1. eBusiness and Cost Challenges for BCOs
Philip Damas, Head of Logistics Practice, Drewry
South Carolina International Trade Conference
October 31, 2017
PRIVATE & CONFIDENTIAL

2. Agenda Introduction Revolution or evolution of container shipping?
Freight rate volatility
6 challenges for BCOs
Pricing – working with rate volatility and transparency
Securing capacity and firm bookings
Visibility - towards real time end-to-end visibility
Increasing freight rates
Bigger ships and longer outgate times
Towards an ocean carrier oligopoly?
Conclusions
South Carolina International Trade Conference – e-business and cost challenges for BCOs

3. Drewry
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4. Revolution or evolution of container shipping
Revolution or evolution of container shipping? Huge changes in the volumes & assets, not much in e-business processes
1990s
2000s
>2010
S-class 9,000teu ships
Emma-class 16,000teu ships
EEE-class 18,000teu ships
OOCL
21,000teu ships
Boxship revolution
Global box traffic up 100m teu (+100%)
Global box traffic up 400m teu
Global box traffic up 200m teu
Global trade revolution
$5 billion new Panama locks
$1 billion raising of Bayonne bridge
Infrastructure revolution
e-business slow burner?
Internet-based schedules
Basic booking portals
e-marketplaces
K+N FreightNet
FlexPort
… blockchain trials
Basic container tracking
youship.com failure
eB/Ls

5. Challenges for BCOs… or opportunities
Challenges for BCOs… or opportunities? Digitisation and e-business will address several challenges
Pricing
working with rate volatility and transparency
Securing capacity and firm bookings
from matching supply & demand to contracting
Visibility
towards real time end-to-end visibility
And other areas of business and procurement

6. 1. Freight rate volatility Is particularly acute for “spot”/small BCOs, NVOCCs and some carriers
China-US West Coast freight rates
(indexed based on spot rate in May 2016 = 100)
Sources: Drewry Benchmarking Club and Drewry Container Freight Rate Insight

7. 1. Pricing – working with rate volatility and transparency New issues and new technologies
International forwarding
Truck and Air transportation
Ocean Freight starting with POL/POD carriers online offering
Rise of marketplaces (“Expedia for freight”) working on public or private rates
Online sales penetrate all transport mode
Managing vendor tariff, changes and comparison
Making customer tariff, door to door freight quoting
Tendering
Rate management
available to many
Freight rates
Carrier networks, services reliability
Freight and services benchmark using Big Data
Cross-Border ecommerce double digit growth
Small Medium Business (SMB) are key in cross-border ecommerce (no distributors)
Model scalable on some markets but not everywhere and for all trades
Spot market becoming central in these changes
Start Ups and traditional players’ initiatives:
Flexport raised a total of $94 millions
Schenker partners with Uship
Freightos acquired Air cargo marketplace Webcargonet
Freight forwarders spend $500 million annually to receive process rate sheets and managing their buy rates (Drewry study)
Shippers can have access to peer companies’ rates fresh crowd sourced information. Drewry benchmarking club = $2 billion of freight spend/year.
Between , single-location importers increased by 5.3% while multiple-location importers grew by only 1.3%
SMB are 97% of US importers
(US Gov stats)

8. 2. Securing capacity and firm bookings…some issues A particular problem for carriers and small BCOs
Problems: loss of revenues for carriers (“no shows”) and lack of guaranteed capacity for shippers (“roll-overs”)
*source Hapag Lloyd

9. 2. Securing capacity… emerging solutions Some tentative solutions and some new concepts
Ex: $150/ teu on certain trades (CMA CGM)
Booking cancelation fee implementation
Development of platform like NYSHEX with recent carriers joining
Forward contract development
Emerging and future IT solutions will analyse customer behaviour, patterns equipment stock, vessel navigation to better forecast transport resources (ship capacity & boxes)
Development of platform like ClearMetal working on Inland ETA, Booking cancellation, Equipment imbalance prediction
Big data analytics and machine learning
Future platform could offer spot selling of vessel space, equipment capacity on specific POL/POD, trades and locations?
Potential trend towards capacity marketplaces

10. 3. Visibility - towards real time end-to-end visibility Issue still not resolved, but new initiatives under way
Business need for visibility On top of the agenda for shippers
30% of phone calls in Forwarding relates to cargo tracking
Lack of visibility means inventory cost, Better Visibility means better planning and asset utilization
Beyond Standard Track & Trace, Real time Cargo quality monitoring and ETA
Development from players
e-Forwarder, Online Sales platforms and Large 3PL focus on visibility as a differentiator (recent launch of DHL “Ocean View”)
Collaborative mindset for data sharing
Technology availability make it possible
Carriers and ports are investing
Investment in smart “connected” containers (ex: Maersk, MSC) and in PCSs
Port operations data sharing system (Port of LA, in Europe, Middle East, Asia)
Benefits to the ecosystems
Trade Finance and Insurance

11. 4. Increasing contract freight rates Contract rate deflation has reversed
Recent trend:
On average, 3Q 17 Asia- Europe and transpacific rates are 39% higher than a year ago
Based on contract freight rate data from BCOs in the Drewry Benchmarking Club
Based on US$3 billion of freight spend
Source: Drewry Benchmarking Club

12. 5. Bigger ships and longer outgate times Larger, fewer ship calls on Asia-US East Coast lane
ship size up 39%
no. services down 26%

13. 5. Bigger ships and longer outgate times Port arrival to outgate times of 3.5 days now more common
Days after ship arrival
Days after ship arrival
Source: Drewry Supply Chain Advisors’ eSourcing Ocean Freight Solution

14. 6. Towards an ocean carrier oligopoly
6. Towards an ocean carrier oligopoly? Ocean carrier has moved from fragmented to “moderately concentrated”
HHI concentration index in the ocean carrier industry on major routes
Source: Drewry Container Forecaster

15. Conclusions
BCOs face both some old inefficient shipping industry problems and new e-commerce-related challenges in container shipping
Many new and emerging e-business solutions could address some of the challenges faced by shippers
Increasing contract rates for BCOs require new contract strategies
Larger ships, fewer services positive; longer out-gate port times negative
Move towards oligopoly of ocean carriers is major structural shift in the market
TPM conference – cool cargoes trends and issues for BCOs

16. For any questions, contact:
Thank you.
For any questions, contact:
Philippe Salles, Head, e-Business, transport and supply chains
or Philip Damas, Head, Supply Chain Advisors practice
Drewry