FREIGHT INTEGRATION IN LINER SHIPPING. Filip Merckx, Research Associate Department of Transport and Regional Economics, University of Antwerp

Transcription

1 FREIGHT INTEGRATION IN LINER SHIPPING Filip Merckx, Research Associate Department of Transport and Regional Economics, University of Antwerp Dr. Theo E. Notteboom, Associate Professor Department of Transport and Regional Economics, University of Antwerp Institute of Transport and Maritime Management Antwerp (ITMMA) University of Antwerp Abstract Container shipping lines are well aware of the growing importance of landside operations. Carriers have identified inland logistics as one of the most vital areas still left to cut costs. While continuing to focus on improving the fundamentals, many shipping lines have developed a keen interest in landside segments of the transportation market. This paper aims to critically assess carriers strategies in view of optimising inland transportation in the context of freight integration 1. Based on a comprehensive analysis of 34 shipping lines the paper assesses overall degrees of freight integration and as such provides more insight into the extent to which freight integration serves as a business model in liner shipping. The results point to a great variety and range of freight integration in the shipping business. Each carrier leverages its service portfolio to develop specific capabilities and clearly there is no single best strategy for the whole liner shipping industry in this respect.

2 1. INTRODUCTION Globalisation, deregulation and containerisation have reshaped the shipping industry. Manufacturers are looking for global logistics packages rather than just straight shipping or forwarding. Global logistics is the name of the game. Most actors in the transport chain have responded by providing new valueadded services in an integrated package, through freight integration along the supply chain. Shipping lines are also challenged to redefine their functional role in the value chain for the sake of creating customer value and of ensuring the survival and growth of the company. This paper deals with freight integration strategies of shipping lines. Recent literature has addressed vertical integration strategies of shipping lines in one or more segments of the logistics chains. This paper adds to existing literature by assessing the overall freight integration levels of a set of 34 shipping lines. Using an appropriate methodology, the paper provides a bird s eye analysis on the involvement of shipping lines in all segments of the logistics chain. 2. THE CONCEPT OF FREIGHT INTEGRATION The concept of freight integration has been launched by the European Commission in the White Paper European transport policy for 2010: time to decide (2001) in order to cope with the negative effects of the current mainly road based - European freight transportation system. According to the Study on freight integrators to the Commission of the European Communities, freight integration is defined as: transport service providers who arrange full load, door-to-door transportation by selecting and combining without prejudice the most sustainable and efficient mode(s) of transportation (ZLU et al, 2003 :8). The main task of the freight integrator is to provide an optimal design of doorto-door transport. Next to the functional design of supply chain solutions these entities can also perform the physical operations. In this context a distinction between 2PL, 3PL and 4PL providers 2 is relevant. Whereas a 3PL service provider typically invests in warehouses and transport material, a 4PL service provider restricts its scope to IT-based supply chain design. Next to the advantage of a one-stop shop solution, freight integrators create added value to their customers. As a supply chain director the freight integrator has access to all relevant information to arrange integrated, reliable and cost effective transportation solutions. Furthermore, freight integrators do not only focus on the transportation problem. It is expected that in the future (more) freight integrators will offer a variety of value added logistics (VAL) such as haulage, distribution, warehousing, labelling, packaging, inventory management, order management, invoicing, assembling, order picking, forwarding, groupage, express delivery, customized services, stock keeping, tracking and tracing, document handling and liability issues.

3 3. DRIVERS OF FREIGHT INTEGRATION The level of freight integration in inland distribution is increasing rapidly. Many distribution functions which used to be separated are now controlled by a single entity. In a conventional situation, the majority of distribution activities were performed by different entities ranging from maritime shipping lines, shipping and custom agents, freight forwarders and rail and trucking companies. Regulations were often preventing multimodal ownership, leaving the system fragmented. With an increasing level of functional integration many intermediate steps in the transport chain have been removed. Mergers and acquisitions have permitted the emergence of large logistics operators that control many segments of the supply chain: the mega carrier. The mega carriers meet the requirements of many shippers to have a single contact point on a regional or even global level (the one-stop shop ). Technology also has played a particular role in this process namely in terms of IT (control of the process) and intermodal integration (control of the flows). Maritime Distribution Shipping Line Shipping Agent Land Distribution Custom Agent Rail / Trucking Trucking Economies of scale Stevedore Freight Forwarder Terminal Depot Customer Megacarrier Level of functional integration Figure 1: Freight Integration in Supply Chains Source: Notteboom and Rodrigue (2004), adapted from Robinson (2002) In Europe, road transport is characterized by rising congestion, limited possibilities to increase network capacity and rising structural costs and charges. In combination with the growing demand for transport and the search for sustainable mobility, the European transport policy is now aiming through the enhancement of freight integration - to optimise the use of alternative modes of transport in intermodal solutions (European Commission DG TREN, 2003).

4 The rise of freight integration is also driven by a number of logistics trends that drive opportunities for intermodal transport. For instance, interchange costs between modes can be very substantial when using the intermodal option (see Figure 2). Freight integration provides market players a better control over these chains, so that inefficiencies in all segments can be addressed directly. C(T) Local / Regional Distribution Cost Decomposition C(dc) Costs National / International Distribution Cost Connection C(cn) C(I) C(cn) Interchange Connection Origin Composition C(cp) Transshipment Destination Figure 2: Costs structure of intermodal transport Source: Rodrigue and Comtois (2004) In general regular flows, high volumes and long distances are key characteristics of intermodal transport. The success of the JIT 3 concept (resulting in an increasing number of deliveries and smaller batch sizes) is not favouring intermodal freight transport. Nevertheless, a number of logistics trends and developments could favour freight integration and with it the development of intermodal transport (European Commission DG TREN, 2003:5-6): European companies are increasingly consolidating their operations in order to serve the enlarged market from a reduced number of distribution centres. This leads to a concentration of flows to and from these large hubs and offers opportunities for intermodal transport; Manufacturers are simultaneously reducing the number of their suppliers and hence increasing transport volumes from the remaining suppliers. Congestion around manufacturing sites and high costs related to dealing with a large number of suppliers lead to pressure to reduce the number (and increase the size) of deliveries and the trend towards less suppliers. To take advantage of more favourable manufacturing and labour conditions factories are moving further away from suppliers and markets increasing transport distances. The increased transport costs related to these developments may increase the attractiveness of long-haul modes

5 capable of high consolidation, such as shipping and rail transport, and thus open up new markets for alternatives to road transport. Just in time production strategies minimise the costs of carrying stock (less goods in storage, less warehouses) but increase reliance on transport, lower interest rates reduce these benefits because of the lower cost of keeping stock. Larger stocks can act as a buffer, allowing less frequent but larger shipments. The increasing use of information and communication technologies (ICT) provides a significant opportunity for intermodal transport as it can allow accurate real time information to be shared between actors and has the potential to improve the quality of intermodal transport and integrate it with other systems (traffic management, supply chain management, emergency response, etc.) Finally individual companies are suffering from similar problems on the same routes. Alone it is difficult to sole these problems however by cooperating they can have sufficient, regular volumes to be able to support intermodal solutions on these routes, reducing costs for all partners. 4. FREIGHT INTEGRATION IN LINER SHIPPING: A LITERATURE OVERVIEW Liner shipping companies can take up a leading role in freight integration. Recent literature has addressed vertical freight integration strategies of shipping lines in one or more segments of the logistics chains. Baird and Lindsay (1996) discussed the resource options, which can be deployed in container shipping. Using a framework, they illustrated how some carriers leverage their service portfolio to develop specific capabilities. Konings (1993) performed a similar analysis by looking at the presence of shipping lines in different segments of the transport chain (such as terminals and inland transport) for each of the world continents. Evangelista and Morvillo (1998) analysed logistics integration and co-operative strategies in liner shipping. They concluded that modern logistics requires shipping lines to extend their range of services to include VAL. This tendency towards integration along the supply chain has encouraged a search for new co-operation forms between shipping lines and other actors in the supply chain (e.g. contractual agreements, minority stakes, joint-ventures, mergers and acquisitions). Also Slack et al (2002) rightly pointed to the variety and range of vertical linkages being formed, ranging from contractual arrangements to direct ownership. Global carriers also show a considerable diversity of strategies adopted when it comes to assets such as: the provision of line hauls ships (build, own, lease, charter, flag out or contract management); feeder operations (build, own/lease, charter, common-user); the container box fleet (build, own, lease, grey box ); terminals (own, lease/exclusive use/dedicated terminals, preferential berth, common-user terminals);

6 inland transport road/rail/barge (own, lease, contract supplier, commonuser); logistical value-added activities (freight forwarding, warehousing, distribution, VAL, etc.). Even within a sector large differences in operations might exist. For instance, carriers that have traditionally been concerned only with the transportation of goods from one point to another are now seeking logistics businesses in the area of just-in-time inventory practices, supply chain integration and logistics information system management (Heaver, 2002). But the role and degree of involvement in a range of logistics functions of the logistics businesses/departments is varied (Slack et al, 2002). For instance, the logistics operations of Evergreen and CP Ships are restricted to door-to-door operations. Other carriers such as P&O Nedlloyd offer logistics services as an extra service to customers. In some cases the logistics services are offered via a separate company belonging to the same parent (e.g. Maersk Sealand). These subsidiaries operate independently of liner shipping operations, and as such also ship cargo on competitor lines. Notteboom (2004) critically assessed strategies of container carriers in the light of revenue generation, differentiation and the creation of customer value and identified integration as a key driver of shipping lines. But again the exact details of the integration strategy differ a lot among shipping lines. A lot can also be learned from papers dealing with other market players in the logistics chain. For instance, freight integration strategies of (global) container terminal operators are well documented in recent literature (see e.g. Terrassier, 2003, Notteboom, 2002, Martin and Thomas, 2001 and Slack & Frémont, 2004). Some shipping lines such as Maersk Sealand have gone rather far in door-todoor services and integrated logistic packages (i.e. Maersk Logistics), managing the container terminal operation (i.e. APM Terminals with a network of dedicated terminals that has been opened to third users as well) and inland transport (e.g. European Rail Shuttle in joint venture with P&O Nedlloyd) and bypassing the freight forwarder by developing direct relationships with the shipper. Other shipping lines stick to the shipping business and try to enhance network integration through structural or ad hoc co-ordination with independent inland transport operators and logistics service providers. A last group of shipping lines combines a strategy of selective investments in key supporting activities (e.g. agency services or distribution centres) with subcontracting of less critical services. Shipping lines generally do not own inland transport equipment. Instead they tempt to use trustworthy independent inland operators services on a (long-term) contract base.

7 5. THE DRIVERS OF FREIGHT INTEGRATION IN LINER SHIPPING Over the years various driving forces have influenced the liner shipping industry. Notteboom (2004) describes how container shipping lines cope with the instability in liner shipping, low margins, etc. and highlights why scale increases in vessel size and horizontal integration (co-operation, mergers and acquisitions) did not provide the necessary ingredients for survival. Based on cost considerations shipping lines are eager to diversify their business and are accordingly focussing on adding value added services/logistics into their portfolio. This diversification process has mainly been induced by a decreasing profitability of shipping activities and risksharing opportunities (see gross profit and operating results in Table 1). In a shipping industry already dominated by large vessels, mergers/acquisitions and strategic alliances the potential remaining cost savings at sea are getting smaller and the pressure to find cost savings elsewhere is growing. Gross Revenue 100% Cargo Costs 50-60% Vessel and Voyage Costs 20-25% Equipment and Repositioning Costs 15-20% Gross Profit (5) - 15% Business and Administrative Expenses 10-20% Operating results (25) - 5% Table 1: Generalised profit and loss statement / cost structure in container shipping Note: All costs calculated as percentage of Gross Revenue Source: ROI Container Cargo Alliance, July 2002, p. 3 Inland logistics is one of the most vital areas still left to cut costs. More economical ships and alliance co-operation (see Table 6) have lowered ship system costs, but at the same time intermodal costs share an increasing part of the total cost. The share of inland costs in the total door-to-door costs of container shipping amounts to some 40% on average (see Figure 3). Hastings (1997) reports that the inland costs for CP Ships account for 42 per cent of its overall costs. For P&O Nedlloyd inland transportation would even account for 70 per cent of their total costs. Besides cost and revenue considerations, the demand pull force of the market is a main driving force for carriers to integrate their services along the supply chain. Carriers have to meet shippers requirements in terms of frequency, punctuality, reliability and geographical coverage (Slack et al, 1996). The increasingly complex distribution requirements of the customers demand an increased focus on freight integration. Shipping lines and alliances seek to increase the percentage of carrier haulage on the European continent. The share of carrier haulage presently is about 30 per cent on an average, but large differences can be observed among routes and regions (MDS Transmodal, 1998). A few carriers have succeeded in attaining a high level of carrier haulage. For instance, P&O Nedlloyd had a carrier haulage percentage

8 in Europe of 49% in 2002 compared to 45.4 per cent in Other carriers with less experience or interest in inland transport control less then 10 per cent of inland container movements. If the inland leg is based on merchant haulage than the carrier loses control of and information on its boxes. 100% 90% % 70% 60% 50% Sales, logistics, administration Container and inland transport Port transhipment Seatransport 40% 30% % 10% 20 0% Port-to-port transport Door-to-door transport Figure 3: Costs structure in container shipping Source: Rutner (2004) Inland and container logistics constitute an important field of action to shipping lines. Lines that are successful in achieving cost gains from smarter management of inland and container logistics can secure an important cost savings advantage. Moreover, because this is difficult to do, it is likely to be a sustainable way of differentiating business from rivals. Carriers are confronted with some important barriers to further improve inland logistics. Landside operations are management intensive and generally involve a high proportion of bought-in services. Customer requirements and behaviour often impede carriers from minimizing inland logistics costs. Late bookings for example are costly, because instead of going by train or barge, they must go by truck to catch the ship, for no extra revenue. Moreover, inland movements generate some under-remunerated activities such as the repositioning of empty units, network control and tracking. Other important barriers relate to volume and equipment-type of imbalances, (unforeseen) delays in ports and the inland transport leg as well as the uncertainty of forecasts. Carriers are using IT solutions to face the challenges in inland logistics and to manage global container flows taking into account the effects of global trade imbalances. Moreover, they have learned to lessen equipment surpluses/deficits through container cabotage, inter-line equipment

9 interchanges, chassis pools and master leases 4. The formation of global alliances (see Table 6) has taken inter-carrier co-operation to new heights, with members sharing inland logistics information, techniques and resources as well as negotiating collectively with suppliers (terminals, rail operators, feeders, barge operators, etc.). 6. E-BUSINESS PLATFORMS AS ENABLERS OF FREIGHT INTEGRATION In recent years express integrators (e.g. DHL, FedEx, UPS and TNT) build up a competitive advantage in the provision of cargo information exchange by investing in infrastructure, information technology and communications. By doing so they have set the standard in monitoring (global) supply chains. The ability to track and trace cargo, to place a booking request, etc. is brought to the shipper over the worldwide web. The total pipeline visibility concept became widespread and even supply chains were fine-tuned in function of the information provided by the express integrators. Since shipping companies have most of this information available, these functionalities could also be offered to the market. E-business applications as such became enablers of freight integration strategies eyed by shipping lines. Shipping lines had to make a strategic choice between investing independently in infrastructure and information communication technology (ICT) or to join a neutral web-based platform (e.g. INTTRA, GNT, Cargosmart, etc.). This choice gives the opportunity for niche and smaller container carriers to offer the same integrated services as mega carriers. Summarizing the results of the survey of web trading by container shipping lines conducted by FWL Technologies Ltd. (2003) all shipping lines have a website on-line. When taking a closer look at the different functionalities a vast majority offers the ability to enquire into vessel schedules. Resulting from the demand of total pipeline visibility already 63% of the container shipping lines provide a real-time tracking and tracing feature. A number of shipping lines offer the possibility to place on-line booking requests (37%) or quotation requests (27%) (see Figure 4).

10 % Website Track & Trace Vessel/Enquiry Schedule Booking Request Quotation Request Figure 4: Availability of different functionalities by e-business platforms Source: FWL Technologies Ltd (2003) The high investment requirements in infrastructure, information technology and communications and the high pace of changing standards are pushing container shipping lines towards joined neutral web-based platforms. Examples of these shipping industry portals are INTTRA, GTN and Cargosmart. INTTRA is a neutral, carrier-sponsored platform that provides interaction with ocean carriers including CMA-CGM, DAL, Hapag-Lloyd, MOL, Aliança, MSC, WAL, P&O Nedlloyd, Safmarine, ANL, NYK, Hamburg-Süd and Maersk Sealand (INTTRA, 2004). GTN is a transportation portal providing shippers worldwide with a common transaction platform for conducting business with ocean lines. GTN is backed by 18 ocean carriers including APL, MOL, NYK, Yang Ming, Hanjin, K-Line and the carriers of the CP Ships group (GTN, 2004). Cargosmart is a portal and integration provider for the ocean container transportation industry, helping customers to manage their shipments with multiple carriers throughout the shipment cycle. Participating ocean carriers in Cargosmart are OOCL, Cosco and MISC (Cargosmart, 2004). Next to above-mentioned liner shipping companies a number of ocean carriers remain independent in providing e-commerce solutions: e.g. members of the Evergreen Group, CSCL - China Shipping Container Lines, Grimaldi (including ACL), IRIS Lines - Islamic Republic of Iran Shipping Lines, Costa Container Lines Group (including Gilnavi), Delmas Group, Pacific International Lines, RCL - Regional Container Lines and China Navigation Company. The different platforms basically cover the same functionalities, which indicate that they are competing for the same target group (namely forwarders and shippers) with comparable products.

11 Basic functions: Cargo tracking & tracing Milestone notifications Vessel/ Schedule enquiry Rail tracing Rate request Booking request Quotation request Documentation (B/L) Invoicing & payment Tender management Reports 5 Estimated market share (number of shipments, in %) Table 2: Functional comparison of available business-to-business platforms in liner shipping Sources: Cargosmart (2004), INTTRA (2004) and GTN (2004) The advantages of these platforms for both parties are situated in the field of a more efficient information exchange (no expensive long distance telephone calls anymore) and integration of functionalities in business processes (via HTML, EDI, XML or plain text). These IT platforms have become key enablers in freight integration. 7. DEGREES OF FREIGHT INTEGRATION AMONG THE LEADING CONTAINER CARRIERS 7.1. Methodology The literature overview in section 4 clearly pointed to increased freight integration in the liner shipping business, but heterogeneity exists in the channels to achieve freight integration. This implies degrees of freight integration do exist and as such deserve further attention. This section aims to evaluate to what extent freight integration does serve as a business model in liner shipping and to what extent heterogeneity in freight integration channels and strategies does exist. Keeping in mind the definition of freight integration, a framework is developed consisting of a number of specific indicators of freight integration in the various segments of the logistics and transport chain. In a research on freight integration in the European logistics business, ZLU et al (2003) deployed indicators such as specialisation on full loads, relevant market participation in the field of intermodal transports, intermodal transports as a relevant business field within the company,

12 commitment to intermodality, knowledge and experience, supporting the idea of environmental sustainability, economic substantiation of intermodality, customer relationships, co-operations and partners, geographic spread as a EU-wide business The analysis of freight integration levels in liner shipping is performed on the Top 30 of liner shipping companies (see Table 3). These companies represent 77 % of the DWT and 82 % of the worldwide TEU slot capacity. Secondly, four smaller shipping companies (in terms of DWT and TEU slot capacity), which are participating in one of the above-mentioned business-to-business platforms but are not listed in the Top 30 of liner shipping companies, are also included in the case-by-case evaluation. Rank Operator 1 A.P. Møller Group (Maersk Sealand & Safmarine) Existing DWT Existing slot capacity (in TEU) Number of ships 12,562, , MSC 7,850, , Evergreen Group 6,242, , P&O Nedlloyd 5,600, , CMA-CGM Group 4,221, , Hanjin / DRS Senator Lines 3,963, , APL 3,700, , NYK Line 3,553, , COSCO Container Lines 3,427, , "K" Line 2,709, , CSCL 2,601, , CP Ships Group 2,630, , Mitsui-OSK Lines 2,591, , OOCL 2,391, , Zim 2,610, , Hapag-Lloyd Group 2,343, , CSAV Group 2,051, , Hamburg-Süd Group 2,105, , Yang Ming Line 1,879, , Hyundai Merchant Marine Co 1,627, , Pacific International Lines 1,824, , Wan Hai Lines 1,359,163 90, UASC 1,097,705 71, Delmas Group 1,155,837 65, IRIS Lines 1,256,758 55, Grimaldi (incl. ACL) 827,295 43, M.I.S.C. 584,981 40, Regional Container Lines 554,173 39, Costa Container Lines (incl. Gilnavi) 525,137 34, China Navigation Comapny 754,273 33, Table 3: Top 30 of liner shipping companies (measured in TEU slot capacity, situation as of 1 January 2004) 6 Source: BRS Alphaliner (2004)

13 Similar to the ZLU et al (2003) study, the classification of liner shipping companies is performed on a number of distinctive characteristics related to freight integration. The final selection and assessment of the distinctive attributes has been conducted by the authors based on desk research and profound knowledge of the shipping industry. This paper uses following indicators for measuring levels of freight integration in liner shipping: - Ranking in Top 30 of BRS Alphaliner (situation as of 1 January 2004); - Own Terminal usage (in % of total traffic); - Focus on commodities/cargo flows; - Type of service provider; - Geographic coverage of liner shipping services; - Relevant market participant in the field of intermodal transport; - Commitment to intermodality; - Knowledge and experience in logistics; - Global co-operations and partnerships. This classification is subject to a qualitative rating. Each shipping line is awarded a score on a Likert scale (from 1 to 5) on each and every of the characteristics. The higher the score the more a shipping line developed freight integration capabilities. Not all the indicators contribute to the same extent to freight integration capabilities. Based on expert information a distinction was made between indicators with a high contribution to freight integration (high differentiating attributes with a weight of 14% each) and indicators with a lower contribution to freight integration (low differentiating attributes with a weight of 7.5% each), see Table 4. Further in this paper the relevancy of each of the indicators is discussed in more detail. High differentiating attributes (assigned weight of 14% each) Own terminal usage (in % of total traffic) Type of service provider Relevant market participant in the field of intermodal transports Commitment to intermodality Knowledge and experience in logistics Low differentiating attributes (assigned weight of 7.5% each) Ranking in Top 30 of BRS Alphaliner Focus on commodities/cargo flows Geographic coverage of liner shipping services Global co-operations and partnerships Table 4: Overview of freight integration indicators and their corresponding weights Source: authors Finally, for each of the 34 shipping lines considered a weighted average is calculated indicating the overall degree of freight integration. Based on the weighted averages liner shipping companies are classified as (see Table 5):

14 Classification Weighted average: Highly developed Freight Integrators Companies developing towards Freight Integrators Companies with little development towards Freight Integrators, but first rudiments set Not developed towards Freight Integrators Table 5: Classification of liner shipping companies as freight integrators Source: based on ZLU et al (2003) 7.2. Results for individual indicators The level of freight integration in liner shipping is measured based on a number of indicators. In this section the relevance of the different indicators is explained Ranking in Top 30 of BRS Alphaliner Given the TEU slot capacity a distinction in size can be made between liner shipping companies. Those companies with the highest TEU slot capacity theoretically have most opportunities to organise collective shipments (e.g. by pooling deliveries from different consignors for various consignees) and the business scale to arrange door-to-door transportation by selecting and combining the most efficient mode(s) of transportation. Classification Rating Rank Rank Rank Not relevant for this indicator Own terminal usage The issue of dedicated terminals is well documented in literature (see e.g. Cariou, 2001 and 2003). A shipping line s involvement in terminal operations can vary from ownership or exclusive lease as dedicated terminal to the preferential treatment at one or more berths (often called virtual dedication). In some cases shipping lines acquire a minority stake in a terminal in order to guarantee enough handling capacity for their vessels. Examples are the 25.1% stake of Hapag-Lloyd in the Altenwerder Terminal in Hamburg and the minority shareholding of P&O Nedlloyd in Antwerp Gateway at Antwerp s Deurganckdock. The handling operations at dedicated terminals are often transferred to a separate subsidiary of the shipping line s mother company. A few years ago the dedicated terminal facilities of Maersk Sealand where brought under the umbrella of a new company APM Terminals. APM Terminals now not only handles Maersk Sealand vessels at their terminals as they have opened up their business to third shipping lines. The opening up of dedicated terminal

15 facilities to other shipping lines has become common practice in the container handling industry as the pressure has increased to fill available container terminal capacity for reasons of ROI. When a liner shipping company (wholly or partly) owns a terminal the possibilities to combine freight and organise collective shipments increase significantly. As such the terminal (and more specific the container freight station) can be involved as transfer point in the freight integration process between the maritime leg and inland haul of the intermodal transport. The availability of dedicated terminal facilities as such is a good partial indicator of the freight integration potential of a shipping line. In the analysis a score of 5 on this indicator implies that the shipping line considered handles more than 25% of its worldwide container volume on partly or fully-owned dedicated terminals. At the other end of the spectrum a score of 0 implies no ownership or participation in container terminals. Classification Rating > 25 % 5 Between % 3 < 10 % 1 Not an owner of a terminal Focus on commodities/cargo flows The authors also assessed the Top 30 of liner shipping companies with regard to their focus on different commodities. In order to be or become a freight integrator it is important to offer a wide spectrum of transport services to the customers. Not only the value added services, but also the core transport services are important in this respect. As such the wider the focus on commodities/cargo flows the higher the awarded rating. Liner shipping companies with a sole focus on the container business and no other commodities (e.g. liquid bulk, dry bulk, neo-bulk, general cargo, roll on/roll off, heavy loads) are awarded a lower score. Classification Rating Focus on multiple commodities 5 Focus on mixed commodities 3 Focus on a single commodity 1 Not relevant for this indicator Type of service provider Next to the transport services, the level of freight integration does depend on the type of services provided. Liner shipping companies that offer door-to-door transport, including documentation and entrusted with the intermodal transport, are identified as one stop shop transport service providers. This type of companies is rated higher than liner shipping companies which are focusing on a limited number of value added services or are only dealing with the maritime transport.

16 Classification Rating One-stop shop transport service provider 5 Provider of a number of value added services 3 Provider of a single service (only dealing with maritime transport) 1 Not relevant for this indicator Geographic coverage of liner shipping services Large differences can be observed among container carriers when it comes to the global coverage of liner services (Slack et al, 2001). Frémont and Soppé (2003) demonstrate that the strategic alliances deploy almost 90 per cent of their weekly slot capacity within the triad East Asia, North America and Europe. They have hardly any presence on the secondary routes. Alliances clearly try to build strongholds on the routes they are present and leave other routes to third parties. This allows the realisation of economies of scale and scope in a global triad-based network. A large number of individual carriers remains regionally based, offering the bulk of their services on a limited number of trade routes. Asian carriers such as APL, Hanjin, NYK, China Shipping and HMM typically focus on intra-asian trade, transpacific trade and the Europe - Far East route, partly because of their huge dependence on export flows generated by their Asian home bases. MOL and Evergreen are among the few exceptions operating on secondary routes such as Africa and South-America. Maersk Sealand, MSC, CMA-CGM and P&O Nedlloyd are among the truly global liner operators, with a strong presence also in secondary routes. Especially Maersk Sealand has created a balanced global coverage of liner services. The networks of CMA-CGM and MSC differ from the general scheme of traffic circulation through a network of specific hubs (many of these hubs are not among the world s biggest container ports) and a more selective serving of secondary markets such as Africa (strong presence by MSC), the Caribbean and the East Mediterranean. A global coverage of services adds to the freight integration potential of shipping lines. Moreover, global carriers have more critical mass to combine LCL 7 shipments into full container loads and ship them to a port of call from whereon the goods are transported by truck, rail, barge or pipeline to the final destination. As such, in this analysis the highest score on this indicator is awarded to the global carriers. Classification Rating Global carrier focus on all routes 5 Global carrier focus on triad routes 3 National/regional carrier 1 Not relevant for this indicator Relevant market participant in the field of intermodal transport By defining intermodal transport as The movement of goods whereby at least two different modes are used in a door-to-door transport chain (European Commission - Task force Transport Intermodality, 1997:1) it becomes obvious that sea transport can be seen as intermodal transport avant la lettre.

17 In this respect goods transported by sea are mostly committed to intermodal transport. Due to vertical integration in liner shipping a number of liner shipping companies offer pre and/or end haul transport (by truck, rail, barge or pipeline) as an additional transport service to their customers. Depending on the strategy of the liner shipping company this intermodal transport service is provided as carrier haulage 8 or merchant haulage 9. In some cases liner shipping companies even set up subsidiaries, acquired companies or organised a network of preferred carriers to offer these inland transport services. Classification Rating Owner of company providing inland transport services 5 Business link with company providing inland transport services 3 Working with preferred carriers for inland transport services 1 No relevant participation in the field of intermodal transport 0 Remark: All examined liner shipping companies offer door-to-door transportation solutions. It be taken into account that differences occur in how the transport services are provided by the shipping lines Commitment to intermodality A number of liner shipping companies are more committed to intermodality and are offering advanced intermodal transportation solutions to their customers. Hereby, they intend to enlarge their intermodal strategy towards partial loads and less than container loads (LCL). These companies are rated higher on this parameter than the ones only focusing on a strategy for full (container) loads (FCL). Classification Rating High commitment to intermodality 5 E.g. Intermodal strategy enlarged towards partial loads (LCL) Commitment to intermodality 3 E.g. Intermodal strategy only for full loads (FCL) Small commitment to intermodality 1 No commitment to intermodality whatsoever Knowledge and experience in logistics An important aspect of freight integration is the relevant knowledge of the intermodal transport sector and supply chain needs of the customers. These requirements are fulfilled in different ways by liner shipping companies. Some of them set up own logistics divisions to provide the necessary services, others operate a network of agencies dealing with forwarding formalities. This paper assumes that the best knowledge and experience to arrange full load door-to-door transportation is present in the logistics division owned by liner shipping companies. In the light of the above liner shipping companies who own a logistics division are awarded more than other companies that only rely on a network of forwarding agencies or local agents.

18 Classification Rating High knowledge with specialists regularly trained 5 E.g. Own logistics division Good knowledge and experience 3 E.g. Network of forwarding agencies Knowledge and experience existing 1 E.g. Network of local agents No relevant knowledge and experience in the field of logistics 0 Remark: All shipping lines in the Top 30 have at least set up a network of local agents to provide the necessary knowledge and experience in providing door-to-door transportation Global co-operations and partnerships As indicated earlier, liner shipping companies do cover a certain geographic area (global carrier, international carrier or national/regional carrier). In order to provide the best services, shipping lines have set up partner networks based on the geographic areas they cover. This kind of partner networks can comprise wholly or partially owned subsidiaries in the field of intermodal transport (trucking, barging and/or railway companies). It is assumed that liner shipping companies who developed a worldwide operating partner network are better equipped to offer tailor made global supply chain solutions. These global supply chain solutions emerged from the evolution towards global dispersed production processes. As such, liner shipping companies that provide a worldwide operating partner network are better suited to combine freight and act as freight integrators than companies that only developed an international or local operating partner network. Classification Rating Worldwide/global operating partner network 5 International operating partner network (selected regions) 3 Local operating partner network 1 No partner network 0 Remark: Next to the development of partner networks liner shipping companies also formed strategic alliances. Table 6 gives an overview of the participation of liner shipping companies in the different alliances. For a thorough description of these strategic alliances we would like to refer to Notteboom (2004). In this classification the authors did not take into account whether the liner shipping companies are participating in one of the strategic alliances. Grand Alliance Independent Carriers Alliance

19 Hapag-Lloyd NYK Line - Nippon Yusen Kaisha OOCL - Orient Overseas Container Line P&O Nedlloyd MISC - Malaysia International Shipping Corp CMA-CGM CSAV - Compania Sud Americana de Vapores Hanjin Shipping / DSR Senator Lines Montemar Maritime Zim Container CKYH Alliance COSCO - China Ocean Shipping Co., Ltd. K Line - Kawasaki Kisen Kaisha Hanjin Shipping / DSR Senator Lines Yang Ming Marine Transport Corp. New World Alliance APL - American President Lines (NOL Group) HMM - Hyundai Merchant Marine Co, Ltd. MOL - Mitsui OSK Lines United Alliance Hanjin Shipping / DSR Senator Lines - UASC - United Arab Shipping Company Main outsiders 10 Maersk Sealand MSC / Norasia Evergreen Group CP Ships Group Table 6: The participation of shipping lines in strategic alliances (2004) Source: JOC Online (2004) and Notteboom (2004) 7.3. Results Table 7 reveals freight integration does serve as a business model for most liner shipping companies. Based on the indicators identified in this paper the majority of the carriers considered (18 out of 34) can be classified as Highly developed freight integrators (8) or Companies developed towards freight integrator (10). Another significant part of the liner shipping companies is identified as companies with little developments towards freight integrators, but with first rudiments set (12). Only four of the liner shipping companies are classified as No developments towards Freight Integrator. These results further support the conclusion that freight integration in different levels does serve as a business model in liner shipping.

20 Liner shipping companies TOTAL Liner shipping companies TOTAL Highly developed Freight Integrators A.P. Møller Group (incl. Maersk Sealand & Safmarine) COSCO - Cosco Container Lines Co., Ltd Evergreen Group CMA-CGM group NYK Group "K" Line - Kawasaki Kisen Kaisha, Ltd. Mitsui-OSK Lines P&O Nedlloyd 8 Companies with little development towards Freight Integrators, but first rudiments set CSAV Group Hamburg-Süd Group Grimaldi (incl. ACL) UASC - United Arab Shipping Company CP Ships Group IRIS Lines - Islamic Republic of Iran Shipping Lines Libra - Companhia Libra de Navegação MISC - Malaysia International Shipping Corporation Berhad Costa Container Lines Group (incl. Gilnavi) DAL - Deutsche Afrika-Linien GmbH & Co. Delmas Group Pacific International Lines 12 Companies developing towards Freight Integrators CSCL - China Shipping Container Lines Hanjing Shipping / DSR Senator Lines Hyundai Merchant Marine Co, Ltd. OOCL - Orient Overseas Container Line Limited APL - American President Lines (NOL Group) Crowley ZIM MSC - Mediterranean Shipping Company Yang Ming Marine Transport Corporation Hapag-Lloyd 10 Not developed towards Freight Integrators Wan Hai Lines Ltd. RCL - Regional Container Lines China Navigation Company Gold Star Line Ltd. 4 Table 7: Classification of freight integrators in Top 30 of liner shipping companies Source: own research A relation between company size and the level of freight integration can be observed. Out of the Top 10 of liner shipping companies only MSC, Hanjin

21 Shipping / DSR Senator Lines and APL are not classified as highly developed freight integrators. These companies are listed as developing towards Freight Integrator, implying that all liner shipping companies of the Top 15 of BRS Alphaliner (2004) (with the exception of CP Ships) are classified either as highly developed or developing towards freight integrator. Next to the above-mentioned relation between the size of liner shipping companies and the level of freight integration, the authors examined whether a relation exists between the geographical origin of a liner shipping company and the current level of freight integration. According to Figure 5 Asia and Europe do have a similar percentage around 30 % - of liner shipping companies in the Top 30 of BRS Alphaliner (2004) which evolved towards highly developed freight integrators. The other continents do not provide any shipping company evolved towards a highly developed freight integrator. Remarkably, all liner shipping companies which did not developed towards Freight Integrators are Asian based. Whereas the Middle East and North America show a mixture of companies developing towards Freight Integrator and companies with little development towards Freight Integrator. All South American liner shipping companies on the contrary are identified as companies with little development towards Freight Integrator, but where the first rudiments are set. 100% 90% 80% 70% 60% 50% 40% % 20% 10% 0% Asia Europe Middle East North America South America Origin of liner shipping companies Figure 5: Level of freight integration with respect to the origin of the liner shipping companies (in relative terms) Note: for the classification of the liner shipping companies (legend) we refer to Table 5 Source: own research Zooming further into this geographical component of freight integration Table 8 gives the average values for the high differentiating attributes plus the rating

22 on global co-operations and partnerships (in other words these indicators give only a partial answer to the final level of freight integration). This table makes it possible to point out differing scores on some of the suggested indicators to identify whether region based liner companies specifically developed or are specifically focussing on one or more aspects which influence the final level of freight integration. Table 8 reveals that all regions feature a rather moderate to low involvement in intermodal transport. Origin liner shipping companies High differentiating attributes North South Middle (see Table 4) Asia Europe America America East Own terminal usage (in % of total traffic) 2,94 2,30 3,67 3,00 0,00 Type of service provider 3,50 3,60 4,33 2,00 3,67 Relevant market participant in the field of intermodal transports 2,25 2,20 1,00 1,00 2,33 Commitment to intermodality 3,06 3,60 3,00 3,00 3,67 Knowledge and experience in logistics 3,88 3,60 4,33 3,00 3,67 Table 8: Relation between differentiating attributes and origin of the liner shipping companies (scores ranging from 1 to 5) Source: own research In Figure 6 the data for North America, Europe and Asia are plotted on a star diagram. This figure represents some of the geographical differences concerning the level of freight integration for the five differentiating attributes plus the attribute indicating global co-operations and partnerships. Global co-operations and partnerships Terminal usage 5,00 4,00 3,00 2,00 North America Europe Asia Type of service provider 1,00 0,00 Knowledge and experience in logistics Intermodal player Commitment to intermodality Figure 6: Representation of geographical relation between the highest differentiating attributes and the level of freight integration Source: own research

23 Figure 7 shows a comparison of the level of freight integration regarding the suggested indicators. As can be visually observed A.P. Møller s scores outstrip or equal all awarded scores to OOCL and MSC on the presented indicators. The scores of OOCL on the other hand exceed the scores awarded to MSC. This type of representation gives an idea of the developments towards freight integration and can be used to benchmark the different business models of liner shipping companies with respect to their development as freight integrators. Terminal usage 5 4 AP Moller OOCL MSC Global co-operations and partnerships 3 2 Type of service provider 1 0 Knowledge and experience in logistics Intermodal player Commitment to intermodality Figure 7: Comparison of A.P. Møller s, OOCL s and MSC s scores on the highest differentiating attributes (including global co-operations and partnerships) measuring the level of freight integration Source: own research

24 8. CONCLUSIONS In a logistics environment dominated by concepts such as door-to-door, global logistics and one-stop shopping, freight integration is considered by many as a necessary strategy to create value to the customers, to generate revenue and to increase margins. Also shipping lines are well aware of the growing importance of integration along the logistics chain to include landside and logistics operations. Inland logistics constitutes an important field still left to cut costs. While continuing to focus on improving their liner service networks, many carriers have developed a keen interest in freight integration. This paper critically assessed carriers strategies in view of optimising inland transportation in the context of freight integration. Based on a comprehensive analysis of 34 shipping lines and a set of freight integration indicators, it can be concluded that freight integration serves as a business model in the liner shipping industry, though each carrier seems to follow different paths to reach higher levels of integration. Each carrier leverages its service portfolio to develop specific freight integration capabilities and clearly there is no single best strategy for the whole liner shipping industry in this respect.