Intermodalism Is "FUNDamental" at Maersk
A plan by Maersk to change how it handles inland cargo in North America could have far-reaching consequences for the container shipping business.
Maersk said it is “fundamentally reengineering” its entire North American network, ending routine intermodal service to some inland rail ramps and concentrating cargo over fewer routes.
Maersk said the changes are being "caused by the trade imbalance and rising rail and trucking costs in North America. These costs are not on a cyclic path, they are on a relentless upward trajectory," the company said.
The changes are meant to reduce costs and “provide sustainable round trip compensation for container transportation costs.”
Attendees at the annual dinner of the New York-New Jersey Foreign Freight Forwarders and Brokers Association Wednesday night agreed it was a bold move by the world’s largest container carrier. They were unsure whether it would be imitated by other companies, but said some competing lines would likely seek out Maersk customers in the areas where it is ending intermodal service.
Logistics companies think there might be opportunities to work with Maersk in helping them retain those accounts by transloading cargo near the ocean ports and arranging inland moves.
Maersk has already announced plans to increase rates to selected destinations, and has announced plans to optimize Pacific trades capacity by phasing out three vessel strings. It also said it is pulling out of the Port of Halifax because of low container volumes and restructured service to the Middle East and Indian subcontinent.
Now Maersk said it is “streamlining the North American inland transportation network by focusing inland rail traffic on significantly fewer routes.”
American Shipper has been contacted by Maersk customers seeking additional information about the planned changes, and others have supplied descriptions or documents describing the plans, one of which said inland delivery points may be eliminated “where cargo density does not ensure round trip cost recovery.”
Maersk said customers will benefit from “faster and more reliable service delivery based on less complex routes that are better managed and administrated.”
Sources say they have been told many of the changes to intermodal routing will go into effect May 1, when the new contract year for much Far East cargo begins.
“The business environment for container shipping in the U.S. and Canada has changed in a fundamental way,” Maersk said in a written statement. “The current shipping industry service model in which acceptance and pricing of end-to-end rates is driven overwhelmingly by the ‘market perception’ of port-to-port ocean leg vessel capacity supply and demand does not make sense any more.
“The reality today is that the growing U.S. trade imbalance significantly reduces export cargo contribution to round trip costs on land and at sea. Additionally, the ‘bottlenecks’ and primary transportation cost drivers in North America have shifted from the ocean leg to the inland leg of the transport,” Maersk continued.
"Shipping back more ‘air’ and getting less for export cargo puts pressure on the import revenues to cover rising roundtrip costs,” it said.
“At end of the day Maersk has a very complex, cost-ineffective intermodal system,” said one source familiar with the planned changes. “They have found there is a lot of money to be saved.”
According to documents describing the planned changes, Maersk will stop using 66 rail ramps in North America and remove service from 18 inland destinations.
They are the U.S. cities of Denver; Council Bluffs, Iowa; Ft. Riley and Kansas City, Kan.; Salt Lake City, Utah; Minneapolis-St. Paul; St, Louis and Kansas City, Mo.; Buffalo and Syracuse, N.Y.; Omaha, Neb.; Arcadia, Wis.; and Auburn, Maine. In Canada they include Calgary and Edmonton, Alberta; Winnipeg, Manitoba; Saskatoon, Saskatchewan; and Moncton, New Brunswick.
Immediate confirmation of this list could not be obtained by Maersk; a spokeswoman noted the plans have been undergoing revision as they have been developed.
The company will also reduce the number of rail routes they use and link ports to specific service areas. Maersk said the changes being planned would reduce 250,000 rail entries to 50,000.
One forwarder said that in the past, Maersk and most other carriers would “accommodate virtually every shipper’s routing request.”
A shipper, for example, moving a container to Chicago might ask that his box be routed through New York, Baltimore or Norfolk. He might prefer a certain port because, for example, Customs officials in that port might be particularly knowledgeable about a commodity or easy to work with.
Maersk said now each port will be matched to a specific “service zone” in North America that will be efficiently served by the simpler network of high-density rail cargo.
As part of the changes, Maersk may add additional calls at some ports and reduce calls in others, but a spokesman said they would not be eliminated entirely in any city other than Halifax.
Maersk said that for inland destinations with high cargo volumes, there might be two or more ports of entry, while areas with less cargo would be served by a single port.
Speaking on background, some forwarders and non-vessel-operating common carriers believe that other carriers will follow Maersk’s lead. They also say that some carriers are likely to target shippers located in inland areas where Maersk is ending service.
They also believe that Maersk will continue to offer service to those locations, especially to prized customers, albeit at higher prices.