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October 1 2018

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4 The Journal of Commerce | October 1 2018 www.joc.com Eric Johnson CONTAINER LINES MAY be losing some business because of the lack of instant pricing tools they avail shippers, but they also have plenty of reasons to not rush in and provide full transparency. Most notably, carriers risk reducing their ability to differentiate and price services to premium customers. There is also the question of priorities; high bunker fuel prices and other more pressing challenges are garnering more of their atten- tion and resources. In addition is the question of whether there are enough small and medium-sized shippers that would use such instant pricing tool capabilities to make investments worthwhile, as most carriers are on the razor's edge of profitability this year. A recent analysis by The Journal of Commerce revealed that only two of the top 12 carriers provide ship- pers the ability to get instant quotes, even though the competitive pres- sure from new and established rate providers is building. Beyond just investment, ocean carriers would have to move away from a culture that has long prioritized rate opacity over transparency. "Carriers are the sole price makers in container shipping," Fauad Shariff, CEO of the forwarding marketplace startup CoLoadX wrote during a vigorous Twitter debate centered on the analysis. "They're not losing to any alternative mode of transport, hence no impetus to embrace price visibility. There are productivity gains to be realized, but nothing compared to fuel efficiency gains. Principally, lower cost of sales should matter, but there may also be an economic benefit to price complexity." Shariff also said that engaging in purposeful price transparency with small shippers would have two detrimental impacts to carriers. "Still boils down to economics," he wrote. "The cost of increased customer engagement would not in- crease per container yield. Engaging with low volume, low yield custom- ers is probably the worst thing liners can do in economic terms. There's no 'business class' on a container ship so volume discounting is the only means of differentiating cus- tomer value. Hence any and every surcharge impacts yield." Christopher Rozon, a former sales representative with INTTRA and several container lines and freight forwarders, added that the lack of interest in dynamic pricing capability is based on the culture of buyers and sellers. "No [shipper] wants to pay 'tariff;' they all think they can leverage per- sonal relationships with the carrier to get a better rate," he wrote. "Nego- tiating those one-offs are enormous resource drains on the carriers. We created a spreadsheet-based matrix for front line sales probably 15 years [ago], let them quote almost any- thing on the spot. Everyone hated it, though, because they assumed those were crappy tariff rates, wanted the 'special' instead. "Anyway, the goal is not to have a rate clerk feeding the system, but have a system that looks at bookings, market conditions, spot rates, etc., and automatically adjusts pricing on the fly." Which leads to the demand is- sue: If only two of the top 12 lines in the world have such a tool, perhaps it's because there's not enough demand for it. Discussion participants ques- tioned whether there was a business case for such tools, whether carriers would get a return on investment and whether not having such capa- bilities were causing them to lose business. It was a point industry an- alyst Cathy Roberson amplified: "Do we know for a fact that a generation of customers is demanding this? If so, have the platforms really been able to capitalize on this demand?" Eytan Buchman, Freightos vice president of marketing, chimed in that "direct sales is a strong carrier priority, instant quoting or not. Price is [and remains] the core decision factor, but a down-market push demands shifting from prioritizing cost-saving to prioritizing customer experience. This is literally Amazon vs. Big Box retail played out." Meanwhile, start-ups looking to transform freight procurement struggle with the idea that carriers wouldn't gravitate toward this. "It always amazes me that we are in 2018 and there still isn't a way for customers to easily get quotes from carriers," said Alex Hoffman, founder of the Berlin-based trucking technology start-up TNX Logistics. "Even if you somehow don't believe in technology or digitalization, the economics of serving mom-and- pop SME [small and medium-sized enterprise] customers must be di- sastrous without it. This makes it for me less a point of 'is the customer willing to pay for it' and more of 'this seriously reduces costs to serve.'" Even Shariff recognized the time might be at hand. "It takes disruptors to alter pric- ing dynamics in markets where asset owners control market pricing," Shariff said. "That moment is at hand. It will be interesting to watch it all play out over the next couple of months and years." There's also the issue of whether customers would be willing to pay for such tools. In that sense, one could surmise that only by investing in technology that creates value for customers can carriers have any hope of getting paid for value cre- ation. Investing in ships has thus far failed to achieve that value creation, but maybe something else will. JOC email: eric.johnson@ihsmarkit.com twitter: @LogTechEri. Instant quotes an instant risk? The Journal of Commerce (USPS 279 – 060), ISSN 1530-7557, October 1, 2018, Volume 19, Issue No. 20. The Journal of Commerce is published bi-weekly except the last week in December (printed 25 times per year) by JOC Group Inc., 450 West 33rd St., 5th Floor, New York, N.Y. 10001. Subscription price: $595 a year. Periodicals postage paid at New York, N.Y., and additional mailing offices. © All rights reserved. No portion of this publication may be copied or reprinted without written permission from the publisher. POSTMASTER: Please send address changes to The Journal of Commerce, Subscription Services Department, 450 West 33rd St., 5th Floor, New York, N.Y. 10001. Letter From the Editor

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