A P MOLLER Group's acquisition of MARTIN BENCHER set to trigger pricing challenges for many project forwarders globally
Sanjib Gupta Roy, Logistics, Shipping, Project Cargo, SCM and Visiting Faculty
The process of forward integration by Major Shipping lines is slowly affecting many small and medium Forwarders. Many have even stopped quoting Container Freight rates to Forwarders and a few are quoting relatively high rates. This policy of direct Shipper Consignee sales will definitely trigger a pricing war.
As regards pricing challenges, the recent acquisition by A P MOLLER Group of Aarhus-based Project Logistics Service provider MARTIN BENCHER (Scandinavia) A/S, will trigger a huge pricing challenge for many Project Forwarders globally.
Maersk Shipping Line (part of the A P MOLLER group) with their own container ships and bulk carriers (if not exclusively chartered) will play a big role in loading OOG and heavy loads in large and Special Project Logistics (SPL) and will give much lower bids and multiple value-added services in many ports globally, to get high priced Project Cargo, and to add to their policy of controlling end-to-end supply chains.
The recent takeover of MARTIN BENCHER was announced by Karsten Kildahl, Regional MD, Maersk, after signing the agreement with Peter Thorsoe Jensen and the board of MARTIN BENCHER. However, Maersk must also look at the knowledge and expertise to run and execute SPL and must retain the hands-on expert team of MARTIN BENCHER to continue seamless operations. Their understanding of the entire gamut of operations and cooperation with the many local partners needs to be implemented. Project Logistics is a combination of many partners, service providers, specialized equipment like multi axles, submersibles, heavy lift cranes (both shore and off shore), specialized lashing and dunnage, surveyors, route surveyors, etc.
Maersk has recently completed the acquisition of LF Logistics from Li & Fung. To add a point on Maersk ‘s global footprint, their India and South Asia management has forayed into Inland Water Transportation with their own barge operating for trade between India and Bangladesh.
My strong speculation is that they may soon get into multi-modal mode and start acquiring companies to get into road and small parcels too. Recently, competitor shipping line - the French CMA-CGM, started Air Freight operations as a value-addition and to cater to the growing demand of air cargo.
The scope of pricing in Project Shipping is mostly door to door, that is, from manufacturer to consignee site or plant. The major chunk (70 to 80%) is by Sea Freight and the balance by Air. Hence, sea freight is going to be a major pricing tool for Maersk to bid and win against many other Project Forwarders. Here again, they will use (wherever possible) their own equipment. However, this will also mean that they will have to collaborate strongly with other bulk carriers and optimize Space, Time and Reach.
Project pricing consists of multiple areas and Maersk will hold many advantages in view of their many offices and agents in almost every major port and city globally; infrastructure in CFS and port operations; and partners on shore in their regular container/bulk operations who will chip in with their equipment etc.
There will be many pricing challenges that the team will have to overcome (especially with road haul of OOG and heavy weights) in countries like the Indian sub-continent, CIS, and Africa, where there are no proper regulatory bodies, and getting road permits, police permissions, interstate taxations etc. is a challenge.
In India, we are seeing a rush to build highways and expressways to cater to passenger traffic and limited truck operations. The toll gates are not kept flexible on one end to move oversize or odd shaped loads. The Indian think-tank and governance is pushing to create industrialization zones but our highways are not built to cater and be project and logistics friendly.
Let’s address some of the important factors of project pricing which will help non-industry readers to understand the pricing areas benefitting Maersk Logisitcs. As written above, Pricing is mainly from Manufacturer to Consignee Site, hence the following factors:
A. Onsite Loading: Here, equipment like Flat Racks, Platforms, Open Tops, and Multi Axles are sent. At the very start is the cost of route survey from Factory to Port of CFS. Normally, these factories would have supplied the machines earlier, so may eliminate this with prior experience and route knowledge.
B. Cost of Transporting: Cost of lashing wooden dunnage etc.
Cost of loading with cranes (some suppliers will provide their own cranes).
Cost of moving back to Load Port of CFS. Incase loose cargo is sent to CFS, then the above charges like lashing dunnage and Special Equipment movement will apply (sometimes, equipment is available at the CFS). Labour Crane, Storage etc are CFS handling charges. CFS to also cover movement to port and under hook for bulk loading.
The advantages that Maersk has are many: They have their own facility near some load ports and have agreements with many other private CFS where the present container operations are on. They also hold the advantage with many truckers and will get special pricing. They can enjoy up to 20-30 % cost advantage over their competitors. In fact, even a 10% difference can mean a lot.
C. Port Operations, Terminal Handling, Wharfage etc: Here, there may not be any advantage unless Maersk starts their own terminal operations (they may be managing in some places). Port charges will be the same for all bidders.
D. In case of Air cargo A & B charges will apply, and C will change to Airport Cargo hold. Sometimes B may be eliminated if moved directly to the nearest Airport where Freighters are available.
E. Air freight / Ocean Freight: Unlike CMA, Maersk is yet to place their own aircraft and have a strong charter team in place. However, their main role will be in Ocean Freight. The advantages that Maersk holds here is that they can outbid even the strongest contender in pricing. The advantages in loading Flats, Open Tops, and slot losses thereof will definitely put them in the driving seat as regards the pricing. Only in places where Submersibles Bulk charters etc are required, competition will have an even playing field.
F. Dis Port / Airport terminal charges, wharfage, apron charges, labour etc will be same for all.
G. The role now gets reversed from load port to deliveries.
H. Again, route surveys etc to be undertaken. The cost depends on the Dis Port agents and can vary. Maersk will use their offices, wherever available. Project Logistics Networks help to identify good partners and work in tandem with profit sharing.
I. Again here, transportation is direct to consignee site (mostly) and CFS is not needed. However, Customs costs may get increased as many consignees at the time of opening their Letter of Credit and completion of purchase of the plant do not consult any Project Forwarder. Hence, they land up showing one port as dis port, whereas to expedite and sometimes even reduce costs, shipments can enter from multiple ports. To cite an example: at Mumbai, all the containers move from JNPT and all bulk cargo from the Mumbai port. The Customs are different in both the locations.
J. Maersk holds an advantage here in land transportation with their existing partners and their only need is for multi-axles that they may get same bids.
Overall, we see that this will trigger a major pricing war and many small project forwarders will find it difficult to outbid and will need to reinvent their scope of operations. I would like to add here that as per Insurance and Safety audits the costs will be the same for all.
I have worked with Logistics Plus India as Sr. Vice President and helped my friends Peter and Bo start Martin Bencher Logistics India Pvt Ltd, but we had to close operations years ago.