Price, risk management and loss of trust were identified as the main reasons why businesses end agreements with container ship carriers in a market currently riven by instability, the market intelligence platform for containerized ocean freight Xeneta said.
“One might expect bad service to be the main reason for swapping supplier, but that isn’t the case in container shipping,“ Xeneta CEO, Patrik Berglund, said.
He added that the current state of the industry, with huge capacity oversupply leading to collapsing TEU rates, “has effectively created a price war, pushing cost ‘front of mind’ for anyone shipping large volumes of product.”
Price may be top of the list with Xeneta’s contributors, but, for some at least, it is not the sole consideration for switching as risk management, in terms of supply, is also a factor, Berglund said.
“According to some of our shippers, shifts in trade lanes due to changing customer needs may result in an inability for an incumbent carrier to provide the requested capacity. If you think of retailers that need to react to changing market demands, it’s imperative that their supply chain is both reliable and flexible. A carrier that can’t meet those criteria is simply too much of a risk,” he said.
Additionally, there are signs that the market is picking up and prices are increasing, which creates a new risk. Shippers that negotiate long-term rates when the market is low could face danger of ‘rolling cargo’, whereby their products are left on the docks to make way for shippers paying higher prices.
Loss of trust was the last of the ‘top three’, with bad experiences or contractual failures undermining relationships that may otherwise have prospered. Again though, price was often a key factor, according to Xeneta.
Berglund says that some container ship carriers price ‘strategically’ to win market shares, but then a few months into the relationship try to adjust rates to meet their business requirements.
However, he added that shippers rely, and base their entire operational plans, on the information provided by their suppliers, “such as guaranteed capacity, transit time and pricing, so the commitments that are made during the procurement process must be honoured. If they don’t do that, they don’t keep the business.”