Shippers turn to NVOs to steer them around trouble spots

The NVOCC share of the U.S. import cargo business climbed to 35 percent in 2014 from 31 percent in 2013. That represents a huge increase in the number of import containers NVOCCs handle. Containerized imports in 2014 are estimated at 18.9 million 20-foot-equivalent units. The 3 percentage point increase in the NVOCC share of those imports means NVOCCs handled some 567,000 more TEUs last year than in 2013. That represents a hefty amount of revenue. The share of the import business that carriers sold directly to shippers declined to 65 percent last year from 69 percent in 2013.

Nine of the top 10 carriers inceased the NVOCC share of their import cargo last year, and OOCL’s share stayed the same as in 2013, at 28 percent. The NVOCC share of carriers’ U.S. import cargo can go up and down from year to year depending on vessel capacity and the volatility of freight rates. Although rates in the U.S. trades held up better last year than in the Asia-Europe-trade, they were volatile, and this may have led shippers to allocate more of their cargo to NVOCCs.

“NVOs provide a more flexible, price-competitive option compared to direct carrier contracts, and allow the BCO to gamble that the market is soft,” said John Abisch, CEO of Miami-based NVOCC Econocaribe Consolidators. “Also, the steamship lines were in cost-cutting modes so they reduced expenditures on sales and became more interested in handling NVO business to replace their former sales production.”

Maersk Line, for example, has stated repeatedly that it will not negotiate direct annual contracts with trans-Pacific shippers at unprofitable rates. “We will continue to seek every opportunity to address the unprofitability of the trans-Pacific trade,” said Jack Mahoney, head of forwarder sales for Maersk Line in North America, which includes NVOCC sales. “The forwarder market is critical to the long-term health of the trans-Pacific, so we remain committed to working with these valued customers.”

This may be one reason the share of Maersk’s U.S. imports handled by NVOCCs increased each year from 2012 through 2014, according to PIERS. The PIERS data don’t necessarily reflect the total share of a carrier’s NVOCC imports, but do reflect the cargo handled by NVOCCs that submit house bills of lading. In 2014, the share of Maersk Line’s U.S. imports when the NVOCC submitted a house bill of lading rose to 29 percent from 28 percent in 2013.

The share booked of U.S. imports carried by Mediterranean Shipping Co. in vessel space booked to NVOCCs that submitted house bills of lading rose to 38 percent in 2014 from 35 percent in 2013. MSC has long made it a business practice of putting more emphasis than many other carriers on sales to NVOCCs rather than directly to BCOs.

Other carriers are reluctant to talk about their strategy on NVOCC and BCO sales. The head of the Americas trades for one large container line would say only that it is “managing a rather comprehensive customer portfolio consisting of both BCOs and NVOs, and we are giving the split between those two groups on a very regular basis quite some attention.”

“The increase in NVO cargo is not just because of problems with labor and chassis on the West Coast,” said Bill Rooney, vice president of trans-Pacific sea freight at Kuehne + Nagel, the Switzerland-based third-party logistics provider that operates as an NVOCC in the U.S. under the Blue Anchor Line brand. “NVOCCs can simplify the complicated process of dealing with all 20 carriers that serve the market. If you’re looking for space, you’re going to have a more efficient and effective process by making one phone call to an NVOCC.”

The volumes of import containers moving under bills of lading issued by K+N’s Blue Anchor Line climbed 21 percent last year, putting it into the No. 1 rank among NVOCCs and enabling it to jump over Expeditors International for the first time. “That’s a pretty significant change, because Expeditors has been the No. 1 NVOCC for as long as I can remember,” Armstrong said.

The surge, he said, was due to its focus on selling to medium-sized customers in the U.S., those that ship 1,000 to 1,500 TEUs annually.

NVOCCs are units of third-party logistics providers that also provide a host of other cargo services, including freight forwarding, consolidation and customs brokerage. NVOCCs that serve the full- and less-than-containerload segments had long prepared for the likelihood of delays resulting from the unresolved negotiations between the International Longshore and Warehouse Union and the Pacific Maritime Association for a new contract to replace the one that expired last July 1.

“I’ve been telling customers since February (2014) to begin shipping to the East Coast to establish different gateways and a pattern of shipment because cargo that’s been moving on that pattern for six months is much more likely to get loaded than (cargo for) someone who wants to jump in at the last moment,” Rooney said.

Many NVOCCs have been going after the port diversion business, and all have seen their share of 2014 U.S. import cargo increase. “It’s impacted our business more in a positive way than a negative way, because we were able to provide alternatives for some of our largest customers,” said Andreas Krueger, senior vice president and head of Ocean Freight Americas for DHL Global Forwarding, which provides NVOCC services under the Danmar brand.

Danmar’s U.S. import volumes jumped 15 percent year-over-year in 2014 after growing 8 percent in 2013. “We had diversion plans almost before the summer last year so we have been pushing customers to plan ahead accordingly,” Krueger said. “Everybody who was willing and able to divert — at a price — put their name on the list.”

NVOCCs nailed down vessel capacity for their customers well in advance last year under annual contracts with carriers and also on a spot basis. Many of them provide end-to-end coverage for imports from origin to destination, using the carriers’ contracts with intermodal rail carriers to provide delivery to rail ramps at inland points in the U.S. from where they arrange for trucking delivery to stores or warehouses. They also provide deconsolidation at West Coast ports for cross-docking to trucks to speed cargo directly to inland points.

“We aim to provide end-to-end solutions for the customers,” Krueger said. “We will continue to focus on our LCL business where we own our own equipment. This has a high potential for growth in our company, also maintaining and growing what we have on the FCL side.”

Port congestion may not be the only reason shippers are turning to NVOCCs. “The larger NVOs get better prices from the steamship lines, which they can resell in the BCO community,” said Dan Gardner, president and co-founder of Trade Facilitators, a Los Angeles-based supply chain training and consulting firm. “Because there are so many ships in the eastbound trans-Pacific trade, carriers are willing to sacrifice a couple of bucks per container in exchange for relative assurance their ships are going to have more freight.”

NVOCCs offer shippers more options than direct contracts with carriers, which may be why they are using them to skirt around port congestion, Gardner said. “If a BCO has direct contract with a few carriers, he has to put his freight on one of their ships or those in their slot-sharing agreement, but an NVO has contracts with several dozen carriers and can steer shippers’ containers onto their different services,” he said.

Gardner also thinks logistics providers that operate as NVOCCs are gaining share because of all the services they offer. “The 3PLs that are NVOs go well beyond the port-to-port service from Hong Kong to Long Beach and offer things like purchase order management, vendor management, consolidation services, 10+2 (importer security filing with Customs), customs clearance and cross docking,” he said. “3PLs are in way better position to do that than a steamship line, not only from a turnkey service perspective, but also from a technical perspective, because they have better technology than a steamship line.”

Of all the regions where U.S. import cargo originates, the NVOCC share is highest in the trade with Northeast Asia, where it came in at 75 percent last year, up from 71 percent in 2013. This isn’t remarkable, given that U.S. importers turn to NVOCCs to handle complex booking and logistics arrangements in that region.

Surprisingly, however, the region where NVOCCs enjoyed their second-largest share at 9 percent was northern Europe, which is so well-developed from a logistics perspective that one would think importers wouldn’t need NVOCCs or their parent 3PLs. “DHL, Schenker and Kuehne + Nagel are all based in Europe and so well-known that it doesn’t surprise me that BCOs are using them for their ocean shipping needs,” Armstrong said.