This commentary appeared in the print edition of the Jan. 6, 2020, Journal of Commerce Annual Review and Outlook.
It wasn’t too long ago when you could find carriers offering negative ocean freight rates because of all the surcharges they needed to collect.
With so many great things happening in the world of ocean logistics, there is surprisingly little being done to address how complex ocean freight pricing is becoming. Innovations abound, ranging from digital freight platforms, enhanced visibility tools, carriers selling end-to-end solutions, chassis pools, soon-to-be new alliances, sustainable fuel programs, and terminal improvement plans. While all of these on their own are great innovations, it’s becoming harder to understand what is useful innovation versus what is smoke and mirrors.
Let’s take IMO 2020 for starters. New fuel requirements are about creating a cleaner, more sustainable environment for the world. One would be hard-pressed to find anyone not agreeing this is needed. Unfortunately, some carriers have approached the issue by trying to create new revenue streams via complicated formulas needing headhaul/backhaul route calculations, trade coefficients, and complicated algorithms that require Ph.D. credentials to understand. The end result has become less to do with how we together can improve our environment and more with how some carriers can wall off certain revenue (cost) streams.
Trying to bring highly complex cost calculations to only one piece of the freight puzzle while leaving the rest shrouded in mystery is pointless. If we’re going to have an open-book policy on fuel, shouldn’t carriers also open the books on the rest of the cost elements: charter cost, vessel financing costs, canal charges, slot-swap agreements, terminal/berthing contracts, fuel hedging, bunkering locations, crew cost, supply/demand considerations, and the rest of the components that go into the price shippers pay? I’m not saying this would be an improvement, but the contradiction that carriers are ready and willing to be totally transparent on one element while remaining secretive around all the other components only creates complexity and, ultimately, mistrust. That makes the real innovations mentioned above harder to realize.