Bigger isn't always better

Small and medium-sized ocean carriers that specialize in "niche" markets are proving that you don't have to be big to provide outstanding service.

By -- Logistics Management, 9/1/2000

Despite today's unprecedented consolidation among ocean carriers, a number of "niche" carriers remain and are even thriving. Although many observers have wondered whether these small and medium-sized steamship lines, which specialize in specific geographic service areas, would be swallowed up by larger competitors, their future appears to be secure.

Their marketplace acceptance can be attributed to several factors, including their flexibility, thorough coverage of specific geographic areas, and especially, customer service. Many shippers and freight forwarders say that although they do business with a variety of ocean carriers, they like niche carriers because the service they receive is more personalized.

"We use both large and smaller carriers for our Asia-U.S. West Coast service," says Abbe Kantor, director of transportation for Wilbur-Ellis Co./Connell Bros. Ltd. in San Francisco. Niche carriers, she believes, offer several advantages. "They can be far more flexible and responsive in targeted areas," she says. Kantor also finds that the smaller lines have greater flexibility in responding to issues and problems: "Most of the time, they don't have [to go through] the bureaucratic layers that the larger carriers have."

That's why her company has chosen to use a modest-sized carrier on the eastbound trans-Pacific leg, even though huge carriers abound on that route. That smaller carrier, she explains, "confines its service to just Korea and Taiwan and offers us much more competitive rates."

In the view of Ruth Baratta, export/import manager for Shaklee Corp. in Hayward, Calif., that focus on a geographic region usually means that the carrier can offer more comprehensive service in a specific region than a global carrier could. "Because we need an ocean carrier with a good U.S. inland distribution system, we often opt for some of the less well-known competitors," Baratta says. The smaller ocean carriers, she explains, often have exclusive relationships with domestic truckers and rail providers. "Some niche carriers are the only ones serving [some] traffic lanes," she notes, adding that because they put all of their resources into a narrow area, niche carriers are likely to have better availability of special equipment like refrigerated containers than the mega-carriers are.

Stuart Rattray, CEO of Australia New Zealand Direct Line (ANZDL), says that as more shippers begin to question the wisdom of centralized control over global distribution, they are coming to appreciate the benefits of working with niche operators. "Many shippers face internal resistance to global contracting because it inherently involves a transfer of authority from local logistics managers to a centralized purchasing agent," he says. "In speaking with our own customers in the Australasia, trans-Tasman, and Pacific Islands trades, we've learned that many shippers are once again starting to place niche trade volumes outside the parameters of global contracts."

That backlash, says Rattray, represents shippers' reaction to the lack of local knowledge within the global carriers' centralized structures. "The sales forces at many global carriers are neither equipped nor motivated to sell niche markets," he says, "and there is still a significant gap in knowledge between the trade specialists of a niche operator and the generalists of a global carrier."

Better Service Needed

Shippers and freight forwarders frequently complain about the poor service they are receiving from the "big boys." W. Guy Fox, chairman of freight forwarder Global Transportation Services Inc. in Redondo Beach, Calif., charges that the largest carriers often don't pay attention to smaller customers. "Without naming names, I can honestly say that most of the larger lines simply don't want to cooperate fully," he says. "There's one big Asian liner that seems to be so satisfied with [its] inbound volumes that it's become quite arrogant about even accepting new business."

Robust volumes in the trans-Pacific trade lane permit many of the "mega" carriers to get away with poor customer service, says Fox. He describes how his booking agents often remain on hold listening to recorded music for many valuable minutes when they call some of the largest carriers. Meanwhile, shippers are waiting for intermediaries to seal the deal. "It may make the liner people happy," he says, "but it's not music to our ears."

ANZDL's Rattray believes that the traditional global carriers' compensation system is one reason why small and medium-sized shippers don't receive the global carriers' full attention. Because the big carriers reward sales representatives for higher volumes or gross margins, he says, they naturally focus on the high-volume East-West trades. That system discourages them from paying attention to the opportunities available in many North-South trades-opportunities that niche carriers are ready and willing to exploit.

The global carriers are sitting up and taking notice that shippers are shifting business to niche players. "Diminishing returns send a great message to carriers," says Frank Caradonna, principal of Pegasus Ltd., a non-vessel-operating common carrier based in Boynton Beach, Fla. "They quickly realize that if they're doing a poor job, we can always take our business to one of the independents." When enough shippers turn to smaller carriers, Caradonna says, it forces the larger carriers to pay more attention to customers' needs.

Perhaps tacitly acknowledging shippers' perception that a performance gap exists between the large and small players, many of the global ocean carriers that have purchased niche carriers have chosen to keep the smaller carriers' original names. Doug Coates, a principal with Manalytics International, a transportation/logistics consultant in San Francisco, observes that in such cases, the brand is retained if it is identified with blue-chip service and "supply chain values," as he puts it.

One example is that of London-based CP Ships, which in recent years has acquired Australia New Zealand Direct Line, Canada Maritime, Cast North America, Ivaran Lines, Contship Containerlines, and Americana Ships. Americana Ships includes Lykes Lines, TMM Lines, and Transportación Marítima Grancolombiana. CP Ships has kept all of those names except Ivaran Lines, folding that company into its Lykes Lines operation. Otherwise, it has continued to bank on the good names and reputations of its subsidiaries in their own trade lanes.

That's not always the case, though. When P & O Nedlloyd bought Blue Star Line, Coates says, it shed the Blue Star brand because executives felt that P & O Nedlloyd would be a more attractive entity to shippers.

Complementary Services

As for the niche carriers that are continuing to operate as independent entities, some are finding that customers' demands for more comprehensive service can put a severe strain on their resources. To solve that problem, a niche carrier may hook up with another small carrier whose service area complements its own. One example is the recent agreement between Kent Lines International Ltd. of St. John, New Brunswick, and Seaboard Marine of Miami, Fla. That agreement links the Port of Saint John in New Brunswick and the United States with Caribbean ports via a weekly, fixed-day service. The new service has proven to be a winning concept, says Kent Lines Vice President Graham Fraser, and one that he doubts a huge ocean carrier could manage as well as a small line can.

Local knowledge is especially important in the joint service, because the two companies' agents must communicate with customers who speak French, English, and Spanish. "Because we have a tradition of working within these parameters, we can continue to function fairly seamlessly. It would be very difficult for a major liner to operate quite as smoothly," Fraser says. He acknowledges that Maersk Sealand and Zim Line both have a significant presence in the Caribbean but says they are not a major worry for his company. "We are competing more directly with other niche carriers," Fraser says. "We let the big boys worry about themselves."

Another way niche carriers are competing for shippers' business is through information technology. Thanks to the Internet, niche carriers today often can electronically provide the kind of information that was once the sole province of the largest ocean carriers.

One example is Crowley American Transport (CAT), a part of the Hamburg Süd organization, which offers containerized transport and intermodal services between the East and Gulf Coasts of North America and both coasts of South America. "We are now using the Internet to provide shippers with more timely and accurate services, including updated sailing schedules and electronic delivery and release of bills of lading," says CAT's senior vice president and general manager, Frank Larkin. Several hundred CAT customers, for example, now receive monthly sailing schedules as an electronic e-mail file attachment using the widely available Acrobat Reader format.

For niche carriers these days, keeping up with the latest developments in information technology is an absolute necessity. "Our business today is as focused on the application of information technology to improve service as it is on efficient vessel operations," says C. Bradley Mulholland, president and chief executive officer of Matson Navigation Co. Headquartered in San Francisco, Matson is the principal carrier of containerized cargo and automobiles between the U.S. Pacific Coast and a number of the Hawaiian islands, the Mid-Pacific Islands, and Guam-Micronesia.

Smaller carriers are using technology to offer customers sophisticated information services that are on a par with what the global carriers can offer. "e-Commerce is definitely providing all types of businesses with new ways to expand their service offerings," says Mulholland. "Although Matson has a presence on the Internet, we have only begun to tap into this tremendous resource. We are presently examining ways in which we can utilize the new technology to enhance our relationships with our customers."

Value in Diversity

The niche carriers' reputation among shippers for being flexible, offering in-depth knowledge of a limited area, and being customer-service oriented assures their place in the world for years to come. Even the very biggest ocean carriers agree that their different approaches to business will allow large and small carriers to exist side by side and admit that there is value in maintaining diversity in the marketplace.

When the Ocean Shipping Reform Act took effect in May of last year, smaller carriers feared that they would be at a disadvantage compared with the global carriers. The bigger carriers were concerned, too, about how competition between large and small carriers would play out. "I have to admit there was considerable apprehension last year at this time," says Jim Galligan, vice president of Mitsui O.S.K. Line (America) Inc. "We were particularly afraid of being undercut by smaller carriers [that] might make a play for part of our business." Instead, the opposite has occurred, and a system that bears some resemblance to that of the Class I and short-line railroads is beginning to develop. "With deregulation," Galligan says, "we are free to cede some of the more specialized services [to niche carriers] so that we can focus on our core competencies."

Still, despite the many advantages small carriers offer to shippers, it's not all blue skies and smooth sailing for niche operators. Fraser calls attrition among smaller ocean carriers unfortunate but inevitable. "Let's face it," he says, "the smaller carriers face the same pressures the big ones do in a free marketplace."

Patrick Burnson is a freelance writer who specializes in international transportation.