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Insight: First Things First – Why ocean carriers have it all wrong

First Things First

Why ocean carriers have it all wrong

July 27th, 2022   ·   By Rob Garrison

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Every week, Mercado CEO Rob Garrison pens his latest learnings from the supply chain industry as part of an on-going series. Each article aims to share a little insight into what's going on that week, and to help foster discussion amongst industry professionals across levels, geographies, and companies.
When I was managing logistics for a large importer, the President of Maersk came to visit us at our US HQ. He was in somewhat of a “foul mood,” lamenting the large losses they were experiencing at the time. I asked him what he thought was driving these losses and he quickly cited three key reasons:

  1. Empty repositioning of equipment.
  2. Insufficient forecasting from their customers.
  3. Dwell time.
They had studied it so carefully that he was able to cite the macro numbers for each category from memory. Understanding the challenges they were facing allowed us to work together and create a mutually beneficial scenario. We agreed to measure and minimize all three of their cost drivers in exchange for discounts, provided we mutually met the objectives.

Each of these changes were a win/win for both sides, and not just financially. Both sides gained much greater efficiency throughout by implementing these changes. For example, turning boxes on the west coast gave Maersk back three full weeks of asset utilization, and we improved efficiency with 53' trailers.

What I see happening today with carriers is rather than working in partnership with customers, they are using blunt force instruments. This works in the short term, especially when there is a supply shortage as we saw with the pandemic, but it isn't sustainable or good business. Benefits that only benefit one party are doomed to fail on either side. The other party will simple look to gain back the advantage when supply dynamics flip (and they always do).

Right now, carriers actions seem out of touch with this basic tenet of business. They have systematically cut customer service and disempowered the people closest to the clients. Too often they make top down decisions by fiat in HQs thousands of miles away. For example, the carrier rep we worked with in Philadelphia had to check with their Asia HQ in Hong Kong for space commitments, who had to check with their Global HQ in Denmark, and back again. It never ended well, and eventually we went back to using a 3PL.

My advice to carriers. Have your most senior executives (CEO, COO, CFO+) spend two weeks each quarter meeting with clients at their offices in your top markets. They will be amazed at what can be learned and accomplish by simply talking to their customers directly. In the end I believe both parties want exactly the same things: a reasonable cost/margin, a professional relationship, and predictable outcomes.

It's possible in the short term to keep rates high through artificial means like cartels, blank sailings, and fiats, but it won't turn out well in the long term.

Carriers now have a “boatload” of money, ambitions to be full service logistics companies, and a path towards technological breakthroughs. There will never a better time than now to 'chart a client focused course,' but the window is closing.
"In an 'ideal' world, an importer would have at least one backup country, and one back up supplier for every critical product... All of this sounds good on paper, however it's actually incredibly difficult in practice."
One key reason is the dominance of China. Many importers are concerned about China as a sourcing point due to increasing tensions between the countries. However, the reality is that China dominates mfg in Asia, and they are very good at it.

As a result, quitting China is hard, as you will see in the excellent analysis below by Rita Rudnik.

A second reason is much more mundane. Most importers lack a robust database of their suppliers, and their supplier's suppliers. On the surface this sounds ridiculous, however we have gone through decades of 'predictable' supply chains where this wasn't a priority. Using the example above, most of the bike importers I spoke to were simply not aware of how reliant their suppliers were on Shimano.

My guidance to all importers is to address this database issue quickly. Beyond resiliency, knowing a lot about who makes your products, and who makes their parts, is also critical for understanding things like cost, ESG, and sales.

About the author

Rob Garrison, Mercado CEO
A highly accomplished Global Supply Chain executive with 25 years of experience, Rob Garrison has provided strategic vision and leadership to Fortune 500 companies. Rob has an impressive history of building agile, technology-enabled supply chains, and he has an established track record of forging high-growth partnerships, positioning organizations for success and launching innovative technology solutions that significantly improve end-to-end supply chain efficiencies.

Rob is currently CEO and founder of Mercado Labs.
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