Forwarder-carrier relationship needlessly fraught, says K+N chairman
 
FORWARDERS and container lines have a relationship "fraught with suspicion and almost existential fears" when instead they should work together, according to the Kuehne + Nagel chairman Karl Gernandt.
 
Writing in Lloyd's List, Mr Gernandt said the three pillars of shipping - the shippers, the carriers and the forwarders - should focus their respective comparative advantages.

"For shipping lines," he said, "this would be what they do best: asset acquisition, ownership and management, vessel network operations and handling large single-shipper volumes."

The forwarders, on the other hand, are better at "serving multiple alliance networks to create a solution for the shippers and at delivering uniform shipment data across multiple carriers", he said.

Mr Gernandt said that while forwarders provide a 90 per cent on-time performance, SeaIntel data shows carriers' schedule reliability generally is 65 - 85 per cent.

Given the difference between expectation and reality, why is it that carriers are only "delivering 65 per cent to 85 per cent in a 90 per cent world?"

The reason, he says, lies in the brutal economics of the industry today. "Part of the answer lies with the service level that carriers can supply given their ability to earn a return on assets they have deployed."

Forwarders are asset-light, allowing them more freed-up cash to devote to innovation and new services - the very attributes that encourage gaining market share other than by lowering prices.

Carriers, on the other hand, have little choice but to replenish their fleets with expensive assets. Scale is necessary to survival - although as some carrier CEOs have pointed out, the pursuit of scale as a primary attribute can be overplayed.

Forwarding is fragmented, he said. There are more competitors to win business from, and a well-run company with sufficient scale has many options to use its advantages to draw customers away from them.

In container shipping, the top 10 lines account for 65 per cent of total market share, according to Alphaliner's May 2015 Top Existing Fleet figures.

And all of the top 10 are tied up in alliances that by their very nature tend toward commoditisation of service, Mr Gernandt said.

"In other words, there are fewer competitors from which to acquire customers - and they are all your alliance partners anyway," said.

Mr Gernandt believes shipping lines have relied too much on the ability to finance the assets and to gamble on them getting a sufficient return for their investment, rather than accepting that a return on assets must follow management decisions.

"We, as forwarders, don't have any interest in rates that are not sustainable; no interest in instability with the shipping lines; no wish for insecurity for our customers," Mr Gernandt said.

"We must have a risk balance, and service-oriented pricing. Our aim is to stabilise the system, not to bash it,?he said.

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