CAMBRIDGE, Mass.–Price is the deciding factor in the global ocean freight business, a current Simon-Kucher study reveals. The majority of carriers and forwarders rely on high discounts, not on value-driving sales activities, to generate business. Fewer price battles would do the industry some good, the study suggests.
The ocean freight industry has been suffering for years from immense competitive pressure, partially due to ruinous price battles caused by rising overcapacities. The prices for containers on certain routes have even occasionally fallen below the providers’ cost level. Carriers and forwarders need to change their sales process to not give away any services. The Ocean Freight Mystery Shopping Study 2014, conducted by the international strategy consultancy Simon-Kucher & Partners, investigated eight of the world’s leading carriers and forwarders from the US and China. The results are emblematic of the ocean freight market worldwide: Sales processes in this sector need serious improvement. Six of the eight tested providers do not utilize value-boosting measures (e.g. ones that emphasize product advantages or up-sell). On the contrary, almost all of them are willing to grant customers a discount on the initial price. “This is quite common,” says Dr. Philipp Biermann, Partner at Simon-Kucher. “Many salespeople are given incentives to sell higher volume, not higher prices. And so the phrase goes ‘better to grant a discount than to lose business’.”
As similar findings from a study conducted by Simon-Kucher in 2012 underline, the global market situation hasn’t improved since then. Many providers see customer talks as a means of gathering further order information. Global forwarders are particularly strong in this. Unfortunately, the sales talk typically ends at this point. While nearly all of the providers communicate on a highly professional level, only a few try to shift the talk away from price and towards product value through more comprehensive product descriptions and a discussion of product advantages, the study suggests.
“This is how they can set themselves apart from competitors and even achieve a price premium,” comments Sven Wengler, study leader and Director at Simon-Kucher.
More often than not though, providers are instead willing to grant discounts. In seven of the eleven quotations received, the mystery shopper was promised a discount on the initially offered price without giving any concrete details about the cargo owner. In three other cases, the providers were prepared to lower the price as soon as the cargo owner was revealed. The discount on the end price was very high in most cases — averaging between 10 and 30 percent.
The US outperforms China
Besides assessing the sales expertise, the study also investigated professionalism, offer completeness and comprehensibility. The American carriers aners and forwarders perform well in these aspects. Almost all US subsidiaries provided quotations with good to very good information. The quotations from the same companies in China, however, often lacked professionalism in terms of layout and more precise information about price components and surcharges. The Chinese offers were nearly always lacking important clarifying elements such as a glossary or general terms and conditions. “In some of our inquiries to China we received only a very brief e-mail with price information. We couldn’t tell which surcharges were covered in the offer. It was nearly impossible to compare the offer with others,” Wengler adds. And Fan Chen, Managing Director of Simon-Kucher’s office in Beijing, reflects: “The results are not surprising. In light of the much shorter history of China’s ocean freight business compared to the US and Europe, Chinese providers and subsidiaries still need to improve their performance regarding service level, standardization, and operation efficiency to counter the fierce global competition.”
Improving processes and expertise in sales
Biermann summarizes the study results: “The international ocean freight industry is highly competitive. Yet, there are many providers that differentiate too little from one another right now. It would be relatively easy for them to improve their sales processes and boost their expertise.” If sales were to play a bigger role by more effectively selling value, carriers and forwarders could achieve their target prices more frequently and thereby enhance corporate profitability and market competitiveness.
A summary of the study is available upon request.