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4, 537–554, July 2009
Shipping Lines and Logistics
The French National Institute for Transport and Safety Research (INRETS), Arcueil, France
TTRV_A_367930.sgm Taylor and Francis
(Received 17 December 2007; revised 4 September 2008; accepted 2 December 2008)
email@example.com AntoineFremont 0000002008 00 Taylor 2008 & Francis Original Article 0144-1647Reviews Transport (print)/1464-5327 10.1080/01441640802677607(online)
ABSTRACT It has been acknowledged that logistics is a driving force that shapes the integration of the transport chain. This paper argues that while the liner shipping industry exhibits increased horizontal integration, its vertical integration remains limited. A clear distinction is drawn between freight logistics, container logistics and vessel logistics. Freight logistics is defined as part of the supply chain process, the focus of which is the goods being transported. The purpose of container logistics is to optimize the movements of the containers themselves, an operation that is directly related to vessel logistics which is concerned with maximizing vessel utilization. The paper demonstrates that shipping lines have to find the correct balance between these three types of logistics. Their interest in vertical integration is primarily because the management of container logistics provides direct support to vessel logistics. Their involvement in freight logistics remains unclear and uncertain.
Introduction Since its advent in the mid-1960s, containerization has been responsible for integration within the transport chain (Brooks, 2000). At the same time, shippers have greater and greater logistical needs because they are taking advantage of the opportunities presented by globalization to develop their production and/or distribution activities at an international level, which makes it necessary to coordinate these both in time and space by setting up supply chains. Supply chain management (SCM) is not only a source of profits but also of control of the supply chain by the shippers, maritime or inland transport operators, freight forwarders or logistical specialists which are active within it (Heaver et al., 2001). Today, the global carriers are key actors within transport chains by virtue of the global networks they operate (Slack et al., 2002); the transport capacities they command—in 2004, the 20 largest liner shipping companies accounted for more than 60% of the world’s containerized transport capacity; and, finally, the opportunities that containerization has opened up for them to act as Third Party Logistics Providers (3PL) (Evangelista, 2005). Porter (1985) highlights the concept of a value chain. If a firm wants to gain competitive advantage over its rivals, it must increase
Correspondence Address: Antoine Frémont, The French National Institute for Transport and Safety Research (INRETS), 2 Avenue du Général Malleret Joinville, 94230 Arcueil, France. Email: firstname.lastname@example.org
0144-1647 print/1464-5327 online/09/040537-18 © 2009 Taylor & Francis DOI: 10.1080/01441640802677607
its value to customers through performing activities more efficiently than its competitors. The objective of this paper is to question the extent to which it is in the interest of shipping lines to engage in logistical chains to gain competitive advantage. The paper begins by reviewing the literature on vertical integration in the shipping industry. Both the academic and professional literature has recently emphasized the need for the shipping industry to add value and to extend itself into logistics. A survey of the present situation in which it endeavours to assess the extent to which global logistics providers have come about is presented. The evidence presented suggests that the involvement of shipping lines in logistics is narrower than suggested by the literature. In order to explain this discrepancy, a clear distinction between ‘vessel logistics’, ‘container logistics’ and ‘freight logistics’ is made. The first is concerned with maximizing vessel utilization. It represents the core business of the shipping lines. The second is involved with the management and control of the container stock. It is very much part of a maritime strategy, the shipping lines being directly concerned with the disposition of the boxes. The third relates to management and organization of the goods in the supply chain, and goes beyond the mere provision of transport services. This distinction helps us to assess the degree of vertical integration within the transport chain. It is our hypothesis that although there are clear synergies through vertical integration between vessel logistics and container logistics, this is not the case with freight logistics. This is why the involvement of shipping lines as logistics providers for the supply chain remains very specific. Shipping Lines, Containerization and Logistics: From Port-to-Port to Door-to-Door Services There are four major reasons for the impressive growth of containerization during the last 40 years. The first two principally involve the maritime leg of transport: the efficiency of port handling and the reduction in unit transport cost made possible by the continuous increase of the size of container vessels (Cullinane and Khanna, 1999, 2000). The massification of maritime transport has resulted in continuous economies of scale over the period which have reduced port-to-port transport costs for shipping lines. The third cause is that the intermodal nature of containers permits door-to-door services (Figure 1). In the intermodal transport chain, each mode retains its distinct identity and importance but the role of each is determined by the objectives of the system as a whole (Hayuth, 1992). Intermodality allows shipping lines to develop hub-and-spoke networks on a global scale that are linked to massified inland transport networks. The reduction in transport costs not only applies to the port-to-port segment but also includes the door-to-door service. The fourth cause is the development of logistical services which go beyond transport provision in the strict sense. Containers are particularly suited to just-intime management which makes it necessary to meet the deadlines set by shippers and guarantee reliable deliveries. Containers can be used to transport small batches of freight on a regular basis by grouping together goods from different sources in the same container (less than container load (LCL) container). Lower transport costs, global networks, the improvement of logistical services, along with high performance information systems, all meet the needs of shippers which require an efficient logistical chain, in order to develop their production or
Figure 1. Shipping lines: from the control of boxes to value added logistics providers.
Shipping Lines and Logistics 539
Shipping lines: from the control of boxes to value added logistics providers
distribution activities at international level. In order to satisfy the expectations of shippers, shipping lines must exploit the opportunities provided by containerization (Kuipers, 2005). Containerization allows the shippers to enjoy either economies of scale or economies of scope to ensure their activities are profitable. Two principal approaches are available: shipping lines can either limit their role to the maritime leg or become involved in end-to-end logistical chains which they control partially or completely. Under the latter circumstances the shipping line becomes a logistics provider. Advantages and Disadvantages of Vertical Integration for the Shipping Lines Vertical integration, in particular the development of logistical services, currently provides shipping lines with a means of acquiring comparative advantage over their competitors, for three main reasons. It is becoming increasingly difficult, or even impossible in the longer term, for them to achieve sustainable margins by merely reducing maritime costs, the more so when the reduction in costs obtained through the use of larger vessels is systematically cancelled out by declining freight rates due to excess capacity and competition. There are exceptions, such as the current growth of Chinese exports (Lim, 1998; Panayides and Cullinane, 2002). Second, in a door-to-door service maritime costs are secondary, estimated at 23% of the total cost of transport (Stopford, 2002). Furthermore, the increase in the size of vessels tends to accentuate the transfer of costs from the maritime leg to the inland leg (Notteboom, 2002, 2004a). Third, a very important motivation
Shipping lines C D E
A Shipping line Shipping agent Terminal handling company Freight forwarder Inland transportation provider Logistics provider
F Vertical Integration
Figure 2. Vertical integration scenarios for shipping lines
for the vertical integration of shipping lines is the desire to ‘capture the cargo’ at source. Instead of being dependent on freight forwarders for filling their ships, they develop direct relationships with the shippers (Heaver, 2002a). For the shipping lines, the potential benefit of vertical integration is twofold: it not only provides a means of controlling non-maritime costs but also of assuming the role of logistic provider in order to achieve comparative advantage. Figure 2 shows some scenarios for integration. When a shipping line takes on the functions of a shipping agent or a terminal handling company, this ties in directly with its maritime operations. If it has its own representation in ports the shipping line has no longer to depend on an external agent who may also provide services to a competitor. By offering cargo handling functions, the shipping line can improve the efficiency as well as security of its port operations, which is made necessary by the increasing size of vessels, their very high daily operating costs and by the development of transhipment (Musso et al., 1999; Haralambides et al., 2002). Apart from the functions of shipping agent and terminal handling company, the shipping line can continue its integration of the transport chain by becoming an inland transport provider, freight forwarder and/or logistics provider. The advantages are numerous. With respect to its customers, the shipping line in offering extended services may go as far as offering ‘one-stop shopping’ (Panayides, 2002). Internal synergies also become possible:
Figure 2. Vertical integration scenarios for shipping lines.
Complementarity as regards demand between the different services provided, which helps to fill vessels and build up customer loyalty (Heaver, 2002a). Diversification of the firm’s activity, which provides some protection against fluctuating levels of activity and prices on a given segment of the chain (Heaver, 2002a). Shared use of the same extended information system throughout the logistical chain (Evangelista, 2005). Reduction in the transaction costs between the different elements of the logistical chain by their internalization and by control of the entire chain which provides greater transparency than in the case of chains with several contractors (Frankel, 2002; Robinson, 2002).
However, vertical integration of the transport chain by shipping lines may also give rise to problems. A highly integrated transport chain may make the shipper dependent on a dominant logistics provider. This limits the choices for shippers in
Shipping Lines and Logistics 541 the transport chain, and thereby reduces competition. By broadening its offerings of logistics services, the shipping line enters de facto into direct competition with the forwarders who are its traditional clients. Integration may also encounter problems associated with the financial, technical and human capacities of the shipping lines. These are by definition limited and different from one company to another. This means that it may be necessary to balance trade-offs between strategies which encourage an extension of geographical cover or an increase in the volume of freight carried (horizontal integration) and those which target an increase in the carrier’s product mix and service provision (vertical integration). The course which is finally charted will depend on anticipated market shares, revenues and return on investment (Heaver, 2002a). The Limits of Vertical Integration The concept of the integration of the transport chain by shipping lines is not new. As early as 1966, the chairman of the Swedish Association of Shipping Lines stated: The time has come when the activity of the shipping line is no longer restricted to maritime transport, but must also include inland transport (…). If we wish to limit our role to maritime transport, we will gradually find that we are relegated to the position of insignificant pawns in the enormous machinery of transport. We should consider ourselves from now on as transport undertakings and not purely as maritime carriers. We should establish close links with the other parts of the transport chain. (Journal de la Marine Marchande, 1966) In fact, vertical integration processes only really began to be introduced in 1980s. It was then that mergers and acquisitions took place involving groups engaged at different levels of the transport chain. The American shipping line Sea-Land was purchased in 1986 by the American Railway Company CSX from the Reynolds Group. APC, which at the time owned the shipping line APL, developed a large intermodal rail activity, API in the USA. The P&O Group possessed a terrestrial branch, POETS, which offered container pick up and delivery services, cross-channel links, and storage and distribution. At the same time, the Dutch shipping line, Nedlloyd, developed the ‘Nedlloyd flowmasters’ concept to demonstrate that it was as capable of managing flows of freight as flows of information (Journal de la Marine Marchande, 1989). Conversely, freight forwarders and road haulers were starting to act as shipping lines. The best known case of this is that of the Swedish company Bilspedition which, in 1988, took over Cool Carriers, the world’s largest reefer vessel company, purchased the largest shipping line Transatlantic in the same year, then in 1989 purchased Gorthon Lines, the principal maritime exporter of Swedish forest products, and lastly took over Atlantic Container Line, one of the dominant consortia in the North Atlantic, by acquiring shares from CGM, Wallenius and Cunard. But did these mergers and acquisitions give rise to truly vertically integrated companies? At the end of the 1980s, it is more accurate to talk of a diversification of the major maritime groups, with the underlying objective of achieving integration of the transport chain (Gugenheim et al., 1990). What is the situation 15 years later? It is true to say that some examples proved to be short-lived. Bilspedition’s
involvement in maritime transport ceased in 1994, only five years after its purchase of ACL. The American Rail Company CSX sold Sea-Land in 1991, concerned by the poor financial results of its maritime subsidiary. In 2004, HapagLloyd withdrew completely from all logistical activities to concentrate solely on the maritime part of containerized transport. The Present Situation Analysis is made difficult because of the absence of comprehensive quantitative data. Data are drawn from the annual reports of shipping lines and freight forwarding companies with the purpose of assessing the weight of logistics activity in the total company operations. Comparisons are very difficult. Annual reports are not standardized between companies. Many shipping lines consider the logistics sector as a whole, and do not break down these activities further. The only distinction they make is between ‘shipping line activities’ and ‘logistics activities’. On the other hand, freight forwarding companies differentiate between for instance ‘seafreight’, ‘airfreight’, ‘inland operations’ and ‘logistics contracts’ (Table 2). Despite problems in comparison, annual reports remain the only source available, and give a useful, if limited, indication about the involvement of shipping lines in the logistics area. Based on a review of the annual reports for 2004, shipping lines, or maritime groups owning shipping lines, that have set up logistics subsidiaries, that is to say which claim to be freight forwarders, inland distribution providers or logistics providers, are only few in number. Of the ten largest shipping lines in 2004, six claim to be involved in logistics (Table 1). But their annual reports show that only four have a large logistical subsidiary: AP Möller, NYK Line, APL/NOL and P&O Nedlloyd (since 2005, Maersk has taken over PONL). These subsidiaries only play a secondary role in the total activity of the parent companies, with the exception of the Japanese Group NYK. A distinction must be made between two major types of organization. In the first, the shipping line is a subsidiary of a larger conglomerate group which may, in addition to its shipping line subsidiary, possess not only a logistics subsidiary but also, for example, a cargo handling subsidiary. In this case, there is no direct association between the maritime subsidiary and the logistics subsidiary, and the two subsidiaries can conduct their activities independently of each other. The AP Möller and NOL Groups provide typical examples of this type of organization, even if NOL now talks about their ‘one company’ philosophy. In the second, the shipping line is the parent company and may or may not set up a logistics subsidiary. The link between the shipping line’s activity and the logistics activity is in this case more direct. The logistics subsidiaries of maritime groups are extremely small in relation to the largest global logistics providers (Table 2) and their turnover is in general much smaller. If only the maritime activities of the logistics providers for which information is available are considered, they still dominate to a large degree. Only NYK Logistics and probably Maersk Logistics achieve a level of activity which is comparable to that of a group like Panalpina. Likewise, Excel or Kuehne+Nagel, for example, control as many containers as APL. In terms of the number of offices at global level, the network of forwarding and logistics companies is much more extensive than that of the logistics subsidiaries of shipping lines. Shipping lines have offices mainly in ports. Some, such
Table 1. The logistical activities of the ten largest shipping lines in 2004
Parent company Yes No Yes Yes No Yes – Yes – Yes No 57.0 100 100 100 98.5 98.9 – 95.6 – 48.2 100 – – 12.4 – – 17.8 – – – 21.1 0
Shipping line and logistics activities as a percentage of total activitya Logistics activity as a percentage of total activitya
Logistics activity as a percentage of shipping line and logistics activitiesa – – 12.4 – – 18.4 – – – 43.7 0
Maersk-Sealand MSC P&O Nedlloyd CMA Evergreen APL Cosco Hanjin China Shipping NYK Line Hapag Lloyd
AP Möller No Royal P&O Nedlloyd Group No No NOL No No No No No
Shipping Lines and Logistics 543
In % of turnover. Source: Company annual reports for 2004.
Table 2. Turnover, number of TEUs transported or controlled and number of ofﬁces belonging to the shipping lines and their logistics subsidiary as well as forwarding and logistics companies in 2004
Turnover billion US$ Million TEUsa Number of offices
Subsidiaries of shipping lines Maersk Logistics NYK NYK Logistics P&ONedlloyd P&ONedlloyd Logistics APL/NOL APL Logistics Exel Schenker Inland operations Air&Sea Logistics Kuehne+Nagel Seafreight Airfreight Rail and road logistics Logistics contracts Panalpina Ocean Air Supply Chain Management
200 13.2 2.8 6.7 0.8 6.5 1.2 2.6 154 4.1 – 1.8 95 1700 1100
Forwarding and logistics companies 10.9 1.7 9.7 4.7 3.7 0.8 1.3 9.0 4.7 1.6 2.1 1.2 1.0 5.8 1.9 0.8 2.9 1.0
For the shipping lines, number of TEUs carried and for the forwarding and logistics companies, number of TEUs controlled. Source: Company annual reports for 2004.
as Maersk, NOL or NYK, are trying to develop a wider network of logistics offices. Logistics is not a capital-intensive activity, being based essentially on human resources and information. Freight forwarders have a widespread network of offices to be as close as possible to the market and their clients which they have built up over the years. For shipping lines, it is very difficult to build up such a network quickly. It is only through the purchase of an existing freight forwarder, that extensive market entry can be achieved rapidly. This requires financial capacity, and the shipping lines have been pre-occupied in enlarging their fleets, at very considerable capital cost. Shipping lines have to make a choice of investments between reinforcing their core business activity and developing other activities along the transport chain to offer value-added services to their clients. In the middle of the first decade of the twentieth century, as in the 1980s, the vertical integration policies pursued by the shipping lines were essentially restricted to freight handling (Slack and Frémont, 2005; Slack, 2007) and, on the North American continent, to the operation of rail landbridges made possible by the US Staggers Act of 1980. However, in the area of logistics, the involvement of the shipping lines remains limited and uncertain. There appears to be a large gap
Shipping Lines and Logistics 545 between academic discourse concerning the theoretical possibilities opened up by containerization and explored from the 1980s by the various operators in the transport chain and the actual situation as regards integration of the transport chain. Shipping Lines and Logistics: The Results of a Qualitative Survey In the last four years we have conducted a series of interviews with shipping lines in Europe and East Asia, in which they were each asked to define their activity and describe how their relationship with freight forwarders has changed. Although these surveys are not exhaustive, they nevertheless give some clear indications. Table 3 lists the responses of each shipping line interviewed in order to show the extent to which they were involved in logistics. The table shows that the activities are very clearly identified: they are separate and their nature is evolving to only a very minor degree. Three Types of Logistics ‘Container Logistics’ and ‘Vessel Logistics’ For shipping lines, the prevailing type of logistics carried out is ‘container logistics’. This consists of optimizing the management of the container stock. This fleet, like the vessels, represents a large amount of capital. This considerable investment can be reduced by a reduction in turnaround times and immobilization on the inland transport leg. To optimize the repositioning of containers within flows, which are by their nature unbalanced, shipping lines must retain control of container flows on the land, which explains the development of ‘carrier haulage’. This enables shipping lines to conduct triangulations (instead of returning an imported container directly to the port, this involves attempting to re-fill it directly for export at its import destination), to concentrate assembly and distribution services using less expensive transport modes while adapting the commercial objectives to the logistical constraints (Gouvernal, 2002). It emerged from our survey that when feeder vessels are used, as is the case in Singapore, the shipping lines apply the same approach: optimizing transfers between mother vessels and feeder vessels in order to ensure fast turnaround of containers and loading of vessels. These triangulations or transfer techniques become easier to implement when the maritime networks are more extensive and the volumes larger, as these conditions provide greater opportunities for repositioning (Gouvernal and Huchet, 1998). Under ‘merchant haulage’, the shipping company does not possess full knowledge about the status of its containers. As a result, the turnaround of these containers is considerably slower. But, at the same time, for fear of losing the client, the shipping line is not inclined to impose financial penalties on a customer who keeps its boxes too long. The development of intermodality and door-to-door transport that has been developed by shipping lines may be detrimental to the activity of the freight forwarders because it diminishes their ability to organize transport as a whole. But the aim of the shipping lines is not so much to challenge the freight forwarders as to optimize their container flows before and after the maritime leg. Furthermore,
Table 3. The shipping lines in relation to the freight forwarders and logistics: some points of view
Customer relations Freight forwarders account for most of the firm’s clientele. Direct contact with major shippers. Partnership with freight forwarders. No transit department and no customs operations except at customer’s express request. Logistics Offer of door-to-door service depending on customer demand.
Pre-carriage and on-carriage
MSC, Antwerp, 2004
Hanjin, Le Havre, 2001
Optimal management of the container stock.
MOL, Le Havre, 2001
Exploiting the competition between road hauliers. Dedicated block trains as part of a contract with BCargo. Development of carrier haulage. Minimum possible use of merchant haulage. Special ties with about ten local road hauliers. 60% by carrier haulage compared with an average of 40% for Le Havre. CMA-CGM with 25%: ‘how do they manage?’ Clientele composed of 40% direct clients, mostly large shippers (Danone, Carrefour).
Optimal management of container stock via the Rotterdam European Logistic Center. This implies controlling inland transport by means of carrier haulage if possible.
Carrier haulage including when the client is a freight forwarder.
P&O Nedlloyd, Le Havre, 2001
Subcontracting for large road haulage companies which have a network of offices all over France.
Need to have some large freight forwarders (Shenker) as well as the smaller ones to provide regular volumes. Not encroaching on the territory of the freight forwarders . 90% of containers handled are FCLs, mainly with freight forwarders.
Optimal management of the container stock.
Managing traffic imbalances.
Maersk, Le Havre and Marseille, 2001
Its subsidiary Macadam for road haulage, but subcontracting dominates.
LCL activity is marginal. This is where P&O Nedlloyd GLD (Global Logistic Distribution) is active. Maersk Logistic is a separate entity from Maersk Sealand. Consolidation (LCL containers) remains an activity for freight forwarders which are very important clients for Maersk.
Optimal management of the container stock.
Table 3. (Continued)
Customer relations Shippers do not wish to be faced with shipping lines which are in a monopolistic position because they would also be forwarding agents. Logistics Before becoming involved in logistics it is necessary to control port terminals.
Pre-carriage and on-carriage
CMA-CGM, Marseille, 2001
Subcontracting for lorries. ‘It’s not the same activity’.
Hanjin et Hyundai, Seoul, 2002 P&O Nedlloyd, Singapore, 2001
Evergreen, Singapore, 2001 NOL Singapore 2001
Door-to-door transport undeveloped in South Korea (10% at most). Feedering is subcontracted because of strong competition. Optimizing links between feeder vessels and mother vessels. Importance of PSA for the success of this. Same as P&O. Direct links both with freight forwarders and shippers. Freight forwarders are more efficient for LCL than shipping lines.
In South Korea it is necessary to use a customs broker for customs formalities. Freight forwarders in a strong position on the European market.
The simplest way to become involved in logistics is to purchase a forwarding agent. The shipping line’s core activity is port-to-port transport. On Transpacific routes, need to develop logistics in order to meet shipper demand. P&O’s investment in logistics is recent, so the associated revenue is low.
Same as P&O.
Evergreen limits itself to performing maritime transport ‘Logistics is not our profession yet’. APL Logistics is based in Oakland and organizes logistics for major shippers.
MOL, Singapore, 2001
When NOL took over APL, its US rail subsidiary Stacktrain was not included. Same as P&O.
As a shipping line, MOL is not able to compete with the largest freight forwarders. Freight forwarders are able to supply the volumes to fill vessels.
MOL has been investing in logistics for 17 years but the function remains limited and varies on the basis of customer demand.
Shipping Lines and Logistics 547
CMA-CGM, Hong Kong, 2001
Dedicated river barge service on the Yangtze.
Chinese market: capturing freight before competitors by opening offices in mainland China.
In Singapore, logistics performed for two chemical industry clients. “The main thing is to remain focused on our fundamental activity which is transport”. Chinese market: priority is to capture freight. The second stage is to optimize flows for the client and internally.
Source: Surveys by the author.
the situation differs from one market to another, usually for historical reasons. Carrier haulage, for which it is very difficult to obtain figures, dominates in North America due to the importance of dedicated freight rail services and in the UK where the transfer of port activity from the West coast to the East coast has resulted in the decrease of the freight forwarding structure in England. Elsewhere, in Europe and Asia, freight forwarders and shippers continue to play the dominant role in the organization of inland transport (Heaver, 2002a), and the proportion of inland transport which is directly controlled by shipping lines has been estimated at roughly 30% (Notteboom, 2004b). But this figure conceals profound differences between different shipping lines. In Le Havre, the representative of MOL stated that the company controls 60%, and found it difficult to understand how some competitors such as CMA-CGM could manage with lower levels. The involvement of shipping lines in the inland transport leg does not in any way imply they are invariably purchasing inland transport undertakings. More typically, they subcontract on a more or less long-term basis with specialized road, rail or river transport, or feedering companies, because shipping lines try to exploit competition between the many different modes and operators. When shipping lines announce the creation of a dedicated rail or river service, this is usually for commercial reasons, but their effective involvement in these services in terms of capital is marginal. This has been demonstrated by Gouvernal (2003) with regard to CMA-CGM’s rail subsidiary Rail Link: “like many other rail services, RL’s bid is the result of cooperation between the different players in place. There is no new competitor in these services, nor any specific investment by a leader but rather a service integration strategy” (Gouvernal, 2003, p. 112). This integration involves strengthening the cooperation between the actors, but does not introduce any new partners, nor does it result in any new investments. The actors still concentrate on their primary activities. The Metrans or Polzug rail services (Dubreuil, 2002) from Hamburg, or the European Rail Shuttle (ERS) services jointly set up in 1994 by Maersk-Sealand and P&O Nedlloyd from Rotterdam, are examples, even if in the case of its subsidiary ERS, the AP Möller Company have now entered a phase of limited investment in traction. Likewise, the widespread takeover of the functions of shipping agents and the less extensive integration of the functions of cargo handling by the shipping lines can also be interpreted as an attempt on their part to achieve better control of container logistics. By taking over the functions of shipping agents, the shipping lines obtain more information about the origin and destination of the containers, which allows them to control end-to-end routing more effectively and set up an information system that covers their entire network, which also helps optimize container flows. The same reasoning lies behind the dedicated terminal. Freight logistics do not apply at the terminal, except perhaps marginally. This is because the amount of space on the quayside is too limited and expensive to locate grouping/degrouping operations there. The goal of a terminal, whether it is a multi-client terminal operated by a specialized freight handler or a dedicated terminal operated directly by a shipping line, is to transfer containers as efficiently as possible. This involves the rapid turnaround of vessels and the provision of uninterrupted flows to the inland transport systems (trains and barges) (Heaver, 2005). These aims always involve the optimization of container turnaround which we refer to as ‘container logistics’.
Shipping Lines and Logistics 549 Container logistics is very closely associated with efficient vessel operation. The latter involves a specific and highly advanced type of logistics—‘vessel logistics’— which aims to optimize the revenue generated by the vessel by minimizing its operating costs. The shipping line is still a shipping line. It fits out and operates vessels. Once in the port, the container ship resembles a three-dimensional jig-saw puzzle with containers as its pieces. Good operation of the vessel, that is to say a vessel with a high freight load factor when it is at sea and which at least covers its fixed costs, begins on the land with the need to find the pieces that are necessary to complete this jig-saw as quickly as possible. We conclude therefore that container logistics, even though it extends the shipping line’s activities on the land, essentially is a maritime activity.
Is the Existence of Freight Logistics by Shipping Lines a Myth? We suggest that ‘freight logistics’ exists above and beyond ‘container logistics’. It involves managing freight flows between producers and intermediate or end consumers. If one judges from the websites of the shipping lines and freight forwarders or from the advertisements published in the professional maritime press, this activity is nowadays widespread, mature and offered by all carriers and logistics providers to their clientele. Here too, qualification is necessary both with regard to shipping lines and freight forwarders. For freight forwarders, this is their primary activity. Those we met (SDV in Le Havre, Singapore and Hong Kong; Schenker in Singapore; Rhenus Alpina and Kuehne+Nagel in Antwerp) all emphasized how little the nature of their activities had changed. The activity of a freight forwarder is simple to define. Today, as in the past, they derive most of their revenue from freight grouping/degrouping operations. A freight forwarder makes its profit margin by grouping batches of goods from different centres for different consignees and by taking a commission on maritime freight. It is a specialist in LCL containers. The other traditional strong point of the freight forwarder is its ability to manage all the customs operations. This ‘primary’ activity of the freight forwarder is clearly identified in the annual reports of the groups in Table 2. It represents, for example, more than 50% of Kuehne+Nagel’s turnover and almost a third of Panalpina’s. These groups perform the same type of activity with air freight. Should the term ‘logistics’ be used to describe a straightforward and longstanding activity which has changed little in nature? According to one of our respondents (transcription of an interview with a representative of a freight forwarder in 2005), a number of methods engineers formalized the concepts of logistics between 1970 and 1980 and: … gave a number of learned English words such as packaging or re-packaging to everyday operations. We have been dealing with goods that come from here and there for a long time. For a long time, we have been adding value to the goods at certain points along their journey. (Interview respondent) Supply chain logistics, which for the freight forwarder involves playing a role before and after the production process and managing flows of goods within parameters fixed by the shipper, accounts for a very small proportion of a
freight forwarder’s activity, in the view of all our respondents. Thus, logistics accounts for only 13% of Shenker’s turnover, 11% of Kuehne+Nagel’s and 17% of Panalpina’s. It is marginal in all cases. Should these groups’ inland transport activities, which can be seen as a part of an end-to-end logistics service or more simply as a straightforward transport service, be added to these? These inland transport operations generate a considerable amount of turnover. Today, as in the past, the services provided by the freight forwarders are based on excellent knowledge of the market which is derived from their networks of offices whose principal resource is their staff. Capital investment is very low, limited to a few warehouses for grouping/degrouping operations. The real transformation of the activity is the result of the emergence of a limited number of global operators, which are able to offer their clientele services at global level as the result of their worldwide network of offices. Information and communication technologies have resulted in productivity gains and the creation of these global networks. But it is not certain that the nature of the freight forwarding activity itself has been radically changed. While the freight forwarders state that they perform little in the way of logistical activities, what is the situation as regards shipping lines for whom it is not the core activity? In the annual reports produced by the shipping lines, the turnover generated by their logistics subsidiaries is presented as a total and it is not possible to distinguish between grouping/degrouping activities, inland transport services and logistics contracts. Thus, the situation can seem quite straightforward. The regular shipping lines make direct contact with major shippers (the automobile, distribution or food processing industries) which provide them with regular large volumes of full container load (FCL) containers. This special relationship between a shipping line and one or several major shippers can account for as much as half the activity of a shipping agency in a given port. For the shipping line, there are many benefits: vessels are guaranteed to be filled regularly over a long period of time as the contracts generally cover one year, the origins and destinations of containers are stable and it is possible to set up large scale assembly and distribution services such as block trains or river barges. Most importantly, it is able to control its container stock. At Antwerp, for example, MSC works for the German automobile manufacturer BMW which on its own generates sufficiently large freight flows to justify the existence of a block train that runs to Wackersdorf, in Bavaria (Containerisation International, 2004). Since 1990, this has been home to a BMW logistics centre for the redistribution of parts both within Germany and abroad. Is it therefore correct in this context to use the term logistics? The shipping line does not handle the freight directly; this remains entirely the responsibility of the shipper. The shipping line earns revenue from a maritime transport service which it controls and which it extends to the inland leg essentially via subcontracting agreements with land-based partners. This satisfies logistical imperatives which are dictated by the shipper which requests, for example, delivery of the containers to warehouses on a fixed day because it has itself integrated this flow in a process of production and/or distribution. But the activity of the shipping line is still restricted to transport and does not extend to freight logistics. A major share of the FCL container activity of the shipping line involves a container logistics outlook from which the shipping line draws major advantages because its purpose remains essentially focused on maritime transport.
Shipping Lines and Logistics 551 Apart from this direct relationship with shippers, the main clientele of shipping lines still consists of freight forwarders. This is because shipping lines are uninterested in LCL containers. They prefer to leave the responsibility for these to freight forwarders with whom they do not wish to enter into direct competition, for fear of losing traffic which might lead to an immediate reduction in their vessels’ container load factor. When they engage in such activities, it is through subsidiaries which are entirely dedicated to this segment of the transport chain. In the opinion of a representative of CMA-CGM, the simplest way of becoming involved in logistics is to purchase a company that is specialized in the area, which indicates the lack of direct functional links between the activities of the shipping lines and those of freight forwarders. When logistics subsidiaries exist, they do not necessarily have special relationships with the maritime branch of the group. For commercial reasons, the Bolloré group has clearly separated SDV and Delmas as entities, because SDV is involved in worldwide transit activities while Delmas is specialized in regular North-South lines, particularly to and from Africa. The independence of these two activities has been clearly highlighted by the Bolloré Groups’ sale of Delmas to CMA-CGM in June 2005, an example of vertical de-integration. Within the AP Möller and APL/NOL groups, the logistics subsidiaries, Maersk Logistics and APL Logistics, do not automatically choose the group’s shipping subsidiary, and may use another carrier because of customer wishes or market conditions. For example, Maersk Logistics’ objective, according to its website, is “to deliver integrated logistics solutions to Maersk major customers”. But shippers should at no time feel that they are faced with a single service provider which controls the entire transport chain, imposing not only transport and logistics solutions but also its tariffs (Heaver, 2002b). The maritime groups which are really becoming involved in logistics in addition to their regular shipping lines remain very few in number: APL/NOL, NYK and Maersk. These shipping lines, which could be described as integrators, nevertheless continue to nurture their relationships with freight forwarders as they need the volumes the latter provide them with. For the other shipping lines, logistics remains a limited, or at least an uncertain, activity which has more to do with advertising slogans than reality. Finding the Right Balance between the Three Types of Logistics The objective of the regular shipping lines is to achieve the right balance between these three types of logistics in order to generate maximum profits while satisfying the needs of their shipper or freight forwarder customers. As can be seen in Figure 3, there are contradictions in a shipping line’s activities between the necessity of meeting its customers’ needs and on the other, the need to remain competitive in relation to its competitors by reducing costs. There are very few levers which allow the shipping line to move in both directions at the same time. As regards the choice between container logistics and freight logistics, the regular shipping lines concentrate their efforts mainly on the first, as that provides them with the greatest operational advantage as regards the management of their maritime lines. ‘Container logistics’ involves a major investment in inland transport, but does not necessarily mean real and profound involvement in ‘freight logistics’.
Figure 3. Vessel logistics, container logistics and freight logistics.
Vessel logistics, container logistics and freight logistics
Conclusion The reality of the integration of the transport chain is a fact which has profoundly modified the activities of the actors involved in transport. But the scale of the transformations should not conceal the fact that the transport chain integration process is far from complete, as demonstrated by the distinction made by shipping lines between ‘vessel logistics’, ‘container logistics’ and ‘freight logistics’. This observation means that the core activity of the shipping lines, namely vessel logistics and container logistics, remains the priority even if the organization of maritime networks can only be understood with reference to their integration in larger transport chains which include inland extensions. This leads to a new hypothesis: the process which shapes the competition between shipping lines continues to be based essentially on their maritime networks. These maritime networks are not uniform and remain a key factor in providing a shipping line with a durable comparative advantage over its competitors. This stresses the importance for maritime researchers of not ignoring maritime networks as they explore the enhanced scope of logistics organization and management. It
Shipping Lines and Logistics 553 also suggests that the true nature of vertical integration must be considerably qualified. Acknowledgements The author thanks Professor B. Slack for his comments and suggestions on an earlier version of this paper and the two anonymous referees for their comments. References
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