Logistics

Welcome to the Revolution

On 22nd of December, 2016, Maersk, arguably the world’s largest ocean containership carrier (the argument coming from similar-sized 2M alliance partner MSC [Mediterranean Shipping Company]), began offering Chinese shippers the option of using Alibaba’s (arguably the world’s largest retail commerce company in gross revenue terms) OneTouch system. This move could well be as revolutionary as Malcom McLean’s launch of the containership industry just over sixty years ago. At first blush, allowing Chinese shippers to use the OneTouch system (Alibaba bought the system in 2010) doesn’t appear to be a game changer. Given the turmoil in ocean carriage with bankruptcies, mergers, changing alliances and of course larger containerships, how could this agreement stand to be more significant? Like a rock dropped in a small pond, no shore remains untouched by the event. The Brave New World of E-comm How might this play out? Alibaba and Amazon are locked in a global battle for e-commerce superiority. Amazon has already made its moves into logistics. While the well-publicized drones made waves, the e-comm giant has registered a freight forwarder business in China and leased aircraft to handle its own deliveries in the US. In a sense, positioning itself as its own 3PL with the potential to evolve into an independent 3PL of unprecedented magnitude. Alibaba is at its most basic level a “marketplace” or portal for sourcing goods. Although a vastly different business model, Alibaba has also been trying to leverage the portal’s transactional volumes by investing in the supply chain – arguably the most undervalued portion of the entire business model. The e-commerce giant already has established its own logistics service, Alibaba Logistics. This desire to command the yet unclaimed logistics portion of the e-comm transaction places Alibaba and Amazon in a very public head-to-head battle. Alibaba bought the OneTouch system in 2010, which is described as an “online platform providing professional import and export BPO (business process outsourcing) services for China’s small and medium-sized cross-border trade enterprises.” With the Maersk partnership, the OneTouch BPO adds a powerful component to platform – slots. This added feature makes the portal much more “one-stop-shopping” for sourcing in China and theoretically the brave new e-comm world beyond. The Middle Ground How this is going to work out for the transportation intermediaries is still uncertain, but there are a few signs. For example, Dr. Zvi Schreiber, CEO and founder of logistics technology Freightos, wrote of the Maersk-Alibaba collaboration, ”Global logistics is taking center stage like we’ve never seen before. This gritty industry has taken the background role in the past but now has the potential to affect the way every product is sourced, bought and delivered. Building on a massive 80% ecommerce market share in China, Alibaba’s new partnership with Maersk - which controls 25% of all container ships globally - means Chinese manufacturers and retailers have a direct line to US buyers, avoiding middleman markups.” But there are elements in place to suggest that the Middle Ground is still very complex. For example, the WCA, a network of independent freight forwarders, is the largest of its kind in the world with over 6,000 member offices in 189 countries. In December 2016, the group signed a co-operation agreement with Alibaba that will enable approved WCA members to integrate into the platform “for cross border e-commerce”. The WCA has by most measures a very disciplined network and thus the vetting portion, which is critical to making the system work, will largely fall on them. According to WCA president Dan March, the collaboration “will open vast new opportunities for business growth for independent freight forwarders.” At least in 2017, the collaboration is aimed at the main export markets of India, the UK and the USA. March, who became CEO of the group last year, has made developing e-comm a priority. Interestingly, the forwarder network has been building its own platform, WIN, for a number of years to provide a wide range of portal services for its members to assist in leveling the playing field with the mega-forwarder/3PLs. In early December, it was also announced that Alibaba and Hong Kong-based SEKO would also collaborate on the ‘OneTouch’ platform. With the agreement SEKO will offer services to any Alibaba customer or company “registered in Hong Kong or Taiwan shipping products to China or to any of the world’s major e-commerce markets.” SEKO isn’t alone or likely to be the last to sign an agreement with Alibaba. Another global forwarder, Flexport also has inked an agreement with Alibaba to participate in OneTouch. For the moment, Alibaba has been very select (four) in its collaborations, but what of the future and what will be Amazon’s counter? e-Questions The ramifications for an ocean carrier in collaboration with a sourcing company like Alibaba has far reaching impacts on logistics competition. For years, this argument has been offered by shippers, ‘why can’t ocean carriers work like FedEx or DHL?’. The speed, flexibility and seemingly seamless transfer of goods by integrators has been impossible for the ocean carriers to match. How could they? Speed? Ships are running slower now than three decades ago. And there are so many steps (Freight forwarders, NVOs between the source and the consumer). To a degree, like the integrators, ocean freight is more a commodity and less a specific item. However, integrators in many ways are the “retailers” of freight movement as opposed to ocean carriage more a “wholesaler”. For that reason, rates and services are derived from very different perspectives. Enter Alibaba. By funneling the sourcing to the ships, the initial phase bypasses the middle man and behaves more like an integrator. Voila – ocean carrier/integrator. If the Alibaba-Maersk partnership is successful, it most certainly will be emulated. Business like pro-sports is a copycat league. It’s easy to see the formula extended to the 2M Alliance (Maersk/MSC) but will it work for other ocean carrier alliances, say Ocean or The Alliance? And will it work in reverse? Can the sourcing work for freight moving the other way, say Europe or North America to the Far East? In any case, as the Alibaba and Amazon moves have already illustrated, e-comm is going to profoundly change the supply chain in ways yet unimagined – Welcome to the Revolution.
George Lauriat
George Lauriat

Editor in Chief

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