There is an irony perhaps in that the freight transportation industry, where movement is what it's all about, took so long to join the wired world, where everything moves instantaneously. For its part, ocean transportation was quite hesitant before going online, say some industry insiders, and certainly lagged its counterparts in the parcel delivery sector. But once this industry, sometimes characterized as conservative and slow to act, awoke to the benefits of the internet, it began to introduce one e-commerce initiative after another. For many in the industry, shippers as well as carriers, not to mention the software developers who have powered much of the change, it's smooth sailing now.
Not unlike companies in unrelated fields, carriers plunged into the online world for a number of reasons: the technology seemed promising as a way to cut costs; the electronic approach was viewed by some, if only initially, as a competitive differentiator; and, finally, customers demanded it. Stodgy or not, the industry felt it had to respond.
The range of services in the ocean cargo business affected or even made possible by the internet includes booking, invoicing, rate negotiation, tracking and tracing, container management, contract management and others.
John Gurrad, vice president of business development and e-commerce for MOL America is one who thinks that the ocean business was slow on the uptake when it came to realizing the benefits of the online world. Customer demand, if not service, was a primary e-stimulus, so to speak. "With the advent of the internet, customers today are seeking to conduct more business that way. Realizing what they wanted, we had to develop tools to participate in this new technology."
The story at APL wasn't much different. There, says John Pachtner, director of corporate communications for APL's Americas region, company interest in the web began to stir in 1995 when customer-service managers began to sense something positive about the technology, "although the exact use and benefits remained unclear." A web site, though static and text-only, debuted that year. But it began to dawn on some officials that the manual, paper-intensive and error-prone ways of booking freight, checking on schedules and the status of assets, and, of course, securing bills of lading just might be getting ready to sail into the sunset. E-speed promised a new future. It would mean acquiring new tools and processes, but the ocean freight industry finally seemed ready to undergo a revolution.
At APL alone today, there are more than 250,000 internet transactions a month, growth that the carrier says is up 74 percent from last year. More than 34 percent of its container transportation business transactions are done online, and more than 38 percent of its active customers use the company's suite of e-commerce services.
The vision at P&O Nedlloyd is to view every customer touchpoint as an e-initiative. "P&O Nedlloyd's e-commerce strategy is to enable customers to do business with us by electronic means throughout every process in the shipment cycle," says Dave Warne, senior vice president of e-commerce at P&O Nedlloyd, North America. "This includes all business processes from schedule inquiry and making a booking right through to payment of freight and other charges."
The sea change in carriers' attitudes toward web technology often is promoted as a desire to improve customer service, and there is no doubt that users benefit from much of the technology that has been deployed throughout the industry. As an example, for some time shippers have been able to print bills of lading on their desktops. APL, in partnership with Electronics for Imaging, ratcheted things up quite a bit late last year when it introduced an encrypted, negotiable bill of lading (BL) that can be sent online to third-parties and banks.
However much time and effort customers save with these technological advances, the fact is the technology also helps carriers keep costs down as well.
With margins so slim, and shippers continually looking for ways to beat them up on rates, carriers are forced to examine every way to cut expenses. "All of us are looking for ways to drive costs out of the operation," Gurrad acknowledges. "Clearly, you don't want to affect relationships with customers. What's paramount is to not harm that relationship. But we've looked at our business processes, particularly those that relate to the customer, and decided which of them we can automate. And we think we're saving some costs by automating some processes that relate to his ability to seek a rate, or negotiate a contract, to make an order, submit a booking, and all the subsequent steps that have to do with documentation, including shipping instructions, bills of lading, invoicing, and very importantly, to track their cargo."
The ability to perform or deliver these services often is not developed in-house. That's not to say carriers don't have IT departments; the larger ones may have substantial internal IT resources. Maersk Data USA, or MDU, has supplied application development, PC and server support, and database administration for 20 years to Maersk Sealand. It now plans to offer a pallet of IT services to other transportation providers. MOL had its own IT division when the company decided it needed technology muscle to supply many customer-facing services. But, Gurrad says, the internal team was preoccupied at the time with developing an enterprise operating system for the company.
Into the breach stepped Tradient, the predecessor to GTNexus, a third-party provider of web-based e-logistics solutions to the ocean transport sector. The focus initially was on visibility and tracking, but the carrier wanted even more capability. Shortly after GTNexus entered the picture, it introduced the concept of a portal. For MOL, the advantages of that product seemed persuasive: It could provide many more applications than the carrier could on its own web site; the line would have access to many more shippers than it could have found by itself; and there were economies of scale that weren't available to MOL, no matter its size.
"With the transactions that it could generate, it would make our transaction costs lower than if we were to have the same applications on our site," Gurrad says. "So, we decided to invest in the portal." The carrier is now one of 13 to have joined the portal, according to GTNexus. Others include APL, Hyundai Merchant Marine, 'K' Line, Senator Lines, Hanjin Shipping, Crowley, CSAV, Zim, Yang Ming and CP Ships.
Information sharing via open-standards and web-enabled systems is one of the primary advantages of portals, say their proponents. INTTRA, for instance, was founded by several major carriers to enable shippers, freight forwarders, 3PLs, brokers and others to book freight online with a simple integrated process. In addition to its INTTRA-ACT web-hosted solution, the network offers INTTRA-LINK, an EDI link for participating carrier transactions.
Those members number 15 and include P&O Nedlloyd, NYK Line, Alianca, Hamburg Sud, Maersk Sealand, Mediterranean Shipping, Hapag-Lloyd, CMA CGM, Columbus Line and, interestingly, forwarder Kuehne & Nagel, the first non-carrier member to register with INTTRA.
Through the network, clients can use a single interface to retrieve necessary information on shipments regardless of the line with which the booking was made. More importantly, the data can be received in format compatible with users' internal IT systems.
Of course, incompatibility is a common hurdle in the electronic world: One system often can't talk to another, at least not without potentially costly system integration. With so many customer touchpoints in the ocean cargo business, communication breakdown is always present. Standardized processes could allow numerous carriers to present their services to their many customers in the same way. Equally important, the shipper universe could see across the carriers with uniformity.
"It makes more sense from the customer point of view to have common standardized processes, whether it's in managing their contracts, tracking their shipments, getting information on carriers, whatever," says Vijay Sundaram, vice president and cofounder of GTNexus. "From the carrier point of view, because transactions are manual or partially automated, there is a huge cost associated - people costs and support costs. If more processes could be fully automated, it would change the whole cost structure of the business, which is what they need."
As Sundaram sees it, carriers have about a dozen points of contact with customers. The big ones, of course, are booking, submitting bills of lading and managing contracts, but all touchpoints involve technical processes that only cost money rather than generating it. "The cost to serve a global customer with manual or semi-automated systems is exorbitantly high," he says.
Changing Cost Structures
Pricing pressures in ocean transportation are not unlike those in other industries which have to maintain a high deployment of costly assets as well as an IT infrastructure that does little or nothing to make you stand out from the competition. "The business problem is that the lines have to deal with the customers along several processes, and that's not what makes them competitive. It's a cost-based operation," says Sundaram.
The standardized processes he talks about call for carriers to share the technology that underlies the customer-facing applications. "In business, change tends to come from external agencies," Sundaram says. "In this case, it's technology. That's what we are doing, technology sharing."
Carriers, he says, derive savings from the economies of scale found in participating with a dozen or more competitors in the network. "Technology has given the opportunity to change the cost structure in industries."
Sundaram refers to the network interplay as "coopetition" - the act of natural competitors collaborating for their own good. "Though counter-intuitive at first," he says, "coopetition is really about selective cooperation between competitors in search of common advantage."
Why shouldn't business work this way? In the last couple of years many in the industry began to realize that there was little competitive differentiation in IT ownership. There was no particular advantage in having your own booking system, for instance. Sharing costs with other carriers via the portal concept frees up scarce IT dollars for core business processes.
This industry (deregulated now, so it's looking for cost reductions all the time) has a long history of cooperation anyway. First of all, it has antitrust immunity, so competitors do "talk" rates. Second, it's been involved in successful vessel sharing alliances for years. (Vessel operation accounts for about a quarter of carriers' costs.) It's no secret that alliances allow a carrier to boost the number of services they can offer in a given trade lane. MOL, for example, has nine weekly trans-Pacific services; it would have only three if it were limited to using only its ships.
Is the shipper, who likewise is being squeezed in today's economy, benefiting from this cooperation? Their proponents say portals drive to shippers the information needed to keep their supply chains slim. Shippers seldom give all their business to one carrier. With portals, they can transact business with all lines at the same time, in the same format. And, says Gurrad, it's free to the shipper. That value-add, provided by the carrier, is just the cost of doing business.
Even in the same lanes, shippers may use three or four carriers. Any number of factors, ranging from cost to capacity to types of equipment, can dictate carrier selection. In any event, contract negotiation is one of the most time-consuming yet vitally important jobs facing shippers. The process, traditionally manual, can take months to complete depending on the size of the shipper and the number of contracts, or tenders, he or she is seeking to bid out.
A web-native solution from BridgePoint promises to end the error-ridden, hands-on drudgery of poring over spreadsheets. Its NaviPact application is designed to streamline the negotiation and procurement process, not to mention drastically cutting the time to do it.
The back and forth involved in the negotiation, first inside companies among managers and administrators, then between shippers and multiple carriers, has a "spiderweb effect," says Ken Pikulik, BridgePoint business development strategist. "Traditionally, companies would find out from their regional managers what their volumes for the coming year were expected to be, and they would reduce that to one spreadsheet and send it to multiple carriers to work with." There, numerous managers generated lots of spreadsheets again.
"So once they compiled their information on their side, they would send that single spreadsheet back to that single shipping manager. But he would have 17 different spreadsheets from 17 different carriers."
Carriers might not have bid on certain things, or it might have been unclear what their quote included, Pikulik says. So another round of back and forth would begin. "When these things get finished, you're talking about books that look like encyclopedia volumes. The spiderweb effect."
That months-long process has been streamlined to a two-week one in many cases, Pikulik says. Once a "company view" of a user's needs has been sent to carriers, they can interface with specificity. For instance, Pikulik notes, a carrier might say, "'I'm going to take it from New Jersey to Brussels, but I'm actually going to take it into Antwerp and then barge it from there to such-and-such location. I'm going to charge you this amount and these fees will include the port cost, the container holding cost, etc.' The shipper can see what one carrier is providing versus what another is providing. One is much more expensive, but it's going to get there in 22 days rather than 45 days. The shipper says, 'Which is the greater value to me? Do I want these savings or for it to be that much faster?'"
The return on investment is in reduced inventory, he says. The less time you have something tied up in the pipeline, the sooner you can get your money. "With the right kind of information and communications, you can work with the right carriers on the right trade lanes. Can that take you down to 20 days' transit? Can we ensure that something doesn't sit on the dock for two days after delivery? With this solution, you have an accurate record of what carriers say they are going to do and what they actually do. And it's all done online."
Time is always critical, says Peter Gruettner, vice president of ocean services at BaxGlobal. Though the company has been involved in ocean transportation for 20 years or so, it's only been in the last couple of years that the "ocean product" has been brought forward in the portfolio. "What we want to be is a complete solution provider giving customers the option of moving cargo on time-definite, international moves."
Legally known as an ocean transportation intermediary, Gruettner says, the ocean division is probably best thought of as a forwarder and logistics solutions provider. The typical client is one who has traditionally used the BaxGlobal airfreight and domestic network, but whose business may have grown to such volume that ocean may offer the price breaks that airfreight can't. "For example, we are developing a focus toward traditional ocean freight customers, who are bringing inbound from Asia hundreds of containers," says Gruettner.
Still, the goal is to have a full-service import and export product for LCL and FCL cargo, with the complete array of services, including Customs clearance.
All of this, of course, is enabled by the online revolution, including booking, document preparation and track-and-trace.
That last consideration is of great importance to carriers as well as shippers. Though no one likes to admit it, when containers leave terminals for inland delivery they "disappear" until they are returned.
Maersk Data calls the communication breakdown that occurs between the terminal gate and final destination a "black hole," one that MDU says costs the shipping industry millions yearly. Its new DrayWatch product, a real-time, browser-based solution, enables carrier and trucking personnel to go online to record a container's status events as they happen and automatically alert shippers and others concerned with just-in-time deliveries.
With real-time online tools, carriers and shippers alike now have the information to set their supply chains on a course for greater productivity at lower cost.
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