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Know your data, know your customer

Why does the shipping industry always seem to get its numbers wrong? These days, there is no excuse says Andrew Traill of The Shippers’ Voice

Any successful business

should be able to anticipate changes in demand. But on past performance, the freight industry, and especially liner shipping, seems to be very bad at it. Why do they appear to get it so wrong, so often? You must examine data and understand the drivers behind market movements. Secondly, and arguably most importantly, you should study your customers’ businesses. Seemingly straightforward, but too often neither is done especially well. People may read media pronouncements about predicted trade growth and container traffic (often, the more optimistic or pessimistic the predictions, the bigger the headlines) and build them into their world view that shapes their business strategies. Yet, how many people look more closely into the details, at the assumptions used, or the

p a r ame t e r s and caveats which normally accompany any such forecasts? If they did they may not put quite so much faith in headline figures. There is a wealth of data, but which is reliable and how best to interpret it? Look for figures that strongly correlates with the effects you are measuring. For example, research by Shippers’ Voice partner, MDS Tr a n smo d a l , showed that there was a far stronger c o r r e l a t i o n b e t w e e n the volume of imported consumer goods and US and UK house prices

over the past 12 years than there was for GDP, the more traditional measure of demand for goods. The correlation is particularly evident in countries where home ownership is far more prevalent than, say, renting or leasing. So perhaps carriers and shippers should watch house-sale prices: if people feel richer because their property increases in value, they are more inclined to borrow on the back of it and go out and spend. At the moment, house prices in the UK and the US are not rising enough to make people feel quite so confident over their spending power and, compounding the situation, there are growing concerns over higher taxes and fuel prices. That type of analysis will provide the big picture; but far more precision is required to create a real-world strategy. Knowing when demand is rising or falling is not enough: carriers must also

know what goods are moving and where they are coming from and going to. How many carriers can identify this enough in advance to know what services will be needed and where? Probably all too few, judging by shippers’ answers to this question. I asked shippers if they had been asked by carriers they use about market trends in their industry or on their or their competitors’ sourcing strategies. The response was largely negative, but the reasons varied. One European shipper suggested changing strategy was “costly and time consuming” for carriers and they might therefore be slow to respond. He also thought that carriers had a strong ‘me too’ mentality and tended to be re- active, not pro-active. A US shipper thought that carrier salespeople were just not motivated enough to concern themselves with the client’s business: “For the most part (they) don’t care about getting to know their customer needs, let alone their booking patterns. I think this has to do with how they are judged within their own organisation – on how much cargo they were able to load from one week to the next.” This shipper and others thought that the freight forwarder or 3PL/4PL might be better placed to divulge industry trends with carriers to help them understand and anticipate market changes. This might not explain why the carriers seemed to be left standing this winter, but perhaps we should not judge them too harshly, since the changes came very quickly with companies re-stocking and increasing demand.

Nevertheless, Ben Hackett of maritime consultant, Hackett Associates was less sympathetic. All the data was there to explain what was about to happen in the autumn of 2009 and what then followed, he said. He was more cynical as to the reasons, asking in Global Port Tracker: “Did carriers artificially limit their reported capacities to

put pressure on freight rate negotiations? Why the roll-overs if volumes were flat?” Commodity-level data would certainly

help improve

transparency on market trends, and there has been some progress towards this. MDS Transmodal’s World Trade database can now describe all world trade from 1996 to the present in tonnes and value, both country-to-country and by specific commodity flow. Traffic likely to be carried in containers is estimated and cross-checked against other statistics such as ports, the European Liner Affairs Association and Eurostat. Results

are held as tonnages, value and estimated TEUs. These can be set against changes in GDP and in US consumer spending and saving behaviour. With the correlation now identified between traffic volumes and house prices forecasts can be further refined. Forecasts of world trade growth (including specific commodities moving from one country to another) are therefore possible based on real data and correlated with economic data. Carriers would be better prepared to handle specific freight flows. It would help reduce the rapid and unpredictable swings in freight capacity, and reduce rate

volatility for air freight and sea freight in particular. No forecasts are perfect but any knowledge about the market is better than none.

Any comments? Contact: Andrew.traill@shippersvoice.com Mike Garratt, MD of MDS Transmodal and Ben Hackett, Hackett Associates will be speaking at the Shippers’ Voice Seminars – Multimodal 2010, 27- 29 April, NEC, Birmingham. UK (http://www.multimodal.org.uk The Shippers’ Voice makes trade data reports and analyses available: register free at: www.shippersvoice.com Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36