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“Hidden” value pool in feeder markets

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In this new whitepaper we analyze the value pool for the feeder cargo in Europe associated with demand fluctuations, imbalances, schedule reliability and risk profiles. We arrive at the conclusion that these hidden value pools are as important as the more traditional value pool related to pure operational network costs. The hidden value is assessed to be 250 million USD annually.

The sources of “hidden” value

Weekly demand fluctuations result in both under-utilization of vessels as well as cargo overflow. Trade imbalances result in under-utilization of vessels. Schedule unreliability and buffer-time in the schedules result in loss of cargo value for the shippers.

Pooling cargo from multiple carriers will reduce cargo fluctuations and imbalances. Multiple weekly services will reduce the impact from schedule unreliability.

The effects can all be quantified and analyzed. By comparing on one hand a situation where every deep-sea carrier operates independently and on the other hand the full aggregation of cargo flows, we can calculate the magnitude of this hidden value pool. The hidden value pool for Europe has a magnitude of 250 million USD annually.

Lessons for the industry

In addition to the quantification of the hidden value pools, each individual carrier further has to evaluate their risk profile in terms of own services with fixed costs versus outsourced services at variable cost. The value of this will differ across carriers depending on the stability of their cargo flows. But – crucially in the wake of the Hanjin collapse – it also has ramifications for cash flows, as charter costs are often due for payment much earlier than the credit terms associated with feeder services.

For the deep-sea carriers this implies that when they are evaluating their feeder strategies, they need to take these “hidden” effects into their calculations. The data also shows that for most carriers, the best way to tap into the hidden value pool is to aggregate feeder cargo. Once this is done, a decision can be made as to where to use own services and where to use feeder services. However, solely focusing on the traditional visible value pool related to the direct costs of operating a service, leaves a large value pool untapped.