Top time sucks in ocean shipping
Bill Rooney, the vice president of strategic development for Kuehne + Nagel, told the Agriculture Transportation Coalition (AgTC) this week that requests for quotes (RFQs) are “a good idea gone bad.”
“Number 2 on my list of things that suck up more time without adequate payoff are RFQs,” Rooney said. “Many of them are way too complicated. … It’s in many cases a process that’s really pretty bad. As they’re conducted today, many RFQs lead to faulty and suboptimal business decisions.”
Rooney said he tells customers that “simplicity and human interaction are important parts of a successful RFQ and they need to be a bigger part in the future because we see too much of this in our business, where complexity ends up driving suboptimal decisions by people who are reading the RFQs.”
In his role with Kuehne + Nagel, Rooney is a customer of the ocean container carriers. Previously he was a carrier, as the senior vice president of CMA CGM (America) and then as the North American president of Hanjin Shipping prior to its 2016 bankruptcy.
“Number 1 on my list of things that suck up more time without an adequate payoff are bunker surcharges. They are a confusing mess. They don’t work at very high and very low fuel prices, as we’ve seen more recently,” he said.
He referred to expected fuel cost increases after the International Maritime Organization’s low-sulfur fuel regulation went into effect at the start of the year. But then the coronavirus pandemic hit and oil prices plummeted.
“It was another example of where bunker surcharges don’t work — at very low prices and very high prices,” Rooney said. “Bunker surcharges, regardless of the complexity, distract buyers from focusing on the important thing. What’s important is what’s on the bottom line of my invoice. It’s like checking out of a hotel in New York. You think you’re going to pay $250 and you leave the hotel in Manhattan and the bill says $400 and you wonder how you got from $250 to $400. Well, you got to $400 with the other six charges they add to the bill. Focus on the $400.
“In this case, you’ve got to focus on the bottom-line number, the bottom line on your invoice. After you’ve agreed to a rate in this conversation with your provider, then have the adult conversation about what the bunker surcharge is going to look like, etc. I think that’s the way to do it. And when you do that, you really need to test … that surcharge to determine what happens at this price, that price, etc.,” Rooney said. “I think we can save a lot of time and wringing of hands over this thing. Don’t ignore it, just put it where it’s supposed to be.”
Asked about the possibility of a standard surcharge among all carriers, Rooney responded, “The carriers are just now coming to agreement on things like what is vessel arrival. They have great difficulty doing anything in common. To expect them to be able to do bunker surcharges in common, don’t hold your breath.”
Rooney called the current rash of canceled sailings as a result of the coronavirus pandemic a “watershed moment” for the ocean carriers.
“The carriers have been very good at matching supply and demand [during the COVID-19 crisis]. This is something they have never done a good job at. This industry for almost its entire existence, from 1956, has had oversupply except for a few distinct number of times,” he said.
Rooney said the voided sailings have affected spot rates globally.
“If you look at import rates in ’09, import spot rates to the West Coast were $800. They are double that now in conditions that are worse than we had in 2009. Blank sailings have had a clear impact on spot rates,” he said.
“I think the thing to watch out for is this could be the beginning of generally higher rates and higher returns to carrier capital. Now I don’t think these are going to make rates spike up, but I do think blank sailings have proved to be a really effective measure against rates taking a dive,” Rooney said. “I don’t think carriers colluded on this but they found by matching supply and demand, they kept rates in one trade at $1,640 instead of $840.”
Rooney does not expect any ocean carriers to go out of business anytime soon.
“I also don’t think consolidation necessarily is going to happen. We use all carriers to a great extent,” he said. “I think we’re looking at political issues, not so much financial issues.”
Rooney also doesn’t expect any quick resolution to what he called “the chassis issue.”
“It’s been 10 years … and still, as far as I can tell, [there’s] no optimal solution. It’s still a problematic part of supply chains. There are still many users abandoning the current business model. When you look at that and you look at some markets, in some markets you can see 30 to 50% of the chassis now being owned by shippers and truckers as opposed to the three leasing companies,” he said.
“To me, people are voting with their feet and they’re going to a new solution because they’re dissatisfied with what they were getting in the marketplace. I still feel — and I know there are arguments for and against this — chassis utilities with a neutral manager are a better way to go to extract more of the money that’s still on the table for chassis. It still doesn’t work the way it should. I think we can still do some things that will make it work better.”