Sad but true. Sometimes events like the Hanjin bankruptcy apparently need to happen for us to open our eyes and realize something is really wrong in their world. This happens to be the transportation industry.
Hanjin had been building up enormous amounts of credit over the years, had the lowest credit rating in its’ history and was shipping at a loss as there is great overcapacity in the ocean market. Sounds logical not to ship with them right? But no, Hanjin had 500,000 containers on its’ ships when the bankruptcy was announced. Shippers, ocean shipping customers, monitor the hell out of ocean shipping pricing, while actually it is the most economic way of shipping. The ocean market has seen the launch of mega ships which can carry astounishing amounts of containers yet the global trade has slumped in the last years. Everybody focuses at price and the lowest cost. Nobody saw it coming but nevertheless there it is at once, a major disruption of the supply chain and a big price impact on ocean tariffs and uncertaintity about what will happen to the goods on board, caught in the act.
People pretend they look at risks but they will fail at the underlying narrative. If you would have told your management you rather pay 100 USD per container more with another provider because Hanjin may go bankrupt, you would be a hero now but before the actually bankruptcy would occur you would need to make a very compelling case. Typically people don’t dive too deep into backgrounds of suppliers to create an overall picture and understanding what kind of partner this is. Partner belongs to the word partnership, unfortunately fewer and fewer people see their carriers and forwarders as partners, they just want to have the cheapest price. So, with such thinking you are not going to look at why it is so cheap, you are going to happily accept it.
So without partnership and strategical thinking the transportation industry does what it does best at this moment: managing business by putting out fires and trying to manage the situation as it evolves.
Of course many companies don’t put their eggs in one basket and many choose different options to ship their goods to manage risk, but why not steer clear completely from companies that are in such dire straits? Why take a chance?
It is quite simple, the pot of gold called cost savings and reduction of rates is just too good to resist. For some strange reason people think freight rates can be reduced all the time and they will relentlessly pursue it. It is the quickest way to personal gain in the form of a bonus or pay raise which comes down to just simple greed. Probably the same type of greed as with the ocean carriers who built and are building bigger and more ships.
Question is how many more Hanjin’s are out there and who will continue to be doing business with them until it’s too late.
About the author
About the Author
Pieter Kinds (41) is Director at ControlPay, a global Freight Audit provider and the CEO of TenderTool, a cloud-based logistics sourcing platform. Active for over 14 years, Pieter is eager to share insights, thoughts and experiences via his blogs.Follow ControlPay on Twitter More Content by Pieter Kinds