logistics shipping

8/7/2019 logistics shipping

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Transport Reviews, Vol. 29, No. 4, 537554, July 2009

Shipping Lines and Logistics

ANTOINE FRMONT

The French National Institute for Transport and Safety Research (INRETS), Arcueil, FranceTaylorandFrancisTTRV_A_367930.sgm

(Received 17 December 2007; revised 4 September 2008; accepted 2 December 2008)10.1080/01441640802677607Transport Reviews0144-1647 (print)/1464-5327 (online)OriginalArticle2008Taylor&[email protected]

ABSTRACT It has been acknowledged that logistics is a driving force that shapes the inte-

gration of the transport chain. This paper argues that while the liner shipping industryexhibits increased horizontal integration, its vertical integration remains limited. A cleardistinction is drawn between freight logistics, container logistics and vessel logistics.Freight logistics is defined as part of the supply chain process, the focus of which is the

goods being transported. The purpose of container logistics is to optimize the movementsof the containers themselves, an operation that is directly related to vessel logistics whichis concerned with maximizing vessel utilization. The paper demonstrates that shippinglines have to find the correct balance between these three types of logistics. Their interestin vertical integration is primarily because the management of container logistics providesdirect support to vessel logistics. Their involvement in freight logistics remains unclearand uncertain.

Introduction

Since its advent in the mid-1960s, containerization has been responsible for inte-gration within the transport chain (Brooks, 2000). At the same time, shippers havegreater and greater logistical needs because they are taking advantage of theopportunities presented by globalization to develop their production and/ordistribution activities at an international level, which makes it necessary to coor-

dinate these both in time and space by setting up supply chains. Supply chainmanagement (SCM) is not only a source of profits but also of control of the supplychain by the shippers, maritime or inland transport operators, freight forwardersor logistical specialists which are active within it (Heaver et al., 2001).

Today, the global carriers are key actors within transport chains by virtue of theglobal networks they operate (Slack et al., 2002); the transport capacities theycommandin 2004, the 20 largest liner shipping companies accounted for morethan 60% of the worlds containerized transport capacity; and, finally, the oppor-tunities that containerization has opened up for them to act as Third Party LogisticsProviders (3PL) (Evangelista, 2005). Porter (1985) highlights the concept of a valuechain. If a firm wants to gain competitive advantage over its rivals, it must increase

Correspondence Address: Antoine Frmont, The French National Institute for Transport and SafetyR h (INRETS) 2 A d G l M ll t J i ill 94230 A il F E il


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538 A. Fremont

its value to customers through performing activities more efficiently than itscompetitors.

The objective of this paper is to question the extent to which it is in the interestof shipping lines to engage in logistical chains to gain competitive advantage. Thepaper begins by reviewing the literature on vertical integration in the shipping

industry. Both the academic and professional literature has recently emphasizedthe need for the shipping industry to add value and to extend itself into logistics.A survey of the present situation in which it endeavours to assess the extent towhich global logistics providers have come about is presented. The evidencepresented suggests that the involvement of shipping lines in logistics is narrowerthan suggested by the literature. In order to explain this discrepancy, a cleardistinction between vessel logistics, container logistics and freight logistics ismade. The first is concerned with maximizing vessel utilization. It represents thecore business of the shipping lines. The second is involved with the managementand control of the container stock. It is very much part of a maritime strategy, the

shipping lines being directly concerned with the disposition of the boxes. Thethird relates to management and organization of the goods in the supply chain,and goes beyond the mere provision of transport services. This distinction helpsus to assess the degree of vertical integration within the transport chain. It is ourhypothesis that although there are clear synergies through vertical integration

between vessel logistics and container logistics, this is not the case with freightlogistics. This is why the involvement of shipping lines as logistics providers forthe supply chain remains very specific.

Shipping Lines, Containerization and Logistics: From Port-to-Port to

Door-to-Door ServicesThere are four major reasons for the impressive growth of containerization duringthe last 40 years. The first two principally involve the maritime leg of transport: theefficiency of port handling and the reduction in unit transport cost made possible

by the continuous increase of the size of container vessels (Cullinane and Khanna,1999, 2000). The massification of maritime transport has resulted in continuouseconomies of scale over the period which have reduced port-to-port transportcosts for shipping lines.

The third cause is that the intermodal nature of containers permits door-to-doorservices (Figure 1). In the intermodal transport chain, each mode retains its

distinct identity and importance but the role of each is determined by the objec-tives of the system as a whole (Hayuth, 1992). Intermodality allows shipping linesto develop hub-and-spoke networks on a global scale that are linked to massifiedinland transport networks. The reduction in transport costs not only applies to theport-to-port segment but also includes the door-to-door service.Figure1. Shippinglines:fromthecontrolof boxes to valueaddedlogistics providers.The fourth cause is the development of logistical services which go beyondtransport provision in the strict sense. Containers are particularly suited to just-in-time management which makes it necessary to meet the deadlines set by shippersand guarantee reliable deliveries. Containers can be used to transport small

batches of freight on a regular basis by grouping together goods from different

sources in the same container (less than container load (LCL) container).Lower transport costs, global networks, the improvement of logistical services,along with high performance information systems all meet the needs of shippers


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Shipping Lines and Logistics 539

distribution activities at international level. In order to satisfy the expectations ofshippers, shipping lines must exploit the opportunities provided by containeriza-tion (Kuipers, 2005). Containerization allows the shippers to enjoy either econo-mies of scale or economies of scope to ensure their activities are profitable. Twoprincipal approaches are available: shipping lines can either limit their role to themaritime leg or become involved in end-to-end logistical chains which theycontrol partially or completely. Under the latter circumstances the shipping line

becomes a logistics provider.

Advantages and Disadvantages of Vertical Integration for the Shipping Lines

Vertical integration, in particular the development of logistical services, currentlyprovides shipping lines with a means of acquiring comparative advantage overtheir competitors, for three main reasons. It is becoming increasingly difficult, oreven impossible in the longer term, for them to achieve sustainable margins bymerely reducing maritime costs, the more so when the reduction in costs obtainedthrough the use of larger vessels is systematically cancelled out by decliningfreight rates due to excess capacity and competition. There are exceptions, such asthe current growth of Chinese exports (Lim, 1998; Panayides and Cullinane,

2002). Second, in a door-to-door service maritime costs are secondary, estimatedat 23% of the total cost of transport (Stopford, 2002). Furthermore, the increase inthe size of vessels tends to accentuate the transfer of costs from the maritime

Figure 1. Shipping lines: from the control of boxes to value added logistics providers


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540 A. Fremont

for the vertical integration of shipping lines is the desire to capture the cargo atsource. Instead of being dependent on freight forwarders for filling their ships,

they develop direct relationships with the shippers (Heaver, 2002a). For the ship-ping lines, the potential benefit of vertical integration is twofold: it not onlyprovides a means of controlling non-maritime costs but also of assuming the roleof logistic provider in order to achieve comparative advantage.

Figure 2 shows some scenarios for integration. When a shipping line takes onthe functions of a shipping agent or a terminal handling company, this ties indirectly with its maritime operations. If it has its own representation in ports theshipping line has no longer to depend on an external agent who may also provideservices to a competitor. By offering cargo handling functions, the shipping linecan improve the efficiency as well as security of its port operations, which is madenecessary by the increasing size of vessels, their very high daily operating costsand by the development of transhipment (Musso et al., 1999; Haralambideset al., 2002).Figure2. Verticalintegrationscenarios forshippinglines.Apart from the functions of shipping agent and terminal handling company, theshipping line can continue its integration of the transport chain by becoming aninland transport provider, freight forwarder and/or logistics provider. Theadvantages are numerous. With respect to its customers, the shipping line in offer-ing extended services may go as far as offering one-stop shopping (Panayides,2002). Internal synergies also become possible:

Complementarity as regards demand between the different services provided,

which helps to fill vessels and build up customer loyalty (Heaver, 2002a). Diversification of the firms activity, which provides some protection against

fluctuating levels of activity and prices on a given segment of the chain(Heaver, 2002a).

Shared use of the same extended information system throughout the logisticalchain (Evangelista, 2005).

Reduction in the transaction costs between the different elements of the logisti-cal chain by their internalization and by control of the entire chain whichprovides greater transparency than in the case of chains with several contractors(Frankel, 2002; Robinson, 2002).

However, vertical integration of the transport chain by shipping lines may alsogive rise to problems A highly integrated transport chain may make the shipper

Shipping lines

A B C D E F

Shipping line

Shipping agent

Terminal handling company

Freight forwarderInland transportation provider

Logistics provider

Horizontal Integration

Vertical

Integration

Figure 2. Vertical integration scenarios for shipping lines


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the transport chain, and thereby reduces competition. By broadening its offeringsof logistics services, the shipping line enters de facto into direct competition withthe forwarders who are its traditional clients. Integration may also encounterproblems associated with the financial, technical and human capacities of theshipping lines. These are by definition limited and different from one company to

another. This means that it may be necessary to balance trade-offs between strate-gies which encourage an extension of geographical cover or an increase in thevolume of freight carried (horizontal integration) and those which target anincrease in the carriers product mix and service provision (vertical integration).The course which is finally charted will depend on anticipated market shares,revenues and return on investment (Heaver, 2002a).

The Limits of Vertical Integration

The concept of the integration of the transport chain by shipping lines is not new.

As early as 1966, the chairman of the Swedish Association of Shipping Linesstated:

The time has come when the activity of the shipping line is no longerrestricted to maritime transport, but must also include inland transport(). If we wish to limit our role to maritime transport, we will graduallyfind that we are relegated to the position of insignificant pawns in theenormous machinery of transport. We should consider ourselves fromnow on as transport undertakings and not purely as maritime carriers.We should establish close links with the other parts of the transportchain. (Journal de la Marine Marchande, 1966)

In fact, vertical integration processes only really began to be introduced in1980s. It was then that mergers and acquisitions took place involving groupsengaged at different levels of the transport chain. The American shipping lineSea-Land was purchased in 1986 by the American Railway Company CSX fromthe Reynolds Group. APC, which at the time owned the shipping line APL, devel-oped a large intermodal rail activity, API in the USA. The P&O Group possessed aterrestrial branch, POETS, which offered container pick up and delivery services,cross-channel links, and storage and distribution. At the same time, the Dutchshipping line, Nedlloyd, developed the Nedlloyd flowmasters concept to

demonstrate that it was as capable of managing flows of freight as flows of infor-mation (Journal de la Marine Marchande, 1989). Conversely, freight forwardersand road haulers were starting to act as shipping lines. The best known case ofthis is that of the Swedish company Bilspedition which, in 1988, took over CoolCarriers, the worlds largest reefer vessel company, purchased the largestshipping line Transatlantic in the same year, then in 1989 purchased GorthonLines, the principal maritime exporter of Swedish forest products, and lastly tookover Atlantic Container Line, one of the dominant consortia in the North Atlantic,

by acquiring shares from CGM, Wallenius and Cunard.But did these mergers and acquisitions give rise to truly vertically integrated

companies? At the end of the 1980s, it is more accurate to talk of a diversificationof the major maritime groups, with the underlying objective of achieving integra-tion of the transport chain (Gugenheim et al 1990) What is the situation 15 years


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542 A. Fremont

involvement in maritime transport ceased in 1994, only five years after itspurchase of ACL. The American Rail Company CSX sold Sea-Land in 1991,concerned by the poor financial results of its maritime subsidiary. In 2004, Hapag-Lloyd withdrew completely from all logistical activities to concentrate solely onthe maritime part of containerized transport.

The Present Situation

Analysis is made difficult because of the absence of comprehensive quantitativedata. Data are drawn from the annual reports of shipping lines and freightforwarding companies with the purpose of assessing the weight of logistics activ-ity in the total company operations. Comparisons are very difficult. Annualreports are not standardized between companies. Many shipping lines considerthe logistics sector as a whole, and do not break down these activities further. Theonly distinction they make is between shipping line activities and logistics

activities. On the other hand, freight forwarding companies differentiate betweenfor instance seafreight, airfreight, inland operations and logistics contracts(Table 2). Despite problems in comparison, annual reports remain the only sourceavailable, and give a useful, if limited, indication about the involvement ofshipping lines in the logistics area.

Based on a review of the annual reports for 2004, shipping lines, or maritimegroups owning shipping lines, that have set up logistics subsidiaries, that is to saywhich claim to be freight forwarders, inland distribution providers or logisticsproviders, are only few in number. Of the ten largest shipping lines in 2004, sixclaim to be involved in logistics (Table 1). But their annual reports show that onlyfour have a large logistical subsidiary: AP Mller, NYK Line, APL/NOL and P&ONedlloyd (since 2005, Maersk has taken over PONL). These subsidiaries only playa secondary role in the total activity of the parent companies, with the exceptionof the Japanese Group NYK.

A distinction must be made between two major types of organization. In thefirst, the shipping line is a subsidiary of a larger conglomerate group which may,in addition to its shipping line subsidiary, possess not only a logistics subsidiary

but also, for example, a cargo handling subsidiary. In this case, there is no directassociation between the maritime subsidiary and the logistics subsidiary, and thetwo subsidiaries can conduct their activities independently of each other. The APMller and NOL Groups provide typical examples of this type of organization,

even if NOL now talks about their one company philosophy. In the second, theshipping line is the parent company and may or may not set up a logistics subsid-iary. The link between the shipping lines activity and the logistics activity is inthis case more direct.

The logistics subsidiaries of maritime groups are extremely small in relation tothe largest global logistics providers (Table 2) and their turnover is in generalmuch smaller. If only the maritime activities of the logistics providers for whichinformation is available are considered, they still dominate to a large degree. OnlyNYK Logistics and probably Maersk Logistics achieve a level of activity which iscomparable to that of a group like Panalpina. Likewise, Excel or Kuehne+Nagel,

for example, control as many containers as APL.In terms of the number of offices at global level, the network of forwardingand logistics companies is much more extensive than that of the logistics subsid


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Table

1.

Thelogisticalactivitiesofthetenlargestshippinglinesin2004

Parentcompany

Logistics

subsidiary

Shippinglineand

logisticsactivitiesasa

percentageoftotal

activitya

Logisticsactivityas

apercentageof

totalactivitya

Logisticsactivityasa

percentageofshipping

lineandlogistics

activitiesa

ersk-Sea

land

APMller

Yes

57.0

C

No

No

100

ONedlloyd

RoyalP&ONedlloyd

Group

Yes

100

12.4

12.4

A

No

Yes

100

rgreen

No

No

98.5

L

NOL

Yes

98.9

17.8

18.4

co

No

njin

No

Yes

95.6

naShipping

No

KLine

No

Yes

48.2

21.1

43.7

agLloy

d

No

No

100

0

0

%oftur

nover.

rce:Com

panyannualreportsfor2004.


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544 A. Fremont

as Maersk, NOL or NYK, are trying to develop a wider network of logisticsoffices. Logistics is not a capital-intensive activity, being based essentially onhuman resources and information. Freight forwarders have a widespreadnetwork of offices to be as close as possible to the market and their clients which

they have built up over the years. For shipping lines, it is very difficult to buildup such a network quickly. It is only through the purchase of an existing freightforwarder, that extensive market entry can be achieved rapidly. This requiresfinancial capacity, and the shipping lines have been pre-occupied in enlargingtheir fleets, at very considerable capital cost. Shipping lines have to make achoice of investments between reinforcing their core business activity and devel-oping other activities along the transport chain to offer value-added services totheir clients.

In the middle of the first decade of the twentieth century, as in the 1980s, thevertical integration policies pursued by the shipping lines were essentially

restricted to freight handling (Slack and Frmont, 2005; Slack, 2007) and, on theNorth American continent, to the operation of rail landbridges made possible bythe US Staggers Act of 1980 However in the area of logistics the involvement of

Table 2. Turnover, number of TEUs transported or controlled and number ofoffices belonging to the shipping lines and their logistics subsidiary as well as

forwarding and logistics companies in 2004

Turnover billion US$ Million TEUsa Number of offices

Subsidiaries of shipping linesMaersk Logistics 200NYK 13.2 2.6

NYK Logistics 2.8 154P&ONedlloyd 6.7 4.1

P&ONedlloyd Logistics 0.8 APL/NOL 6.5 1.8

APL Logistics 1.2 95

Forwarding and logistics companiesExel

Schenker

10.9

9.7

1.7 1700

1100Inland operations 4.7Air&Sea 3.7 0.8Logistics 1.3

Kuehne+Nagel 9.0 750Seafreight 4.7 1.6Airfreight 2.1Rail and road logistics 1.2Logistics contracts 1.0

Panalpina 5.8 500Ocean 1.9 0.8

Air 2.9Supply Chain Management 1.0

aFor the shipping lines, number of TEUs carried and for the forwarding and logistics companies,number of TEUs controlled.Source: Company annual reports for 2004.


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between academic discourse concerning the theoretical possibilities opened up bycontainerization and explored from the 1980s by the various operators in thetransport chain and the actual situation as regards integration of the transportchain.

Shipping Lines and Logistics: The Results of a Qualitative Survey

In the last four years we have conducted a series of interviews with shipping linesin Europe and East Asia, in which they were each asked to define their activityand describe how their relationship with freight forwarders has changed.Although these surveys are not exhaustive, they nevertheless give some clearindications. Table 3 lists the responses of each shipping line interviewed in orderto show the extent to which they were involved in logistics. The table shows thatthe activities are very clearly identified: they are separate and their nature isevolving to only a very minor degree.

Three Types of Logistics

Container Logistics and Vessel Logistics

For shipping lines, the prevailing type of logistics carried out is container logis-tics. This consists of optimizing the management of the container stock. This fleet,like the vessels, represents a large amount of capital. This considerable investmentcan be reduced by a reduction in turnaround times and immobilization on theinland transport leg.

To optimize the repositioning of containers within flows, which are by theirnature unbalanced, shipping lines must retain control of container flows on theland, which explains the development of carrier haulage. This enables shippinglines to conduct triangulations (instead of returning an imported containerdirectly to the port, this involves attempting to re-fill it directly for export at itsimport destination), to concentrate assembly and distribution services using lessexpensive transport modes while adapting the commercial objectives to thelogistical constraints (Gouvernal, 2002). It emerged from our survey that whenfeeder vessels are used, as is the case in Singapore, the shipping lines apply thesame approach: optimizing transfers between mother vessels and feeder vesselsin order to ensure fast turnaround of containers and loading of vessels. These

triangulations or transfer techniques become easier to implement when themaritime networks are more extensive and the volumes larger, as these condi-tions provide greater opportunities for repositioning (Gouvernal and Huchet,1998).

Under merchant haulage, the shipping company does not possess full knowl-edge about the status of its containers. As a result, the turnaround of thesecontainers is considerably slower. But, at the same time, for fear of losing theclient, the shipping line is not inclined to impose financial penalties on a customerwho keeps its boxes too long.

The development of intermodality and door-to-door transport that has been

developed by shipping lines may be detrimental to the activity of the freightforwarders because it diminishes their ability to organize transport as a whole. Butthe aim of the shipping lines is not so much to challenge the freight forwarders as


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546 A. Fremont

Table3.

Theshippinglinesinrelationtothef

reightforwardersandlogistics:somepointsofview

Pre-carriageandon-carriage

Customerrelations

Logistics

C,Antw

erp,2004

Exploitingthecomp

etitionbetweenroad

hauliers.

Freightforwardersaccountformostofthefirm

s

clientele.

Offerofdoor-to-doorservice

dependingon

customerdemand.

Dedicatedblocktrainsaspartofa

contractwithBCarg

o.

Directcont

actwithmajorshippers.

njin,LeHavre,2001

Developmentofcarrierhaulage.

Partnershipwithfreightforwarders.

Optimalmanagementofthecontainerstock.

Minimumpossibleuseofmerchant

haulage.

Specialtieswithabo

uttenlocalroad

hauliers.

Notransitdepartmentandnocustoms

operations

exceptatcustomersexpressreque

st.

L,LeH

avre,2001

60%bycarrierhaula

gecomparedwithan

averageof40%forL

eHavre.CMA-CGM

with25%:howdot

heymanage?

Clientelecomposedof40%directclients,mostly

largeshipp

ers(Danone,Carrefour).

Optimalmanagementofcontainerstockvia

theRotterdamEuropeanLog

isticCenter.This

impliescontrollinginlandtra

nsportbymeans

ofcarrierhaulageifpossible.

Carrierhaulageincludingwhenthe

clientisafreightfor

warder.

Needtoha

vesomelargefreightforwarders

(Shenker)a

swellasthesmalleronestoprovide

regularvolumes.

Notencroa

chingontheterritoryofthefreight

forwarders

.

ONedlloyd,Le

re,2001

Subcontractingforlargeroadhaulage

companieswhichha

veanetworkof

officesalloverFrance.

90%ofcontainershandledareFCLs,mainlyw

ith

freightforw

arders.


LCLactivityismarginal.ThisiswhereP&O

NedlloydG

LD(GlobalLogisticDistribution)is

active.

Managingtrafficimbalances.

ersk,Le

Havreand

seille,2

001

ItssubsidiaryMacadamforroad

haulage,butsubcon

tractingdominates.

MaerskLogisticisaseparateentityfromMaersk

Sealand.


Consolidat

ion(LCLcontainers)remainsan

activityfor

freightforwarderswhicharevery

importantclientsforMaersk.


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Table3.

(Continued)

Pre-carriageandon-carriage

Customerrelations

Logistics

A-CGM

,Marseille,

1

Subcontractingforlorries.Itsnotthe

sameactivity.

Shippersdonotwishtobefacedwithshippin

g

lineswhich

areinamonopolisticposition

becausetheywouldalsobeforwardingagents.

Beforebecominginvolvedin

logisticsitis

necessarytocontrolportterm

inals.

Thesimplestwaytobecome

involvedin

logisticsistopurchaseaforw

ardingagent.

njinetH

yundai,

ul,2002

Door-to-doortransp

ortundevelopedin

SouthKorea(10%atmost).

InSouthKoreaitisnecessarytouseacustoms

brokerforcustomsformalities.

Theshippinglinescoreactiv

ityisport-to-port

transport.

ONedlloyd,

gapore,2001

Feederingissubcontractedbecauseof

strongcompetition.

Freightforwardersinastrongpositiononthe

Europeanmarket.

OnTranspacificroutes,need

todevelop

logisticsinordertomeetship

perdemand.

Optimizinglinksbetweenfeedervessels

andmothervessels.

P&Osinvestmentinlogisticsisrecent,sothe

associatedrevenueislow.

ImportanceofPSAforthesuccessofthis.

rgreen,

Singapore,

1

SameasP&O.

Directlinksbothwithfreightforwardersand

shippers.

Evergreenlimitsitselftoperformingmaritime

transportLogisticsisnotourprofessionyet.

LSingapore2001

SameasP&O.

FreightforwardersaremoreefficientforLCL

thanshippinglines.

APLLogisticsisbasedinOaklandand

organizeslogisticsformajorshippers.

WhenNOLtookoverAPL,itsUSrail

subsidiaryStacktrainwasnotincluded.

L,Singapore,2001

SameasP&O.

Asashippingline,MOLisnotabletocompet

e

withthelargestfreightforwarders.

MOLhasbeeninvestinginlo

gisticsfor17

yearsbutthefunctionremain

slimitedand

variesonthebasisofcustomerdemand.

Freightforwardersareabletosupplythe

volumesto

fillvessels.

InSingapore,logisticsperformedfortwo

chemicalindustryclients.

Themainthingistoremain

focusedonour

fundamentalactivitywhichi

stransport.

A-CGM

,Hong

g,2001

Dedicatedriverbargeserviceonthe

Yangtze.

Chinesemarket:capturingfreightbefore

competitor

sbyopeningofficesinmainland

China.

Chinesemarket:priorityisto

capturefreight.

Thesecondstageistooptimizeflowsforthe

clientandinternally.

rce:Surveysbytheauthor.


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548 A. Fremont

the situation differs from one market to another, usually for historical reasons.Carrier haulage, for which it is very difficult to obtain figures, dominates in NorthAmerica due to the importance of dedicated freight rail services and in the UKwhere the transfer of port activity from the West coast to the East coast hasresulted in the decrease of the freight forwarding structure in England. Elsewhere,

in Europe and Asia, freight forwarders and shippers continue to play thedominant role in the organization of inland transport (Heaver, 2002a), and theproportion of inland transport which is directly controlled by shipping lines has

been estimated at roughly 30% (Notteboom, 2004b). But this figure concealsprofound differences between different shipping lines. In Le Havre, the represen-tative of MOL stated that the company controls 60%, and found it difficultto understand how some competitors such as CMA-CGM could manage withlower levels.

The involvement of shipping lines in the inland transport leg does not in anyway imply they are invariably purchasing inland transport undertakings. More

typically, they subcontract on a more or less long-term basis with specializedroad, rail or river transport, or feedering companies, because shipping lines tryto exploit competition between the many different modes and operators. Whenshipping lines announce the creation of a dedicated rail or river service, this isusually for commercial reasons, but their effective involvement in theseservices in terms of capital is marginal. This has been demonstrated by Gouv-ernal (2003) with regard to CMA-CGMs rail subsidiary Rail Link: like manyother rail services, RLs bid is the result of cooperation between the differentplayers in place. There is no new competitor in these services, nor any specificinvestment by a leader but rather a service integration strategy (Gouvernal,2003, p. 112). This integration involves strengthening the cooperation betweenthe actors, but does not introduce any new partners, nor does it result in anynew investments. The actors still concentrate on their primary activities. TheMetrans or Polzug rail services (Dubreuil, 2002) from Hamburg, or the Euro-pean Rail Shuttle (ERS) services jointly set up in 1994 by Maersk-Sealand andP&O Nedlloyd from Rotterdam, are examples, even if in the case of its subsid-iary ERS, the AP Mller Company have now entered a phase of limited invest-ment in traction.

Likewise, the widespread takeover of the functions of shipping agents and theless extensive integration of the functions of cargo handling by the shipping linescan also be interpreted as an attempt on their part to achieve better control of

container logistics. By taking over the functions of shipping agents, the shippinglines obtain more information about the origin and destination of the containers,which allows them to control end-to-end routing more effectively and set up aninformation system that covers their entire network, which also helps optimizecontainer flows. The same reasoning lies behind the dedicated terminal. Freightlogistics do not apply at the terminal, except perhaps marginally. This is becausethe amount of space on the quayside is too limited and expensive to locate group-ing/degrouping operations there. The goal of a terminal, whether it is a multi-clientterminal operated by a specialized freight handler or a dedicated terminal operateddirectly by a shipping line, is to transfer containers as efficiently as possible. This

involves the rapid turnaround of vessels and the provision of uninterrupted flowsto the inland transport systems (trains and barges) (Heaver, 2005). These aimsalways involve the optimization of container turnaround which we refer to as


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Container logistics is very closely associated with efficient vessel operation. Thelatter involves a specific and highly advanced type of logisticsvessel logisticswhich aims to optimize the revenue generated by the vessel by minimizing itsoperating costs. The shipping line is still a shipping line. It fits out and operatesvessels. Once in the port, the container ship resembles a three-dimensional jig-saw

puzzle with containers as its pieces. Good operation of the vessel, that is to say avessel with a high freight load factor when it is at sea and which at least covers itsfixed costs, begins on the land with the need to find the pieces that are necessaryto complete this jig-saw as quickly as possible. We conclude therefore thatcontainer logistics, even though it extends the shipping lines activities on theland, essentially is a maritime activity.

Is the Existence of Freight Logistics by Shipping Lines a Myth?

We suggest that freight logistics exists above and beyond container logistics. It

involves managing freight flows between producers and intermediate or endconsumers. If one judges from the websites of the shipping lines and freightforwarders or from the advertisements published in the professional maritimepress, this activity is nowadays widespread, mature and offered by all carriersand logistics providers to their clientele. Here too, qualification is necessary bothwith regard to shipping lines and freight forwarders.

For freight forwarders, this is their primary activity. Those we met (SDV in LeHavre, Singapore and Hong Kong; Schenker in Singapore; Rhenus Alpina andKuehne+Nagel in Antwerp) all emphasized how little the nature of their activitieshad changed. The activity of a freight forwarder is simple to define. Today, as in

the past, they derive most of their revenue from freight grouping/degroupingoperations. A freight forwarder makes its profit margin by grouping batches ofgoods from different centres for different consignees and by taking a commissionon maritime freight. It is a specialist in LCL containers. The other traditionalstrong point of the freight forwarder is its ability to manage all the customs oper-ations. This primary activity of the freight forwarder is clearly identified in theannual reports of the groups in Table 2. It represents, for example, more than 50%of Kuehne+Nagels turnover and almost a third of Panalpinas. These groupsperform the same type of activity with air freight.

Should the term logistics be used to describe a straightforward and longstand-

ing activity which has changed little in nature? According to one of our respondents(transcription of an interview with a representative of a freight forwarder in 2005),a number of methods engineers formalized the concepts of logistics between 1970and 1980 and:

gave a number of learned English words such as packaging or re-pack-aging to everyday operations. We have been dealing with goods thatcome from here and there for a long time. For a long time, we have beenadding value to the goods at certain points along their journey. (Interviewrespondent)

Supply chain logistics, which for the freight forwarder involves playing a rolebefore and after the production process and managing flows of goods within


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freight forwarders activity, in the view of all our respondents. Thus, logisticsaccounts for only 13% of Shenkers turnover, 11% of Kuehne+Nagels and 17%of Panalpinas. It is marginal in all cases. Should these groups inland transportactivities, which can be seen as a part of an end-to-end logistics service or moresimply as a straightforward transport service, be added to these? These inland

transport operations generate a considerable amount of turnover.Today, as in the past, the services provided by the freight forwarders are basedon excellent knowledge of the market which is derived from their networks ofoffices whose principal resource is their staff. Capital investment is very low,limited to a few warehouses for grouping/degrouping operations. The real trans-formation of the activity is the result of the emergence of a limited number ofglobal operators, which are able to offer their clientele services at global level asthe result of their worldwide network of offices. Information and communicationtechnologies have resulted in productivity gains and the creation of these globalnetworks. But it is not certain that the nature of the freight forwarding activity

itself has been radically changed.While the freight forwarders state that they perform little in the way of logisticalactivities, what is the situation as regards shipping lines for whom it is not the coreactivity? In the annual reports produced by the shipping lines, the turnover gener-ated by their logistics subsidiaries is presented as a total and it is not possible todistinguish between grouping/degrouping activities, inland transport servicesand logistics contracts. Thus, the situation can seem quite straightforward. Theregular shipping lines make direct contact with major shippers (the automobile,distribution or food processing industries) which provide them with regular largevolumes of full container load (FCL) containers. This special relationship betweena shipping line and one or several major shippers can account for as much as halfthe activity of a shipping agency in a given port. For the shipping line, there aremany benefits: vessels are guaranteed to be filled regularly over a long period oftime as the contracts generally cover one year, the origins and destinations ofcontainers are stable and it is possible to set up large scale assembly and distribu-tion services such as block trains or river barges. Most importantly, it is able tocontrol its container stock. At Antwerp, for example, MSC works for the Germanautomobile manufacturer BMW which on its own generates sufficiently largefreight flows to justify the existence of a block train that runs to Wackersdorf,in Bavaria (Containerisation International, 2004). Since 1990, this has been home toa BMW logistics centre for the redistribution of parts both within Germany

and abroad.Is it therefore correct in this context to use the term logistics? The shipping

line does not handle the freight directly; this remains entirely the responsibilityof the shipper. The shipping line earns revenue from a maritime transportservice which it controls and which it extends to the inland leg essentially viasubcontracting agreements with land-based partners. This satisfies logisticalimperatives which are dictated by the shipper which requests, for example,delivery of the containers to warehouses on a fixed day because it has itselfintegrated this flow in a process of production and/or distribution. But theactivity of the shipping line is still restricted to transport and does not extend

to freight logistics. A major share of the FCL container activity of the shippingline involves a container logistics outlook from which the shipping line drawsmajor advantages because its purpose remains essentially focused on maritime


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Apart from this direct relationship with shippers, the main clientele of ship-ping lines still consists of freight forwarders. This is because shipping lines areuninterested in LCL containers. They prefer to leave the responsibility for theseto freight forwarders with whom they do not wish to enter into direct competi-tion, for fear of losing traffic which might lead to an immediate reduction in

their vessels container load factor. When they engage in such activities, it isthrough subsidiaries which are entirely dedicated to this segment of the trans-port chain. In the opinion of a representative of CMA-CGM, the simplest way of

becoming involved in logistics is to purchase a company that is specialized inthe area, which indicates the lack of direct functional links between the activitiesof the shipping lines and those of freight forwarders. When logistics subsidiariesexist, they do not necessarily have special relationships with the maritime

branch of the group. For commercial reasons, the Bollor group has clearly sepa-rated SDV and Delmas as entities, because SDV is involved in worldwide transitactivities while Delmas is specialized in regular North-South lines, particularly

to and from Africa. The independence of these two activities has been clearlyhighlighted by the Bollor Groups sale of Delmas to CMA-CGM in June 2005,an example of vertical de-integration. Within the AP Mller and APL/NOLgroups, the logistics subsidiaries, Maersk Logistics and APL Logistics, do notautomatically choose the groups shipping subsidiary, and may use anothercarrier because of customer wishes or market conditions. For example, MaerskLogistics objective, according to its website, is to deliver integrated logisticssolutions to Maersk major customers. But shippers should at no time feel thatthey are faced with a single service provider which controls the entire transportchain, imposing not only transport and logistics solutions but also its tariffs(Heaver, 2002b).

The maritime groups which are really becoming involved in logistics in additionto their regular shipping lines remain very few in number: APL/NOL, NYK andMaersk. These shipping lines, which could be described as integrators, neverthe-less continue to nurture their relationships with freight forwarders as they needthe volumes the latter provide them with. For the other shipping lines, logisticsremains a limited, or at least an uncertain, activity which has more to do withadvertising slogans than reality.

Finding the Right Balance between the Three Types of Logistics

The objective of the regular shipping lines is to achieve the right balance between these three types of logistics in order to generate maximum profitswhile satisfying the needs of their shipper or freight forwarder customers. Ascan be seen in Figure 3, there are contradictions in a shipping lines activities

between the necessity of meeting its customers needs and on the other, the needto remain competitive in relation to its competitors by reducing costs. There arevery few levers which allow the shipping line to move in both directions at thesame time.Figure3. Vessellogistics,containerlogistics andfreightlogistics.As regards the choice between container logistics and freight logistics, the regu-lar shipping lines concentrate their efforts mainly on the first, as that provides

them with the greatest operational advantage as regards the management of theirmaritime lines. Container logistics involves a major investment in inlandtransport but does not necessarily mean real and profound involvement in


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Conclusion

The reality of the integration of the transport chain is a fact which has profoundly

modified the activities of the actors involved in transport. But the scale of thetransformations should not conceal the fact that the transport chain integrationprocess is far from complete, as demonstrated by the distinction made by ship-ping lines between vessel logistics, container logistics and freight logistics.

This observation means that the core activity of the shipping lines, namelyvessel logistics and container logistics, remains the priority even if the organiza-tion of maritime networks can only be understood with reference to their inte-gration in larger transport chains which include inland extensions. This leads toa new hypothesis: the process which shapes the competition between shippinglines continues to be based essentially on their maritime networks. These mari-

time networks are not uniform and remain a key factor in providing a shippingline with a durable comparative advantage over its competitors. This stressesthe importance for maritime researchers of not ignoring maritime networks as

Figure 3. Vessel logistics, container logistics and freight logistics


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also suggests that the true nature of vertical integration must be considerablyqualified.

Acknowledgements

The author thanks Professor B. Slack for his comments and suggestions on anearlier version of this paper and the two anonymous referees for their comments.

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