Top three reasons shippers switch container carriers

Aug 21 | 2016

Xeneta, the Oslo-based benchmarking and market intelligence platform for containerised ocean freight, has quizzed its worldwide database of contributors to uncover the main reasons businesses end agreements with container ship carriers.

Price, risk management and loss of trust were pinpointed as the primary catalysts for calling time on relationships in a market currently riven by instability. 

“One might expect bad service to be the main reason for swapping supplier,” said Xeneta CEO Patrik Berglund, “But that isn’t the case in container shipping. The current state of the industry, with huge capacity oversupply leading to collapsing TEU rates, has effectively created a price war, pushing cost ‘front of mind’ for anyone shipping large volumes.”  

Price may be top of the list with Xeneta’s contributors – Berglund notes that one client gave his top three reasons as ‘price, price and price’ – but, for some at least, it’s not the sole consideration for switching. Risk management, in terms of supply, is also a factor. 

Loss of trust was the last of the ‘top three’, with bad experiences or contractual failures undermining relationships that may otherwise have prospered. Again though, price was often a key factor.  

Berglund says that some container ship carriers price ‘strategically’ to win market shares, but then a few months into the relationship try to adjust rates to meet their business requirements. This could be in the form of rolling cargo or simply hiking their prices.  

“In such a cut-throat segment, which seems to be in a constant state of flux at present, many of these carriers are fighting to survive,” he said. “So it’s understandable they want to maximise rates wherever possible. However, shippers rely, and base their entire operational plans, on the information provided by their suppliers, such as guaranteed capacity, transit time and pricing, so the commitments that are made during the procurement process must be honoured. If they don’t do that, they don’t keep the business.”  

Berglund says that real-time market intelligence is crucial for shippers who want the best prices in such a dynamic segment.  

“Container costs are fluid and if you aren’t up to date with price fluctuations and market trends then you won’t be able to optimize your shipping costs,” he concluded. “The container ship industry needs greater transparency to achieve some sort of stability, potentially setting ‘commodity’ prices that everyone can agree on, and we believe the intelligent use of big data will be the foundation for this.”  

Companies on Xeneta’s cloud-based software platform update their shipping data either daily, weekly, monthly, quarterly or yearly - depending on their procurement strategy – providing a rolling and real-time insight into the state of the market. This allows the firm’s 2,000 plus global users to compare their ocean freight rates against current prices, informing better logistics procurement decision making.