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Shippers will pay for more reliable service: Kuehne + Nagel CEO

THE chairman of Switzerland-based Kuehne + Nagel, Karl Gernandt, says there's a demand for premium container service and that shippers would pay for more reliable transit times.

Shippers will pay for more reliable service: Kuehne + Nagel CEO
08 March 2015 - 22:07

Shippers will pay for more reliable service: Kuehne + Nagel CEO

THE chairman of Switzerland-based Kuehne + Nagel, Karl Gernandt, says there's a demand for premium container service and that shippers would pay for more reliable transit times.

Today, carrier schedule reliability ranges from 65-85 per cent and "this is only the case in good years," Mr Gernandt said in a keynote address at TPM, the transpacific maritime conference in Long Beach, California.

"Getting services up to at least 90 per cent reliability, or at least multiple product offerings with one level providing 90 per cent or better at an appropriate price would be a win-win for shippers and carriers."

But this was contradicted by Maersk Line CEO Soren Skou at the same conference, who said the recent demise of the much ballyhooed Daily Maersk showed that customers would not pay extra for the 95 per cent on time rate that Daily Maersk provided. 

Still Mr Gernandt insisted: "Shippers would get higher reliability that will bring down supply chain cost and carriers would get the financially appropriate rate given the service provided. These higher rates would need to support the added investment and cost required to reach the higher level of reliability." 

He said part of the reason why container services have poor reliability lies in the level of service carriers can justify given their ability to earn a return on the assets they have deployed, American Shipper reported.

Mr Gernandt said various studies have estimated that carriers have an unsubsidised cost of capital of 10-12 per cent while carrier industry returns are less than five per cent over the business cycle. 

The result of this disparity, he said, is a flow of US$10 billion annually from carriers and suppliers of capital to the users of ocean transportation services.

"This system is not going to work for long. Essentially the users are paying a discounted price for discounted services,' Mr Gernandt said. While this might make sense for some shippers, "modern supply chains require higher reliability and customers are asking for it,' he said.

"It is time to offer a new solution, to be more flexible - to offer products discounted and enhanced. I'm not saying that the current level of service needs to end, but what I'm saying is current reliability arrangement seems to work for many customers, and much of the cargo that moves, but not all of them. 

"There needs to be a higher service choices. Would the people who ultimately pay the bill, the BCOs (beneficial cargo owners) be willing to pay for more reliable service choice. I think they would."

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