RECENTLY APSA asked: “Is customer service a dying art in international shipping?” and this week we pose a related question, “Is there any such thing as brand loyalty anymore?”
Are you a rusted-on shipper?
The latest round of consolidation in the global container game is bringing an unprecedented concentration of ownership. By the end of this financial year the Top 20 of a couple of years back will be distilled to a Top 8, with the new Top 20 featuring many names unknown in this region.
But this time around some predators have learned lessons about outcomes of previous takeovers and are striving to retain target customers and strengthen their market offering – by keeping alive the brands and identities of their prey.
Consultants McKinsey & Co recently concluded mergers and acquisitions in the shipping industry over the last 21 years had destroyed some US$110bn of shareholder value.
McKinsey calculated the liner industry’s return on invested capital over that period was less than 2%. Top dog Maersk Line’s ROIC in 2016 was just 2.9% – on revenues of US$23.8bn.
While McKinsey primarily attributed the situation to “continuous overcapacity” it also cautioned that container line mergers “come with a risk of revenue loss”, citing problems with customer overlap in terms of volume and price, fears around integration and “actual service failure driving customers away”.
By way of example, McKinsey compared before-and-after results for two of the last decade’s highest-profile takeovers. A year after Maersk’s 2005 acquisition of P&O Nedlloyd EBIT revenue dilution from the combined operating revenue plummeted by 14.7%. In the case of Hapag-Lloyd’s purchase of CP Ships, combined revenue shrank by 8.2%.
“Lines need to decide on their strategy as well as their potential role in the consolidation, and they must build on the experience of others to ensure successful integration while avoiding the mistakes of the past,” McKinsey said.
This time around some of the buyers have enunciated clear policies to keep alive the brands and characteristics of customer favourites they’d previously have done their best to obliterate.
Maersk is preserving Hamburg Süd and in recent years has resurrected Sea-Land; CMA CGM – a leading resistor of brand destruction – is positively boosting December 2016 acquisition APL; and COSCO Shipping Lines (which nevertheless subsumed China Shipping Container Lines last year) has pledged to keep OOCL alive and well.
(By way of contrast, the official launch this week of Ocean Network Express will see the container identities of K Line, MOL and NYK merged into one.)
The question for shippers is, is this brand-preservation just window-dressing?
If you have always shipped with OOCL, will it make any difference to you knowing Beijing is pulling the strings? Do you worry new ownership of Hamburg Süd might mean different priorities? More importantly, perhaps, how will you feel when some of the people you’ve come to know and trust over the years become casualties of the unavoidable back-office rationalisation that underpins value accretion in mergers and takeovers?
While conventional thinking would suggest shippers will be more vulnerable when there are few carrier choices, this is also a rare opportunity for importers and exporters to assert their influence.
Are you satisfied with the level of communication with your carrier and accuracy and timeliness of information you receive? Do you trust what carriers tell you?
Do you care if you are dealing with a person who may be located in Melbourne, Manila or Mumbai? Does transacting on-line meet all your requirements?
Where do you find information about carriers that have or want your business? Do you check international reports or tap local intelligence about financial and/or operational strength?
When deciding where you place your bookings can you combine right price and good service? How many chances do you give a non-performing carrier?
Shipping lines need your business, for obvious reasons.
As container shipping has become increasingly commodified carriers are searching for initiatives that will meaningfully distinguish them from their rivals. And that means strong brands, and the characteristics and values they represent, must be protected and enhanced. And promises must be delivered.
It’s up to shippers to be proactive in ensuring best transport outcomes, whether through the development and maintenance of constructive relationships with shipping lines and other suppliers or through membership of industry bodies like APSA and FTA.
Ideally, it’s both.
* Travis Brooks-Garrett is secretariat at Australian Peak Shippers Association