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container, shipping, port

Container carriers are returning to their core business

November 20, 2017 12:05 am Published by

Containerization has gradually led to the commoditization of the ocean (port-to-port) liner service. All carriers have more or less the same ships, sail at the same speeds, call at the same ports with the same frequency, and charge fairly similar spot tariffs. Thus, for the shipper, a slot is a slot is a slot.

This situation has led to grueling competition among container lines, who in the 1990s realized that their survival meant differentiating themselves from others. This prompted them to begin investing in the other components of the supply chain, such as container terminals; distribution centers; road, rail, and air transport means; as well as a miscellany of other value-adding services, such as bar-coding, assembly, documentation, customs clearance, etc.

In addition to service differentiation, carriers’ vertical integration along the supply chain also served to increase both the complexity of operations and the sunk costs of aspiring new competitors (carriers). This was particularly effective whenever shippers were convinced, through effective marketing, that an integrated service is the only way to better serve their transport requirements.

Carriers appear to be returning to their core business, shedding the idea of vertical integration in favor of better horizontal integration (alliances) and dominance in the container shipping sector. Partly, this return to roots has been the result of the weakening or banning of liner conferences, historically low freight rates, and service unreliability that have ensued as a result.

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