How does increasing digitization and automation impact global logistics?
When Flexport got a billion dollars in funding in late 2018/early 2019, it sent shockwaves through the shipping industry. The company is little more than 6 years old. It entire premise is built on a couple of claims that seem tough to depend by old hands in the industry. The first is that freight is too expensive. But when one considers that it costs only $2000 or so to move 20 tons of cargo in a 40 ft container across the world, it’s hard to believe that even Flexport thinks it is too expensive. The second and consequent claim is that the multiple handlers and middlemen of freight are the cause of the high expense of freight. However, it is well known that Flexport does not own any ships or planes or trucks, they use the very same service providers that “old fashioned” freight forwarders use. It is hard to believe that this new player has done anything more than snooker some hedge funds from their burden of having too much cash. It hasn’t replaced any middlemen, only displaced them as much as any other market would. And there’s frightfully little press about how much it has reduced shipping costs, making one wonder if it has done so at all. The digitization and automation it has purported to introduce is dismissed by others as just a fancy website, to an incorrect statement of facts. To wit, it has not introduced anything new to an industry that has been evolving and modernizing for the past 40-50 years. However, all of this is to admit that Flexport has done one thing, it has brought a sense of urgency to the industry to digitize. It has also shown the spotlight perhaps by accident, that the industry has been digitizing and will continue to digitize, by fleecing hedge funds (drunk with Silicon mantras to disrupt), or not.
When their partnership was announced it was one of the most prevalent pieces of news in the global logistics industry. This merger resulted in new developments such as Maersk offering Chinese shippers the option to reserve space on their containerships. The most significant change was that clients were then able to book Maersk’s containerships through Alibaba’s OneTouch Booking system. This was a major adaptation within the industry, providing a shipping service that had not traditionally been available.
Impacts of the collapse of Hanjin Shipping
Through the collapse of Hanjin Shipping, Trans-Pacific trade lane became a heated battlefield. There were two front runners competing to take over the trade Hanjin Shipping had left behind. Maersk and MSC were the two contenders vying for the business following this big industry bankruptcy.
Meanwhile, Maersk divided its company into two divisions’ transport/logistics and energy. The decision was made to put more emphasis on its logistics business as the result of low oil prices. In the following four months, Maersk Line (Maersk logistics division) expanded aggressively in the Pacific. This was a change as they had mainly operated in Asia-Europe usually just focusing on those routes.
To add the new partnership between Maersk and Alibaba shippers no longer needed to go through a freight forwarder, as they would have had to previously. This change made a big impact and was a result of the merger and Hanjin Shipping’s collapse.
The effects of the collaboration of Maersk Line and Alibaba on the shipping industry
The collaboration of Maersk Line with Alibaba could be seen as a strategic step in trying to contend with MSC. As Alibaba had a much longer history and more experience with Asia-Pacific routes. It could be viewed that they were moving into these new areas to compete with MSC. Aiming to take over the business left by Hanjin Shipping, working towards claiming that market share for themselves.
Maersk, in turn, could pave a way for Alibaba to win global e-commerce superiority over Amazon. This was because they had the ability to provide direct access to US customers without any middlemen. In return, Maersk expected to see dramatic growth in its Asia-Pacific business, with the intention to eventually outgrow MSC.
This partnership was a big deal in the history of global logistics. It was the most major news in the shipping industry, at least since the advent of container shipping.
What is the Future of Global Logistics?
So, what will the future of global logistics turn out to be? Will we continue to witness more mergers in the years to come?
Aside from its Asia-Pacific and Asia-Europe businesses, Maersk reported that it saw over 20% business growth in Mexico over the period of a year. This is due to the expansion of Panama Canal indicating how successful Maersk was with its expansion. They did well, not only in taking advantage of Hanjin Shipping’s collapse. They used this to spur the company’s continued growth expanding it further by moving into the Americas too. With its strengthened focus on Asia-Pacific, Asia-Europe and now America’s businesses, Maersk emerged becoming an even bigger container carrier giant. This level of expansion in large means others simply can’t catch up or take part. It seemed they made excellent headway in fulfilling their goal to become the global leader of container logistics.
Are there benefits of working with a smaller shipping service?
There are still many benefits of working with a smaller shipping service, regardless of the likes of Maersk and MSC. Will the Asian shipping services industry struggle in the future due to these grand mergers? These big companies are potentially taking over the marketplace making Asia-Pacific logistics a tougher and tougher market to compete in. Seeing these expansions take place have been very interesting developments in recent years, consequently, smaller companies are getting pushed out of the market.
But will the client be the one to lose out on what these smaller companies have to offer? In the wider global logistics industry, the smaller container carrier companies can still bring many advantages to their customers. Regardless of the experience larger shippers can provide they can’t achieve what smaller, reliable shippers can deliver. These companies understand the individual needs of their clients and can cater to the unique demands of each project.
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