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Box price cuts raise risk and reduce trust

OSLO: June 09, 2016. Xeneta, the market intelligence platform for containerized ocean freight, says the main reasons shippers cancel agreements with container lines is because of price, risk management and loss of trust.

“One might expect bad service to be the main reason for swapping supplier,” said Xeneta CEO Patrik Berglund “but that isn’t the case in container shipping. 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."

CONTAINERSBerglund said the average price of a 40ft container between Asia and North Europe has now fallen 45 percent since July 01, 2014 to reach US$1,487 and noted one client gave his top three reasons for switching carriers as “price, price and price”.

Xeneta has also discovered that some shippers shift trade lanes due to a significant volume increase on one lane and a decrease on another: “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,” explained Berglund.

Noting the loss of trust between shipper and carrier, he said some container lines price “strategically” to win market share, but then a few months into the relationship try to adjust their rates.

“In such a cut-throat segment, which seems to be in a constant state of flux at present, many of these carriers are fighting to survive,” he observed. “So it’s understandable they want to maximize rates wherever possible.

“However, 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 honored. If they don’t do that, they don’t keep the business,” Berglund concluded.

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