Recession: catalyst for change?

As the dust begins to settle on one of the most tumultuous years in the short history of containerisation, it is still far from clear whether the industry is on the mend, or whether its woes are set to continue.

The instability that has wracked container shipping lines and their customers this past year has left no-one unscathed.

Shippers and forwarders might well have enjoyed drastically plummeting freight rates during the first six months, but the wiser of them knew there was no way their service providers could - or can - sustain operating losses of the sort seen this year for any length of time.

Meanwhile, carriers have launched a series of capacity reduction measures to stem rising losses and, at the same time, need to re-examine the way they interface with a customer base that is dealing with lower levels of business and volumes.

Winner of the IFW Container Line of the Year award, Maersk Line, had actually begun a streamlining programme under the direction of new CEO Nils Smedegaard Anderson, some months before the recession kicked in - a move that turned out to be remarkably prescient.

"Maersk has remained committed to its core value proposition, " says its UK & Ireland sales director, Paul Goodrich. "Our sales force is very knowledgeable on customer services built around industry segments. We have built small, niche teams, which allows them to bond and develop closer relationships with customers "It's made it easier to deal better with feedback. We've streamlined our disputes resolution processes as well, and I think one of the most important things has been empowering our front-line staff to make more rapid decisions.

"A lot of this development revolves around pricing. Historically, Maersk could be a bit late with its quotes, and cumbersome in the way it dealt with customers.

The front line has now been given the authority to take quick decisions on these issues, and behind every front line there's back office support - so that contract alterations get passed back to where the system changes are made. It's very much a team approach.

"Like any large organisation, we have a theme of continuous improvement, involving the 'Six Sigma' and 'Lean' philosophies, and a lot of the specifics have already taken place. I think there's a general acceptance within the company that you need to continually challenge yourself and look at where improvements can be made - and it's also true that the recessionary environment has brought forward and accelerated the need for those improvements to take effect."

He believes this year's instability, experienced by carriers, shippers and forwarders alike, is changing the way business is being done in the supply chain.

"We have entered a more transactional environment, and partly this is down to the increased influence of the procurement professional amongst the major customers.

I think this is leading to a type of shorttermism, by which there is not the focus on long-term contracts there previously was, and that is something that may well be to the benefit of both the lines and their customers.

"People are thinking that locking your assets, or your volumes, for long periods of time might not be the best way to go. I really do think that contractual flexibility will become the norm, rather than the exception it was before.

"While the recession has been painful, it will bring out some new ways of running supply chains, and I think it's just going to be a far more transactional environment. Apart from anything else, I don't see business levels returning to pre-recession levels for some time."

If anything, the extraordinary peak season just witnessed on the Asia-Europe trade will do much to further accentuate the need for a change in practices.

Goodrich outlines a series of unexpected factors that converged and caught many shipping line customers by surprise.

"This year's peak season has carried on right through to the end of November, and I think there are four areas that have had a big impact on the way it has been shaped, " he says.

"Firstly, there has been a lot of retail innovation this year, in terms of products, as producers, manufacturers and retailers are trying to attract consumers back onto the high street to keep spending, which led to a surge.

"Secondly, retailers had a lot of uncertainty over inventory levels, especially after last Christmas, where there was a lot of extra stock around. This year has seen those levels, and buffer stocks, stripped right down to the bone. But during the peak season, there was an unprecedented demand by retailers to re-stock inventory, which was a very sudden phenomenon.

"Thirdly, there is a far greater degree of uncertainty than seen in previous years.

Quite simply, from one week to the next our customers weren't really able to tell us what the demand situation was going to be, which threw a lot of instability into the market and meant there were sudden periods of high demand.

"Lastly, all of the above has been affected by the flexible withdrawal of capacity on the part of the carriers, ourselves included.

"In the last week of November and first week of December there has been a slight slackening of demand as the rush to get stocks onto shelves before Christmas ended. Nevertheless, we are still seeing vessels sailing full out of Asia."

Slow-steaming

One of the key ways that carriers, led by Maersk, have managed to curtail the massive excesses in slot capacity has been to introduce slow-steaming initiatives in an attempt to soak up spare vessel capacity.

This has led to increased transit times, forcing customers to reassess their supply chain needs.

But Goodrich says that customers have generally reacted with understanding.

"Slow-steaming clearly has increased transit times in some cases, but we can predict times better, and in some ways slow-steaming gives you the ability to keep better schedule reliability and certainly gives you better efficiency. Customers have acknowledged the necessity for it, and I can't recall any having left our services because of it - the disruption to services was relatively minimal.

"Our sales team sat down with our clients, where possible, to discuss the changes and implications and we also sent out a general update detailing which services would be affected. Most clients were very understanding and aware that the changes were fuelled by cost implications."

However, one expected upshot of the recession is that lower levels of business ought, in theory at least, to mean that the cargo that is moving would be subject to fewer bottlenecks and greater punctuality.