under such scrutiny.
But even there, the economics will favor a move for drivers to larger firms. The costs are everywhere, and with spot prices down it’s harder to earn a premium on piecework. In California, it’s mostly drayage drivers, who work short hauls to and from ports and distribution points, over relatively short distances, that are protesting having to become employees.
I think the protests won’t go on much longer, and won’t spread outside the ports. Port drayage involves short hauls, and when there’s not as much congestion, reasonable turn times. If a driver can do several turns a day and get home at night, being an owner-operator might be ok. But when delays and sudden changes in routing screw up driver schedules and paid time, drivers are not satisfied. Owner-operators have the luxury of parking their truck and working in another industry, such as construction. Employees can’t; but on the other hand, they can get benefits such as health care and pay for wait time at turns, and the trucking firm will be paying the fuel and billing the customer. But the questions about how AB5 will be administrated in California, especially for drayage drivers, can be settled without changing the law.
If more drivers what employee status, due to the economics, that will reduce the noise level also. And it will be easier to make sure trucking firms are not taking advantage of their drivers of whatever type.
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.