Moving from Defense to Offense
Munich, October 28 – Many container line companies have faced losses during the past
few years because heavy pressure on yield has eroded the opportunity to cut costs.
Yield and rates will not improve, and the problem of over capacity won’t resolve,
despite ongoing alliances and mergers. Low-hanging fruit on cost savings has been
realized, and container line companies need to shift their focus to more systematic
revenue management.Container lines are just beginning to systematically manage
revenue and profit. Business transformation and cultural change are key to
successfully implement these strategies. Revenue management will profoundly
transform the business plans of container lines. These are the findings of Oliver
Wyman and Aalborg University’s session “Shifting From Defense to Offense, ” held at
the Danish Maritime Days meeting in October.
(Viewers can log on the right to see/view the charts: 20141028_Charts_DMD
Container flows have grown, and will grow during the next years, well above world economic
growth. Despite the volume growth, the container line industry has seen poor financial
performance. Overcapacity and container flow imbalances have pushed the industry into the
red and have reduced yield significantly, therfore eroded cost savings. In fact, the yield for
the top 20 lines decreased 15% in the last five years. Despite a large gap between supply
and demand, carriers continue to order large ships as they scout for economies of scale.
Around 6, 000 to 10, 000 TEU units are deployed on trades that previously employed 4, 000 to
6, 000 TEU ships. This will increase the pressure on capacity management.
Focus must turn to revenue quality
While bunker costs could still be partially decreased through slow steaming, many other cost
positions such as port charges, crew wages, and insurance do not offer much more room for
improvement. While obvious measures have been taken to reduce costs, many firms are still
on the defense, looking for ways to better manage costs.
Meanwhile, some leaders are going on the offensive, actively using intelligent pricing and
revenue management techniques and processes to grow. For example, the air cargo
industry started this process some years ago and has increased the level of sophistication.
Today, most cargo airlines use revenue management tools to manage capacity.
“Container lines need to shift focus to a more systematic management of revenue, ” said Scot
Hornick, Partner with Oliver Wyman. “Compared to other industries, they are only at the
beginning of managing profitability through systematic revenue management. But they have all the right ingredients: different pricing for different customers, seasonally variable demand patterns, perishable inventory, and complicated networks.”
Cultural change crucial
Business transformation and cultural change are key to successful implementation of
revenue management strategies. Capacity and revenue management is not a single-point
decision, but a set of inter-related decisions that span time horizons and functions within a
business. Many companies fail at implementing revenue management, because they see the
change as a one-time project, not a long-term transformation. The implementation of
revenue management requires a multi-year program with careful planning of phases. Phase
one is about increasing transparency on demand patterns and capacity utilization, as well as
introducing some basic capacity management principles across the organization. In phase
two, core processes for revenue management are introduced, and in a final phase, revenue
improvement tools are installed.
“Revenue management will profoundly transform the container line industry, ” said Joris
D’Incà, Partner with Oliver Wyman. “Our session has shown that the interest is picking up. It
is crucial for shippers to move quickly and gain first-mover advantage.”
Danish Maritime Days Session “Shifting from Defense to Offense”
Oliver Wyman and Aalborg University held a session titled “Shifting from Defense to
Offense: Moving Beyond Managing Costs to Growing Revenues in the Maritime Industry”
during the Danish Maritime Days in Copenhagen in October.
Speakers included Karl Stoltz, Deputy Chief of Mission for the US Embassy in Copenhagen;
Mikkel Hansen, General Manager at Maersk Line; Kenneth Fuhrmann, Director, Network
and Revenue Management, at SAS Cargo; Niels Rytter, Associate Professor in Operations
and Service Management at Aalborg University; Scot Hornick and Joris D’Incà, Partners at
Oliver Wyman.
You can find more information at https://www.oliverwyman.com/DMD.html.
About Oliver Wyman
Oliver Wyman is a global leader in management consulting. With offices in 50+ cities across
25 countries, Oliver Wyman combines deep industry knowledge with specialized expertise in
strategy, operations, risk management, and organization transformation. The firm’s 3, 000
professional’s help clients optimize their business, improve their operations and risk profile,
and accelerate their organizational performance to seize the most attractive opportunities.
Oliver Wyman is a wholly owned subsidiary of Marsh & McLennan Companies [NYSE:
MMC]. For more information, visit www.oliverwyman.com. Follow Oliver Wyman on Twitter
@OliverWyman.
About Aalborg University
Aalborg University offers education and research within the fields of natural sciences, social
sciences, humanities, technical and health sciences. Aalborg University contiues to develop
as a dynamic and innovative research and educational institution oriented toward the
surrounding world. The university combines a keen engagement in local, regional, and
national issues with an active commitment to international collaboration.
