Carriers offered standardized services at competitive prices to retain market share. However, due to thin margins, they focused on the cost base, discarded revenue-generating features, and standardized processes.
Fremont, CA: The container shipping industry is experiencing commoditization, leading to a lack of differentiation and deteriorating schedule reliability and customer service. Companies should focus on providing unique, high-quality service experiences to maintain market share and reduce sales rather than relying on commoditization.
Commoditization of the Container Shipping Industry
Container shipping has been commoditized due to market conditions and competition. In the late 2000s, carriers offered standardized services at competitive prices to retain market share. However, due to thin margins, they focused on the cost base, discarded revenue-generating features, and standardized processes.
Reasons for Commoditization of Container Services
Now that we know about container services, we can investigate why they're commoditized.
Upsizing of Vessels and Excess Capacity
The commoditization of container shipping has mainly been due to carriers' fleet upgrades and augmentation, leading to the erosion of product differentiation. The boom in global trade and containerized transport led carriers to invest heavily in new cargo, resulting in a supply-demand imbalance. The recession in 2008-09 worsened this imbalance, forcing carriers to cut prices and offer standardized services, contributing to the rapid commoditization of the container shipping market.
Low Barriers to Entry
In the 2000s, the container shipping industry faced intense competition due to growth, potential, and easy shipping finance. Low barriers to entry allowed carriers to start businesses with fewer investments. Strategies like chartering vessels, selling and leasing options, leasing containers, and appointing agents increased product offerings but decreased variety. Despite high-value vessel assets, the industry remains unchallenged.
Space-Sharing Agreements and Container Alliances
Since the 2000s, carriers have collaborated through container alliances and slot-sharing agreements to increase vessel utilization and provide more comprehensive geographical coverage. This aims to optimize the asset turnover ratio and ROI of expensive vessels. However, since all carriers use the same boat, they offer the same product, leading to commoditization.
