OFFERING THE KNIFE THAT WILL STAB YOU IN THE BACK

Income stabilization and return on investment score much better for logistics companies than carriers. The reason? Logistics companies buy ship capacity if, when, and as much as necessary. That is, they are demand-driven and thus they 'ride' the business cycle. Carriers, instead, create shipping capacity (i.e. they are supply-driven) and then they try to sell it. And if things don’t go so well, they then go down, together with the ship, as it happened in the 2009 economic meltdown. Logistics companies instead suffered little then: they just didn’t buy capacity and they didn’t have to “pay the bank” for the  (laid-up) ship mortgage.

For years I have been arguing that if carriers want to go into logistics, they shouldn't be giving away their comparative advantage (i.e., the ship) by selling, wholesale, capacity to 3PLs. By doing this, I have argued, it is like giving your enemy the knife to stab you in the back.

Why do they do this?
«But to fill the ship», they will reply.
«And why can't you fill the ship alone?» I ask, «or together with your alliance partners?»
«Because it is too big», they will say.
«And why is it so big?» I insist.
«But in order to enjoy economies of scale», they immediately retort.
«But to enjoy economies of scale», I continue, «you first must fill the ship, while you know you can't. Are you therefore building megaships as a gift to your competitor?» 

Silence.
Check mate.
Full circle.
Vicious circle.
Nice huh?

In my “Gigantism in container shipping, ports and global logistics” (link below), I have proposed a pricing strategy for liner companies, leveraging on their comparative advantage, which is the ‘ship’. In short, 'charge more for the component of the supply chain where you have the comparative advantage, and less for the one where you must compete'. The overall price of the 'door-to-door' transport should remain the same. But the 3PL will have to pay more now for your ship, and this will give you the competitive edge you seek to enter 'logistics'.

Some carriers have listened; especially those controlling marine terminals. Others have not.

HH
https://lnkd.in/exPVKDA