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Open, SesaMaersk!

Open, SesaMaersk!

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I am inclined to think that there may be less to Maersk’s deal with Alibaba than meets the eye.

Yes, very big online platform ties up with very big liner shipping company to provide an electronic booking service. So Chinese exporters wanting to move LCL shipments can, if they are customers of Alibaba’s OneTouch service, lock in a freight rate on Maersk by paying a deposit online.

It is very easy to see what is in this for Alibaba – it gets them one jump ahead of Amazon in the battle of the big internet trading platforms to occupy the territory known as logistics.

It is easy to see what is in it for Maersk. It is a blow at the forwarders. “See, we don’t need you!”

“Our giant computing power can talk directly to a trading platform’s giant computing power! Tremble in your boots, O un-loved forwarders who have been pocketing some of our freight revenues for doing nothing much except answer the telephone!”

For in the eyes of vessel operating common carriers, forwarders who do not own the hardware “toil not, neither do they spin”.

Gosh. So shippers can now book space in just the same way that they have been able to book themselves an airline ticket for the past several years. Permit me to be underwhelmed.

“Yes, you will say, but this is only the start! Wait and see where this will lead! This will be as big as social media in a few years!” It may indeed become so, but when it does, it will not look like this – a tie up between a giant trading platform and a giant shipowning company, both of them quasi-oligopolies.

In this business, the small guys – and they are legion – all know that the big guys are out to exploit their size to the fullest extent possible, and the small guys stay in business by making quite sure that they don’t. The point is that the collective brain power of the small guys is vastly greater than the brain power of the big guys, who run the risk of looking a bit like a diplodocus surrounded by rodents.

The power to lock in a freight rate by using the internet is not really such an advance on the power to lock in a freight rate by picking up the telephone, and it comes with the rather clunky aspect – which we might even call a drawback – that a deposit has to be paid each time a freight rate is locked in, whereas the user of the telephone can make use of that useful custom, commercial credit.

There certainly is scope for booking space on the internet. But the idea of simply locking in a freight rate is unattractive compared to what must happen next – not simply booking a flight on your chosen airline’s website but flicking through SkyScanner, comparing Meerkats, and finding, not the deal that the liner dinosaur wants you to have – you know this isn’t the best – but the best deal in the market at that moment, with any carrier or forwarder. That’s what’s coming.

I rather suspect that, inside the Blue Kremlin, there are second and third thoughts going on. This move is almost a declaration of war on the forwarders, but it is a very weak one. War has been declared, but almost accidentally. Everyone knows that liners hate forwarders. The hatred between the populations of the two neighbouring states had been whipped up for decades, and now an incursion into the enemy’s territory has taken place. Hostilities have started, and within Maersk HQ there will be quite a few middle ranking people, and a great many salespeople, who are wondering just how the war may develop, for it is certainly a fight to the death.

The forwarders have ample time to think over Maersk and Alibaba’s demarche and come up with – not one response, but tens of thousands of responses. Is your money on diplodocus, or on 10,000 small, cunning, omnivorous, warm blooded, furry creatures? I think I am on the side of the small and cunning. I’m betting, not on Ali Baba, but on the 40 thieves.

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Andrew Craig-Bennett

Andrew Craig-Bennett works for a well known Asian shipowner. Previous employers include Wallem, China Navigation, Charles Taylor Consulting and Swire Pacific Offshore. Andrew was also a columnist for Lloyd's List for a decade.

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19 Comments

  1. George
    January 10, 2017 at 10:02 am Reply

    I think i ll go with the fringe too!
    Facebooking the whole process cycle will not work for shipping i think/guess/hope
    this kind of industrial organisation has taken decades to shape and may be seen as the most efficient settlement, otherwise the business would go elsewhere

    Maersk screwed up a whole segment with their pre-emptive strategy, to take advantage of their size and resources, and now they naturally want to secure the benefit but heck, databases and internet communications, as well as optimisation algorithms exist for quite some time now and so far we have not seen anything like a b2c platform with a meaningful mass/turnover

    Who knows what the future looks like, yet i always have believed in ecosystem dynamics, thus i will opt for diversity and resilience

  2. Dani
    January 10, 2017 at 11:04 am Reply

    There are already some websites which offers similar facility but I think they are developed by forwarders. Since this new move comes from the horse’s mouth, it can trigger a much sharper and stronger attack from the 40 thieves. I hope it all leads to a better rate for the end user and a much better rate for the liner. Let’s see how the 40 thieves try to survive the storm.

  3. Peter Herling
    January 10, 2017 at 11:25 am Reply

    This article is all over the map, factually incorrect and written in very poor taste .. splash247.com you can do better than this! …

    1. Andrew Craig-Bennett
      January 10, 2017 at 5:08 pm Reply

      Please list the incorrect facts.

  4. Andy Lane
    January 10, 2017 at 3:10 pm Reply

    I am with Peter here, this comes across as spite-mail – quite unnecessary.

    Phone ordering will become a fad of the past, and has already become in several industries and shipping/shippers will ultimately catch-up. The actual disruptor here is in fact Alibaba (or Amazon or others like them). I think that Maersk see the disruption happening, and would rather be a part of it than try to struggle against it. I think that demonstrates sufficient brainpower.

    The booking (brokering) is merely a part of what a forwarder does, there are many other formalities which are needed to be accomplished to facilitate freight transportation. So this platform can be as much for third parties as it can direct shippers. Although Damco can perform these functions also, and that is where Maersk maybe has some advantages over other vessel operators without these “in-house” skills.

    According to Rolf Habben Jansen (TPM Europe – September 2016), one of the biggest challenges (and cost wastes) in the supply chain is the sudden and last minute downfall of cargo, at an astounding and completely unacceptable level of around 25% of total bookings in some trades and from some origins.

    Does this cargo never actually need to be transported? Are manufacturing processes so immature that 25% of what it set out to make it did not actually make? No, of-course not! It is simply irresponsible behaviour. So a great leap forwards for the supply chain as a whole would be the “airline system” of pay first and we’ll confirm your space after that. The freight transportation industry needs to mature to that same basic principle, which will reduce costs even further and drive up supply chain reliability. This initiative will be one of the pillars which a better future industry rests on.

    I see absolutely no reason to always look for negatives in innovation.

    1. Andrew Craig-Bennett
      January 10, 2017 at 5:52 pm Reply

      “Spite-mail”? “Looking for negatives in innovation?” Moi?

      I think you have misunderstood just about everything that I wrote. It may be that my writing style is too allusive and indirect for you,since you have taken my reference to using the telephone literally, so I shall spell it out more plainly:

      1. Yes, it’s a new idea. Not quite as new as all that, as A.N. Other Carrier was in discussions with AliBaba about it a couple of years ago, but yes, it’s an innovation.

      2 It’s a bit clunky, and it certainly won’t be the last word in development in this area. The scope for using IT to create a transparent market in freight space is very exciting indeed, and that is where these developments are heading.

      3. I agree that the innovator here is AliBaba, and I say that they have stepped ahead of Amazon.

      4. I think that people who read Splash usually know, more or less, what a forwarder does, so I did not list the functions of a forwarder.

      5. Most VOCCs have allied “in house” forwarding operations; the one that I work for certainly does.

      6 The idea that just because a ticket has been paid for, the passenger is bound to show up, will add greatly to the gaiety of nations when you mention it to airline executives.

      7. Telling an industry that it “needs to mature” seldom assists sales. It is generally better to take your customers as you find them, and adapt your systems into line with their behavior..

    2. Andy Lane
      January 12, 2017 at 10:22 am Reply

      Apologies for striking a nerve-end.

      As an airline, you careless whether the passenger checks-in or not. Depending on the flexibility paid for, you might levy a charge for a departure date change – but ultimately the name of the traveller on the ticket must match what’s in the passport.

      So long as there is no consequence for a container not showing up to take its booked seat, there will always be huge cost waste, unreliability and inefficiency within the supply chain – from which everyone loses.

      1. Andrew Craig-Bennett
        January 15, 2017 at 7:04 pm Reply

        There will be costs and there will be waste but I am not sure that they are so very big.

        I used to work for a company which ran, and runs, both an airline or two and a container line or two. The ideal load factors in both aircraft and container ships were not very different when I was involved and it may be that they are not so different now. You assume a certain level of no shows. In boxboats, the cost penalty for sailing full comes in the form of re-stows. In an aircraft, you shut out underbelly cargo. In both cases the computational power needed to optimise the revenue by judicious pricing is fearsome, and sometimes someone gets a bargain.

        For sure, the inclusion of a prepayment obligation in online booking systems is to prevent no shows rising to the insane levels that they otherwise would in automated systems. Imagine, say, a competitor’s bots crawling over a line’s website and booking all the slots!

  5. Sam Chambers
    Sam Chambers
    January 10, 2017 at 8:22 pm Reply

    Am i right in thinking that both Cosco and China Shipping tied up with Alibaba a couple of years back?

    1. Andrew Craig-Bennett
      January 10, 2017 at 9:59 pm Reply

      Yes.

  6. Luke YE
    January 11, 2017 at 4:12 am Reply

    Hello Andrew

    Undersigned is working in one of shipping line agencies in Shenzhen, at the same time having access to One Touch logistics PICs thanks to last job in the blue. To me the alliance between Maersk and Alibaba is more than simply declaring a war against forwarders.

    1. Major targeted customers of Alibaba are SME (small & medium size enterprises) customers, who have no capacity to ensure safe loading per schedule during peak season. These customers’ volume should represent very small share within China export volume. For the past 4 weeks it was not a good timing since cargo rush was not very significant before Chinese New Year.
    2. One Touch (under Alibaba group) is one of the best service providers on customs clearance & foreign currency exchange & tax-rebate handling & micro credit for small and mid size exporters. Connecting to carrier is just one extra mile Alibaba took to complete its supply chain project, with up-coming targeted development being last mile service in destination.
    3. Ideas of selling space on line with deposit are nothing new since age of Nedlloyd then Youship.com then COSCO+Alibaba etc etc. Most probably this time with Maersk in the loop, still Alibaba will not be able to shake the big sharks currently living on the blood of carriers. I don’t think in coming decade there would be significant change on the shipping enviornment.
    4. The key for Alibaba/One Touch to succeed is to fully accomplish its product package by adding more carriers in the loop, setup of last mile delivery & expansion to Central/North China (with more “One Touch” to be partnered) however the ambition of the group is definitely not to be another KN or SCHENKER..

    As a conclusion I vote the same as you do for the 40 thieves. If carriers really wish to challenge forwarders they need to find a way to rationalize capacity supply, which seems to be so far very difficult.

    Best,

    Luke

    1. Andrew Craig-Bennett
      January 11, 2017 at 6:46 am Reply

      Luke,

      I’d just like to say “Thank you!” for those very pertinent and helpful comments from an expert.

      Since today’s carriers are, for the most part, with the exception of the Japanese and a partial exception for OOCL, those who co-operated in tearing down the conference system, and no other effective way of controlling capacity has been found, I agree with your last paragraph.

      1. Luke YE
        January 11, 2017 at 9:57 am Reply

        You are welcome Andrew..
        2017 would be probably the dark before dawn, with a few more re-shuffling/re-organization/marriage/divorce or possibly one more knock-down of a major carrier, then market will be back to rational in 2018/19..
        Wishing all of us can survive from the thunder-storm.
        Luke

  7. Hans Morus
    January 11, 2017 at 5:28 am Reply

    Great to see everyone is back to work and apparently not very busy in the office yet. Andrew you should be happy that people are reading each word you wrote, do more in Jan please.

    Agree this is nothing more than eye-catching news. Reckon Ali will have to book for forwarders before they officially got license which Amazon did, or if they intend to work as third party portal, no sign they are ready at all.

    Honestly ship operators should carry their modesty and make more efforts to make their own website easier to use first, like airlines do. Far from that.

    1. Luke YE
      January 11, 2017 at 11:27 am Reply

      Hi Hans
      I think Maersk has spent good money on building up a powerful self-service website but still very few customers have expressed a “like” to Maersk’s efforts. Based on what we hear everyday from customers, better website or information transparency/accuracy is no more no.1 priority on their wish-list but price competence rules most of the time when economy is in a bad shape. Shipping lines have been struggling to locate and partner with customers who are more service quality sensitive (for example – Huawei) but regret this type of customers still represent very small portion. Therefore how to minimize operation costs have become the heaviest KPI item for almost all the major ocean carriers..
      BTW, ocean carriers surely wish one day they can operate like air-lines do (payment prior to space confirmation is the dream of all carriers)
      Best,
      Luke

      1. Hans Morus
        January 12, 2017 at 12:31 am Reply

        Hi Luke,

        I really think Splash is smart to allow interesting comments here.

        Yes, good money spent by Maersk and its peers, parties well organised upon completion of projects. Just say they are now user friendly (actual no idea when they will be), what may happen is that customers will lose their interest to book when being offered ‘tariff rates’ online especially SMEs Ali is serving who may not have contracts with any carriers.

        Shipping is not only about slots, schedules, bookings and forwarding instructions, but also shipment visibility, document amendments, invoice disputes and adjustments and more. I don’t know much about OneTouch, but as far as I have been observing leading 3rd party portals like Inttra are far from capable of offering a complete package in one single place as they wanted to be from day one.

        Forwarders, no one likes them including themselves, all talking about total solutions none got any synergy between their forwarding and warehousing/distribution businesses. Funny even shipping lines are claiming they are offering supply chain solutions but rarely heard they can even do inland deliveries, they simply have no choice but to hug forwarders like they are friends.

        cheers

  8. Dave
    January 11, 2017 at 2:40 pm Reply

    As usual the truth should be somewhere in the middle.
    Ali will have to share the cake with other carriers and smaller of the 40 thieves will have to consolidate to face this agreement
    Buying his slot in advance would certainly be carriers delight and a good way to tame overcapacity but we can still have some doubt about it
    Immediate benefit for MAERSK will be enlarging his LCL customer base but in this business it isn’t that much about what happen between CY and CY, it s about FOB and delivery charges.
    If I was Jack Ma, but unfortunately for my banker I am not, I would more look at taking control of good clearing agency network to secure a proper delivery worldwide

  9. Tim Routh
    January 12, 2017 at 3:57 am Reply

    Hi Andrew,

    Great article! http://www.chinasearates.com has a full door to door sea freight price and booking platform.

    We are the ONLY one that has however the ability for that platform to be installed on any website. I have had a marketplace for years yet only extended the solution to door to door when we knew we could handle e-commerce AND critically had the support in China. Our support in China is Sai Cheng Logistics or China Post, probably the best you can acquire.

    In the coming months you will see our platform in a great many e-commerce solutions. Shaking up the traditional landscape.

    With regard to Maersk and coming from someone who is intimate currently with Alibaba in this space it is an old initiative picked up by the new CEO to look like they are diversifying. Maersk do not have operational capacity in China and rely on sub-agents anyway. Lastly 90% of Alibaba business for sea freight is FOB – Free On Board and the buyer decides the shipping.

    All the best

    Tim

    1. Andrew Craig-Bennett
      January 12, 2017 at 3:06 pm Reply

      Thanks, Tim.

      Very interesting and exciting stuff. Agree about Sai Cheng.

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