News / Shippers would pay carriers a premium for faster and more reliable services

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After what seems like years of discussion and amid an atmosphere wild rate volatility, it would appear there are increasing signs that some shippers would be prepared to pay a premium for faster and more reliable deepsea container shipping services.

Yesterday The Loadstar reported Kuehne + Nagel chairman Karl Gernandt’s analysis that container carriers had effectively passed some $10bn per year to ocean freight customers via discounted freight rates in return for substandard services which regularly delivered poor reliability levels.

He subsequently argued that carriers should begin to think about offering higher-priced services in return for higher levels of reliability, with carriers developing a two-tier service structure.

“It is time to offer new solutions. To be more flexible – products with some services that are discounted as they are today and some that are enhanced.

“The current reliability arrangement works for many customers and their cargo, but not all of them. We would all be better off if the realities of what is being sold today could be openly discussed – a get-what-you-pay-for discussion; a value-based pricing model,” he said, adding that services that came with a +90% level of reliability should command higher rates.

“Would BCOs [beneficial cargo owners] be willing to higher rates? I think they would – on a per unit [of cargo, or SKU] calculation the BCO is more interested in reliability than the negotiated price,” he said.

One Kansas-based importer told The Loadstar that his company would welcome the option of premium services for certain shipments which it needed more urgently, although he added that the majority of his cargo wold remain shipped at the best price he could negotiate.

However, he questioned whether it would be possible to introduce such services.

“There has to be a certain volume of cargo in order to achieve a critical mass that means you have the frequency of such premium services. It would be no good just having one sailing a week – that would negate the concept. But if there was one a day, that would be a very interesting option to us.”

Indeed, David Croft, senior manager of logistics services at Walt Disney Company, said it already placed premium service levels in its contracts with ocean carriers that service its commercial hub in Florida for its Disney World theme park.

“We actually have a contract that is structured that way right now. I think the Disney brand is the number-one on the planet and everything is about the guest experience, so for us service is the most important thing because it’s the most important thing to our guests, and it drives all our results.

“The expectation is so high, we talk about service more than anything else with our carriers, and we have been talking this week about rates going up – well, service has to go up faster, because if you have inconsistent and unreliable services there are other costs in the supply chain which are very high to us.”

However, Donna Lemm, vice-president of global sales at freight forwarder Mallory Alexander International Logistics, questioned whether the focus on a premium service would remain after the current supply chain difficulties in the US had passed

“There’s definitely a market out there for those willing to pay a premium for a guaranteed service, but it is also market driven – the idea of paying more for a higher quality of service is hardly new.

“But as soon as we don’t have a capacity or congestion issue and things begin to normalise, there is only a handful of folks who will be willing to pay a premium knowing that other services are working,” she said.

Although Maersk Line chief executive Soren Skou had revealed that it had to discontinue its Daily Maersk service because shippers were unwilling to pay for it, he did concede that a number of conversations with big shippers had told the line “they would be willing to pay for a better quality service”.

He added: “I hope we will see attempts to do this because it would be good for the industry to have differentiated services.”

TOMORROW: Disney’s supply chain and how it avoided the west coast port congestion