Will shipping lines kill the sea freight forwarding business?
Shipping lines v/s sea freight forwarders in India, a scenario that headlines major sea freight forwarders discussion is not devoid of merit. Economic growth across the world fueled the meteoric rise of supply chain in general and sea freight in particular. While shipping lines and sea freight forwarders in India are the part of the same ecosystem, current trends seem to suggest that shipping lines want a bigger share in the profits.
Is the fear of shipping lines pushing sea freight forwarders out of business real?
There are enough indications for sea freight forwarders to be cautious. Let us look at some of the factors that are worrying sea freight forwarders so much.
- Consolidation and alliances of shipping lines
Even before the pandemic major shipping lines had started consolidating or forming alliances to offer maximum visibility and network for their customers. Integrating DAMCO and Safamarine into Maersk is an example of consolidation. Alliances have led to the formation of four major groups G6, CKYHE, Ocean Three and 2M. - Ambitious plans of shipping lines offering door-to-door service
Pandemic led price surge and the extra ordinary conditions that persist after that, led to criticism and mistrust between the shipping lines and freight forwarders. While the freight forwarders have been accused of trying to make steep profits by contracting at lower amounts and reselling it to customers for nearly 4X the pricing, the shipping lines are trying to consolidate and control major market share, also known as the Amazon effect. - Unprecedented market power in the hands of shipping lines
In shipping, most shipping lines own or lease the containers. The current price surge gives them an undue advantage. There have been reports of carrier’s market dominance from Australia to USA. The shipping lines are luring customers with preferred vessel space, or priority booking only for forwarders booking their land –based logistics service as well.
So is the writing on the wall for independent sea freight forwarders? While these vertical integration efforts will affect the business, but not all is lost. Businesses that are agile, customer centric and undergoing digital transformation will weather the storm well.
Why shipping lines will NOT annihilate sea freight forwarding market.
- Alliances and collaboration will be key
The shipping lines have alliances at sea but most of them falter on land. Not all shipping lines will be interested in creating a ‘one stop shop’ like Maersk. This is a window of opportunity for sea freight forwarding businesses. Collaborating with shipping lines to offer the best end-to end services will be a differentiator in the business. - Not all customers love one stop shop
Maersk has been taking decisive steps to realize their strategy of becoming the ‘integrator of seas’ by offering a complete solution from shipping to door-to-door delivery. This might be lucrative for a few major shippers, but other businesses would not be interested in giving up their negotiation advantage.
Even in the days of online shopping and ticketing, offline stores and travel agents are thriving. It is the same that will happen for container lines. This will also bring in healthy competition and improve transparency in the business. - Regulators need to step up
The only thing that needs to be watched is the undue advantage that the shipping lines have currently. Excreting influence to extract customer data from freight forwarders or not offering the same quality of service to independent sea freight forwarders needs to be monitored. This is where regulators will step in. Monopoly by large shipping lines should be kept in check and the eco system should be preserved to ensure healthy competition. - Documentation
International trade involves a lot of documentation and multiple agencies across various geographies. Developed countries have better “ease of doing business” quotient even when it comes to its exports related documentation and processes. International shipping and freight forwarding is still regarded as a foreign subject in many countries wherein the sea freight forwarders are expected to bring in their knowledge and skill sets in clearing customs and paperwork to ensure a smooth and timely passage of the shipping containers. Many shippers are skeptical whether this will receive adequate attention of large shipping lines and their alliances staff. - Service is personal
Shipping is a repetitive process that is full of uncertainty and involves multiple stakeholders including statutory organizations and governments through customs and ports, surveyors and other handling agencies. The concept of a dependable neighborhood forwarder has sustained over several decades principally due to the personalized service on offer. No shipper however widespread in operations and multinational in its presence would like to compromise on this.
The case in point is that large shipping lines and their customer services teams nestled away in a centralized location cannot provide the personalization that shippers have come to expect. In shipping business, service certainly has a personal quotient and it will remain a domain of the neighborhood sea freight forwarder for a long time to come.