JOINT TRANSPORT RESEARCH CENTRE

Discussion Paper No. 2009-1
January 2009
Empirical Evidence forIntegration and Disintegrationof Maritime Shipping, Portand Logistics Activities
Antoine FRÉMONT
Director of Research at INRETS
Noisy-Le-GrandFRANCEJOINT TRANSPORT RESEARCH CENTRE

Discussion Paper No. 2009-1

Prepared for the Round Table of 5-6 February 2009 on
Vertical Relations between Transportand Logistics Businesses

EMPIRICAL EVIDENCE FOR INTEGRATION AND DISINTEGRATION OF MARITIMESHIPPING, PORT AND LOGISTICS ACTIVITIES

Antoine FRÉMONT
Agrégé de Géographie
Director of Research at INRETS
Noisy-le-GrandFRANCE

December 2008

The views expressed in this paper are those of the authors and do not necessarily
represent positions of the Inrets, the OECDor the International Transport Forum.

Frémont — Discussion Paper 2009-1 — © OECD/ITF, 20091

TABLE OF CONTENTS

1.

INTRODUCTION ............................................................................................................................5

2.

CONTAINERISATION AND HORIZONTAL AND/OR VERTICAL INTEGRATIONPROCESSES ....................................................................................................................................6
2.1. Historical segementation of the business involved ...................................................................6
2.2. The logistics opportunities that containerisation offers ............................................................82.3. Vertical and/or horizontal integration scenarios ..................................................................... 10
2.4. Limits of integration ............................................................................................................... 123.

A STRONG HORIZONTAL INTEGRATION DYNAMIC, LIMITED VERTICALINTEGRATION ............................................................................................................................. 13
3.1. Horizontal integration in practice ........................................................................................... 13
3.2. Limited vertical integration..................................................................................................... 16

4. THREE TYPES OF LOGISTICS ...................................................................................................... 20
4.1. The findings of a survey ......................................................................................................... 20
4.2. "Container logistics" and "vessel logistics" ............................................................................ 224.3. Are shipping lines interested in freight logistics? ................................................................... 24
4.4. Striking a balance between the three types of logistics .......................................................... 26
5. CONCLUSION ................................................................................................................................. 29
NOTES ................................................................................................................................................... 30
BIBLIOGRAPHY .................................................................................................................................. 31

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1. INTRODUCTION

In 50 years, containerisation has become the backbone of globalisation. That it has done so canbe attributed to the beneficial interaction of three broad types of factor: technical, economic andorganisational. In the beginning, containerisation was nothing more than a simple technicalinnovation. However, as an intermodal tool, the container paved the way for new and long-term
organisational models in the transport sector. These organisational factors challenged transport actors,
who had to redefine the demarcation lines between their respective businesses in order to bringreliable door-to-door transport chains with a global reach into operation. The opportunities that
containerisation offered would have remained a dead letter had they not coincided with the deep
upheavals in economic factors since the 1970s. The very strong growth in international trade in
manufactured products, systematically higher than growth in international trade overall -- itself higher
than GDP growth -- marks a deeper division in international labour, which was made possible only
through the support of a strong transport system.
Since its advent in the mid-1960s, containerisation has been bringing about the integration of thetransport chain (Brooks, 2000). At the same time, shippers’ logistics needs have been increasing
steadily as they take advantage of the opportunities offered by globalisation to develop theirproduction and/or distribution activities on an international scale and this necessitates synchronisationof their activities in space and time through the introduction of logistics chains. The management ofthese chains is a source of control as well as providing a source of profit for all -- forwarders, maritime
or inland transport operators, forwarding agents or logistics specialists -- who are involved in thethese chains (Heaver et al., 2001).
All international transport companies now claim to be logistics operators capable of providing acustomised response to the needs of their shipping clients. Meanwhile, logistics theorists, particularly
academics, demonstrate the organisational and economic advantages of putting in place logistics
chains integrated as closely possible with the creation of the value chain, from the pre-production of
goods through to the final distribution stage. What counts is no longer transport so much as theorganisation of logistics services for shippers. If they are to meet this demand, carriers would
therefore have to integrate a whole series of logistics functions, which would mean extending thescope of their activities far beyond their original core business. However, one does need to question
the term « logistics » and whether there actually is integration as is assumed to be the case today. Is an
ordinary port-to-port maritime transport service still essential? Does the shift to door-to-door transport
services mean real vertical integration of the different modes of transport by a single operator? Does
this integration lead to marginalisation of a firm’s original core business? Apart from actual transport,
is the management of logistics chains for a shipper right from pre-production through to end
distribution really as common as all that?
In order to answer these questions, we will concentrate on the biggest shipping lines. Today, they
are key actors in transport chains by virtue of the global networks they have deployed (Slack et al.,2002), the transport capacity they control - in 2007, over 80 per cent of containerised traffic wasconcentrated in the world’s top 20 shipping lines – and the opportunities that containerisation is giving
them to establish themselves as logistics providers (Evangelista, 2005), chiefly because they control
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the containers, which can be regarded as part of a vessel’s cargo hold. Containerisation has reportedlytransformed maritime operators into fully-fledged logistics firms capable of providing a basic door-todoor service but also of more extensive involvement in the management of entire logistics chains,
including tracking and direct operations on the cargo itself. Our question is: is the apparent
integration of logistics and port functions by shipping lines actually a reality? How does their corebusiness as maritime lines fare with the introduction of integration, which would tend to relegate
maritime transport services to second place and appears to be determined by the very nature ofcontainerisation?
On an essentially qualitative basis, in the absence of complete quantitative data, our aim is todemonstrate that the involvement of scheduled shipping lines as logistics providers in a logistics chain
is still very debatable. We will demonstrate that containerisation effectively paves the way for theprocesses of horizontal and vertical integration. However, the less doubt there is about horizontal
integration, the more we should be questioning vertical integration. An analysis of the activity ofmaritime groups is convincing in this respect. With this in mind, we propose to make a clear
distinction between « container logistics » and « freight logistics ». The first of these is an integral
part of the maritime business and is totally the responsibility of the shipping line. The second involves
the direct handling of goods over and above straightforward transport provision. This distinction
prompts some very strong reservations as to the actual vertical integration in the transport chain.

2. CONTAINERISATION AND HORIZONTAL AND/ORVERTICAL INTEGRATION PROCESSES

2.1. Historical segmentation of the businesses involved
Historically, international freight transport by sea required the involvement of many actors
specialised in a specific task who would work to provide a service on behalf of the shipper.
The first, and fundamental, difference between the transport modes is that sea transport isconfined to a port-to-port leg only. This is the business of the shipping line, be it the owner or simply
the operator of the vessel. On land, road, rail and inland waterway modes compete with one anotherbased on their respective advantages and disadvantages. Other differences between them are theirprinciples of organisation, innovation and intramodal competition. Historically, there has been no coordination among the various inland modes of transport either.
From this modal perspective, organising the transport of freight by sea is a highly complex task
given the number of intermediaries involved. The agent, if acting as freight forwarder, arranges
transport for his shipper client, matching demand with available sea transport supply provided by ashipping agent who works in port B on behalf of the shipping line if the latter does not have a presence
there itself. The shipping agent effectively gives the shipping line a presence in the port.

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Figure 1. Parties involved in the sea transport chain in shipping freightfrom point A to point D via ports B and C.

If negotiations are successful, a transport contract is drawn up to allow the actual shipping
operation to proceed. The latter involves actors in the port who see that the contract is followed,
particularly when cargo is being loaded and offloaded from the vessel, the very moment when thefreight change hands and responsibility for them passes from the freight forwarder to the shipping lineor vice-versa, with the port forwarding agent designated by the freight forwarder acting as
representatives for the shipper and the freight while the ship’s agent, designated by the shipping agent,
acts on behalf of the shipping line. In addition, for the shipping line, numerous vessel services areindispensable for a successful port call. These are dependent on trades that each have their own
history and organisation, which vary a great deal from one port to another.
Transporting freight by sea involves greater risk than using only inland transport precisely
because it requires the consecutive use of several modes of transport, each with a different operating
perspective. Martin and Thomas (2001) describe the port community involved in handling various
goods before the advent of containerisation as a system split up among different actors. This system
reflects the rigid division of the different functions and tasks designed to limit the responsibility ofeach for the goods in the event of damage. Despite that, responsibility can still be a grey area, chiefly
when the goods are being moved from ship to shore or vice-versa with different usages and customs in
different ports.

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In this system, which could be called “Fordist”, the international transport service is segmented
into different well-structured markets: maritime transport, pre- and post-shipment carriage and theorganisation of transport. In these markets people with demand meet suppliers and enter intotransactions with them. These are transactional markets.

2.2. The logistics opportunities that containerisation offers
While the intent, here, is not to give a detailed account of the numerous advantages ofcontainerisation, there are four major advantages that have opened up new opportunities forredesigning transport chains through horizontal and/or vertical integration by the various players in thetransport chain.
The first two such advantages concern mainly the sea leg of transport: port handling efficiency
and reduced transport costs per unit carried, made possible by the steady increase in size of container
ships. Higher volume maritime transport has facilitated consistent economies of scale over time,
culminating in the reduction in the cost of port-to-port transport by scheduled shipping lines.
The third advantage is that containers are intermodal tools that facilitate door-to-door services. In
the intermodal transport chain, while no individual mode loses its identity or its importance, the role ofeach is henceforward determined by the objectives of the system overall (Hayuth 1992). Intermodaltransport allows scheduled shipping lines to develop hub and spoke networks that span the globe andhigh-volume inland transport networks that interface with maritime networks. The reduction intransport costs no longer applies solely to the port-to-port leg; it is extending to door-to-door services
as well.
The fourth advantage is the development of logistics services. Yet, how can we define these?
Among the many definitions of logistics proposed is the following: all of the methods and resources
deployed to manage the physical flows necessary for the seamless operation of an activity, a firm etc.
Conventionally it applies to physical flows (transport and inventory management) but its methods canalso apply to financial and information flows. At the level of a firm, it is a function that organises thetransport and storage of goods from pre-production (raw materials procurement) to end point (productmarketing) » (Dufetelle, 1995). Associated with logistics is Supply Chain Management. The
definition of the latter may encompass logistics itself. The entire logistics chain extends from the
supplier to the end client. Production is therefore order led. It must enable the overall management of
resources in order to provide the best service for actual and forecast customer demand (ASLOG,
2002). Overall management is complex since it involves the management not only of physicaltransport flows but also of associated information flows as well as management of the interfaces
between the different actors in the chain from the producer to the end consumer, including thewholesaler and distributor and, of course, the transporter(s). In order to achieve its primary objective,
which is to reduce inventory as much as possible with the aim of just-in-time provision in order tohave « the right product in the right place at the right time », to quote the well-known slogan. Supply
chain management relies on information on everything from demand right up to the data necessary for
distribution including actual design and production (Damien, 2001). It needs to rely on an information
system.
A container operator that provides a door-to-door service or even just a quay-to-quay maritime
service is in the logistics business. His service as « just » a carrier aims to optimise physical flows ofgoods using an intermodal transport unit. Better handling, large ships, intermodal transport, higher
volume transport and the hub technique are complementary tools that serve optimisation. Yet they
concern only the actual transport segment.
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Apart from transport service provision, however good its performance, a container operator can
expand its logistics services for its client, the shipper. From operation and management of transport
supply, which requires container tracking via information systems, the operator can, in theory,
graduate to goods tracking, or to performing direct operations (labelling, repackaging, bringing tostandard, etc.) on goods when they pass through the warehouse stage, becoming even more
extensively involved in the logistics chain. The container operator then becomes a logistics provider
in the fullest sense of the term: it can turn its hand to all stages of production and consumption andtends to bring them all together into one integrated process: procurement, manufacturing, distribution,
consumption, waste recovery and recycling. Its aim, in this case is not so much to minimise transport
costs alone as to minimise total logistics costs while at the same time optimising logistics to meet theperformance requirements stipulated by its client (Savy, 1995).
In fact, containers are particularly suited to just-in-time management, which needs to meet setschedules and maintain reliable delivery. Depending on the quantities to be transported, which may
change in time and space, all that is needed is to adapt the number of containers. Containerisation also
allows the regular transport of small deliveries by consolidating goods from different origins in thesame container (LCL-Less than Container Load as opposed to FCL-Full Container Load).
Figure 2. Scheduled shipping lines: from control of boxes to logistics services

Frémont — Discussion Paper 2009-1 — © OECD/ITF, 20099

T. D. Heaver (2002a) lists the potential advantages of this type of integration of logistics
operations for a container operator, in this case a shipping line. Demand from any given client for one
activity may support another. Just as airlines build hotels in order to fill their plains, a container
operator may supply a logistics service in order to fill up its containers and secure the loyalty of its
customers. Economists mainly point out the opportunities to reduce transaction costs between the
different components of the logistics chain by internalising them and controlling the entire chain,
which makes for greater transparency. Another important source of synergies comes from shared useof an information system, which can again be expanded from the management of container flows togoods management.
Lastly, integration of the logistics function enables greater businessdiversification thus providing better protection against business and price fluctuations in one segmentof the chain or another.

2.3. Vertical and/or horizontal integration scenarios
In theory, containerisation prepares the ground for full vertical and horizontal integration of thetransport chain.
Integration may be horizontal. Containerisation encourages the emergence of very large shippinglines. This is because the economies of scale to be gained from the use of large ships and hubs are
only possible for lines that control sufficiently large volumes. For a maritime carrier there are threealternatives: alliances with other shipping lines, formerly competitors but now inescapable partners;
acquisition of a competitor; or, lastly, internal growth of the company. The objective of these threeforms of horizontal integration, other than a general desire to increase the volumes carried, may be toincrease market share on a given maritime route or, conversely, to extend the geographical coverage
offered by the line’s maritime networks. This latter solution does not provide any major economies ofscale at the beginning since becoming established in a new market is risky and means small market
shares at first unless a major operator with a presence in the same geographical sector can be bought
out wholesale. The hub technique is a less risky way of doing the same thing and of reaping all of thebenefits if volumes increase over time.
The choices available to shipping lines are more or less the same for cargo handlers and freight
forwarders, through, for instance, the establishment of networks of terminal or agencies. That said,
there is one major difference between forwarders and shipping lines or cargo handlers. The businessof the former requires primarily human resources to strengthen a network of agencies that facilitatecontact with client shippers while the latter must first make heavy capital investments to be able toensure maritime and landside links or large-scale handling operations.
Containerisation also facilitates vertical integration with a view to reaping all of the benefits ofintermodal transport, this time, rather than economies of scale. A multimodal transport operator(MTO) replaces a piecemeal system in which the shipper used to sign separate contracts with eachsingle-mode carrier by a single contract with a single multimodal operator, which will then be
responsible for all transport over the entire journey (P&O Nedlloyd, 2003). Theoretically, it could
replace all of the actors who ensure part of the transport operation, each from their own individual
business-specific perspective, and organise the most streamlined door-to-door transport possible froma single business perspective, even if that would not prevent it sub-contracting one part of the transport
operation or another to a specialist. Being able to respond to the needs of its clients with the widest
possible range of logistics services is not the only benefit for such an MTO, it should also benefit interms of its own internal organisation, which can be a source of savings.

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Figure 3 presents different theoretical scenarios for transport chain integration in which theshipping line is the key player in the integration process.
Figure 3. Transport chain integration based on shipping line examples
SHIPPING LINE
A

B

C

D

E

Shipping line
Verticalintegration

Shipping agent
Cargo handling company
Freight forwarder
Inland transport provider
Horizontal integration
throughmerger of D

When a shipping line integrates the functions of a shipping agent into its business, it can have its
own representation in ports and is no longer dependent on an external agent, who -- although he ofcourse works for the shipping line --can also offer his services to a competitor. Primarily this is acommercial investment to reinforce direct contact with the customers of freight forwarding agents or
shippers. Besides offices in ports, it requires human capital to be in touch with the local situation in agiven market.
When a shipping line integrates the functions of a cargo handler into its business, it can secure its
port operations, particularly in hubs, which implies perfect co-ordination of calls by its various motherand feeder ships. By taking over handling operations the shipping line is no longer dependent on ahandling company that it does not control and can schedule its ships through a terminal that is wholly
dedicated to its own operations. This requires substantial investment, which could only be justified bya high enough volume of port calls; otherwise, the dedicated terminal would be underutilised and losemoney (Musso et al, 1999; Haralambides et al., 2002; Cariou, 2003).
As well as the functions of shipping agent and cargo handler, a shipping line may further
integrate the transport chain by becoming an inland carrier, freight forwarder and/or logistics provider.
It then leaves the purely maritime and port segment to engage in the inland transport segment. The
shipping line moves away from its core business to encounter new sets of problems. It may become arail or road operator, which would probably give it better control over its container fleet traffic, but it
might lose the potential advantages it gains from competition between the various inland modes.
Likewise, in becoming a forwarding agent or logistics provider, it broadens its commercial range bydirectly addressing shippers. It captures some goods that will ensure that its ships are filled but at thesame time enters into potential competition with its own traditional clients, freight forwarders, andruns the risk of losing the goods.

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Containerisation facilitates the transition from transactional markets to relational markets wheretransport supply is no longer segmented but offers a door-to-door solution to shippers, which may
itself be integrated into a wider solution for the management of the shipper’s supply chain.
Containerisation paves the way for relational markets since it has standardised the conditions of doorto-door transport through intermodality.

2.4. Limits of integration
Integration of the transport chain is anything but straightforward. It calls into question longestablished relationships between clients and suppliers who go from being partners bound bycommercial contracts to potential competitors. In any given port, a cargo handler which yesterday
worked for shipping line A loses that line’s traffic as soon as it begins to handle its own cargo. To
offset the loss, the cargo handler must turn to other shipping lines and becomes a de facto competitorof the handling company set up by shipping line A. Likewise, will a forwarding agent who has
traditionally handled traffic for the line continue to do so if shipping line A develops its own freight
forwarding or customs brokerage service and is immediately faced with the temptation of poachingcustomers from its former forwarding agent?
For the shipper client, a horizontally and vertically integrated transport chain raises the problem
of competition in a situation that could turn into a monopoly. True, integration allows the shipper tobenefit from a door-to-door service and to outsource logistics so that it can concentrate on its corebusiness. This is the « one-stop shop » idea: a single container operator, carrier and/or logistics
provider offers its shipper clients a whole range of services to meet their logistics needs through its
worldwide agency network (Panayides, 2002). However, total outsourcing can also make shippers
heavily reliant on the service provider. Faced with a potential monopoly situation as a result ofsignificant vertical integration or with logistics services that could make them dependent comparedwith conducting their own activity, it is in shippers’ best interest to promote competition between thevarious actors in the transport chain.
Lastly, integration of the transport chain comes up against the financial, technical and humanresource capacity of the different actors involved. By definition, these capacities are limited anduneven across firms and this inevitably entails trade-offs between strategies which would promote theextension of geographical coverage or increase the volume of operations (horizontal integration) andstrategies which would lean towards broadening the company’s range of business and services(vertical integration). It all depends on market share, income and expected return on investment(Heaver, 2002a). In other words, it is impossible for one group – one forwarding agent, cargo handler,or shipping line – however powerful it may be – to do everything, everywhere, all at the same time. It
has to choose.
Hence, differentiated transport chains, integrated or otherwise, are being established and arestarting to compete with each other. While economists stress the greater potential efficiency ofintegrated chains compared with chains involving several contractors (Frankel, 2002 ; Robinson,
2002), which remains to be demonstrated in practice, let us simply bear in mind the variety of possible
situations.

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3. A STRONG HORIZONTAL INTEGRATION DYNAMIC, LIMITED VERTICALINTEGRATION

3.1. Horizontal integration in practice
Horizontal integration is not in doubt, whether in the case of shipping lines, cargo handlers or
forwarding agents/logistics providers. In 1980, the top 20 shipping lines accounted for 45 per cent ofworld container traffic capacity. In 2000, their share had risen to 52 per cent and to 82 per cent in2007. In the same years, the share of the top five operators rose from 17 per cent to 24 per cent andthen to 43 per cent. Since the year 2000, this concentration dynamic has been accelerating sharply.
The system of global alliances that are bringing together essentially Asian shipping lines also warrants
mention. Through mergers/acquisitions or alliances, the goal of shipping lines has been to set up
global maritime networks capable of providing high-frequency, high-capacity services to the world’s
three main economic centres, East Asia, North America and Europe.
Table 1. Share of the world’s top 20 shipping lines. 1979-2007: in % of world fleet,in million TEU
1979

1989

2000

2004

2007

20 LEADING SHIPPING LINES

44.1

32.8

52

62.3

82.3

of which European lines

21.5

8.6

21.2

28.2

45.5

of which North American lines

12.7

4.5

0

2.1

0

of which Asian lines

9.9

15.7

27.6

30.2

34.7

World fleet (million TEU)

0 951

2 995

6 490

9 088

11 629Source: Containerisation international, various issues.

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Table 2. The top twenty shipping lines in November 2008
In % of world fleet capacityin TEU*
Rank
Operator
1
Maersk2
Mediterranean Shg Co
3
CMA-CGM
4
Evergreen Line
5
Hapag-Lloyd
6
COSCO Container L.
7
APL
8
CSCL
9
NYK
10 Hanjin / Senator
Share of top 10
11 MOL
12 OOCL
13 K Line
14 Yang Ming Line
15 Hamburg Süd Group16 CSAV Group
17 Zim18 Hyundai M.M.
19 PIL (Pacific Int. Line)
20 UASC
Share of top 20
World totalof which
European shipping lines
Asian shipping lines

Nationality
Denmark
Italian/Swiss
FranceTaiwanGermany
China
Singapore
China
Japan
South Korea
Japan
Hong KongJapan
TaiwanGermany
Chile
IsraelSouth Korea
Singapore
United Arab Emirates

%
15.7
11.1
7.6
4.8
3.8
3.8
3.8
3.4
3.2
2.9
60.2
2.9
2.8
2.5
2.4
2.3
2.2
2.2
1.9
1.4
1.2
82.0
100.0
40.6
35.8

* The capacity of the world fleet is estimated at 12.9 million TEU.
Source: Alphaliner.
Table 3. The three major alliances in April 2008, capacity in million TEU
TEU million
CKYH

1.4

Grand Alliance

1.3

The New World Alliance

1.0

Members
CosconK LineYang Ming
Hapag-Lloyd
NYK Line
MISC
OOCL
APL
Hyundai
Mitsui OSK Lines

Source: K Line Annual report 2008.
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Similarly, since the end of the 1990s, a few terminal operators have dominated the market. They
have developed worldwide terminal networks always targeting the three main centres of the world’s
economy. They may be exclusively terminal operators, subsidiaries of shipping lines or may even still
be an integral part of a shipping line’s business without actually being a separate subsidiary. The
share of world cargo handlers in port handling operations was only 18 per cent in 1996. Ten years
later, it had increased to 70 per cent and investment programmes now in progress should further
reinforce the trend.
Table 4. World’s top 10 cargo handlers in 2006. In % of TEU throughput of world ports*

Rank
1
2
3
4
5
6
7
8

Operator
HPH
APM
Terminals***
PSA
DPW
Cosco
Eurogate
Evergreen
MSC

9
SSA Marine
10
HHLA
Share of top 10
Share of world operators

Nationality
Hong Kong
Denmark
Singapore
Dubai
China
Germany
TaiwanItalian/Swiss
UnitedStatesGermanyCorebusiness
TO/S**
TO
TO
TO
TO
S
TO
S
S
TO
TO

%
13.8
11.8
10.7
9.4
5
2.7
2,1
2
1.7
1.5
60.7
70.7

* 443 million TEU handled worldwide in 2006.
** TO = Terminal Operator
S = Shipping line*** APM Terminals is the stevedoring subsidiary of the AP Möller group, which also owns
Maersk, the world’s top shipping line. APM Terminals has a close working relationshipwith Maersk, but does not work exclusively for it.
Source : Drewry, 2007
Lastly, a few major freight forwarders/logistics providers are making their presence felt on aworldwide scale (see Table 8). They offer their clients worldwide logistics services using their vast
network of agencies. These have more often than not been set up through buyouts of local firms,
triggering a vast concentration dynamic in the sector. Their activities can range from express courierdelivery to total management of a shipper’s supply chain. Originally, their business centred on freight
forwarding. Unlike shipping lines and cargo handlers, their activities are not capital intensive.

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3.2. Limited vertical integration
3.2.1. Advantages long recognised
As evident as it is that horizontal integration is now a reality, it remains to be demonstrated that
this is the case for vertical integration. Having said that, theoretically, the advantages of moving
towards vertical integration are obvious. Let us take the example of shipping lines. Vertical
integration today would offer them a way of gaining comparative advantages over their competitors,
particularly through the development of logistics services, for two fundamental reasons. It is
becoming more difficult, if not impossible in the long term, for shipping lines to generate sustainablycompetitive margins by reducing maritime costs, with the cost reductions obtained from using larger
vessels being so systematically wiped out by dropping freight rates when new capacity is brought into
operation… except when there are unusual conditions such as very strong growth in world exports,
powered mainly by China. (Panayides and Cullinane 2002; Lim 1998). The current economic andfinancial crisis has brought an abrupt end to a very long cycle of growth. Secondly, for door-to-door
services, the maritime cost is secondary; an estimated 23 per cent of total transport costs (Stopford
2002). Furthermore, the increase in vessel size automatically tends to accentuate the transfer of costs
from maritime to landside transport (Notteboom 2002, 2004a). Shipping lines stand to gain doubly
from vertical integration: it would enable them to control non-maritime costs, but also to consolidate
their position as logistics operators in their own right so that they could gain a comparative advantage,
hence sustainably competitive margins, on land when it seems impossible for them to do so at sea.
Rather than merely an advantage, vertical integration appears to be a necessity.
Transport chain integration by shipping lines is not a new idea. As far back as 1966, the thenpresident of the Swedish Shipowners Association said that the time had come when the business of
shipowners could no longer stop short at maritime transport, but should also encompass inlandtransport. If shipowners wished to confine themselves to maritime transport, they would slowly
realise that they had become mere cogs in a giant transport machine. They should begin to seethemselves as transport companies, not as purely maritime carriers and should forge close
relationships with the other links in the transport chain.1
However, outside of this long-term vision, vertical integration processes only really began toestablish themselves from the 1980s when transport chain integration could be considered, even then,to be the great idea of the decade. This period saw mergers and acquisitions between groups involved
in different stages of the transport chain. The American Sea-Land line was bought out in 1986 by the
US rail company CSX after the collapse of McLean’s Reynolds group. CSX along with APC, thenowner of the APL shipping line, were among the biggest rail operators in the United States. The P&Ogroup had a land arm, POETS, which provided pre- and post-shipment container haulage and routes
over the English Channel as well as warehousing and distribution. The Dutch shipping line, Nedlloyd,
developed the « Nedlloyd Flowmasters » concept at this time in order to show that it handled freightand information flows equally well2. Conversely, forwarding agents and road hauliers became
shipowners. The most well known of these at the time was the Swedish company, Bilspedition, which
acquired control of Cool Carriers, the world’s largest reefer shipping line, in 1988; it acquired theleading Swedish line company, Transatlantic, the same year and, in 1989, went on to buy out GorthonLines, the main exporter of Swedish forestry products by sea; finally, it took over Atlantic Container
Line, one of the main consortia in the North Atlantic, by acquiring the stakes of CGM, Wallenius andCunard.
Did these mergers finally deliver cohesive groups? At the end of the 1980s, it would be moreaccurate to say that there was diversification of the major maritime groups, with the underlying
objective of potential integration of the transport chain (Gugenheim 1990). What was the position 15
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years on? Some of the examples misfired. Bilspedition’s venture into maritime transport ended in
1994, only five years after its acquisition of ACL. The US rail group, CSX, parted with Sea-Land in
1999, when it tired of the very poor financial results of its maritime subsidiary. In 2004, Hapag-Lloyd
totally withdrew from all logistics activities to focus solely on maritime containerised transport. It
seems that integration does not always bring success.
3.2.2. In 2007, vertical integration still just as limited
In 2007, shipping lines, or the maritime groups they are part of, that have developed real logistics
subsidiaries -- i.e. subsidiaries that claim to be capable of providing freight forwarding, land haulage,
or logistics services -- are few. Of the top 12 shipping lines in 2007, all, with the exception of HapagLloyd proclaim loudly and clearly that they are logistics providers. However, an analysis of theirannual reports shows that only three of them have a logistics subsidiary of any size, taking turnover asa measure of size: AP Mőller, NYK Line and APL/NOL. The turnover of Maersk Logistics has
increased substantially following the acquisition of the maritime activities of P&ONedlloyd in thesummer of 2005. Based on the information available from their annual reports, compared with theoverall turnover of the groups to which they belong or even with the turnover generated by shipping
line activities, the turnover of these logistics subsidiaries clearly accounts for a really significant sharein only two companies: the Japanese group, NYK and to a lesser extent the AP Möller group.
Otherwise, logistics is a secondary activity.
In contrast, in 2007 just as in the 1980s, the vertical integration strategies followed by shippinglines have been confined mainly to handling operations (Slack et al., 2005) and, in North America, tothe operation of rail bridges made possible by the US Shipping Act of 1984.
Table 5. Subsidiaries involved in port handling, intermodal transportand logistics activities of shipping lines in 2007
Group
AP Möller Group
CMA-CGM Group

Shipping line
Port handlingMaerskAPM Terminals
CMA-CGM

China
Shipping CSCL
Container Lines
Neptune Orient Lines APL
NYK Group
NYK
MOL
Hanjinshipping
OrientOverseas OOCLInternational

China
Shipping
Terminal
APL Terminals
Terminal & Harbour
services

Mitsui OSK Lines
HanjinIntermodal
ERS
RSC
ProgecoLTI France
CMA Rail

Logistics
Maersk Logistics
CMA-CGM Logistics
TCX
Multimodal
Logistics
China
Shipping
Logistics
APL Logistics
NYK Logistics
Logistics
Hanjin Logistics

Terminal operations

OOCL Logistics

Source: Annual Reports of shipping lines.

Frémont — Discussion Paper 2009-1 — © OECD/ITF, 200917

Table 6. Logistics activities of the top 12 shipping lines in 2007
Share ofmaritime line
and logistics
Logistics
in total
subsidiary
activity%*

Share oflogistics in
total
activity%*

Share oflogistics incontainer
activity%*

Shippingline

Parentcompany

MaerskSealand
MSC
CMA-CGM
Evergreen
Hapag Lloyd
Cosco
APL
China
Shipping
NYK Line
HanjinMOLOOCLAP Moller

Yes

52,0

5,8

11,2

NOL

No
Yes
No
No
Yes
Yes

100
100
98,5
100
?
100

?
2,7
0?
0
?
15,1

?
2,7
0?
0
?
15,1

Yes

?

?

?

Yes
Yes
Yes
Yes

48,2
81,5
39,6
98,2

21,0
?
3,2
?

40,8
?
8,0
?

*: in % of turnover.
? no data.
Source: Annual Reports 2007.

3.2.3. Comparison of the logistics business of shipping lines and freight forwarders/logistics
providers
Two main types of organisation can be identified. In the first of these, the shipping line is a
subsidiary of a larger consortium-type group which, in addition to its shipping line subsidiary, may or
may not have a logistics subsidiary, but also has a handling subsidiary. In this case, the link between
the maritime subsidiary, the handling subsidiary and the logistics subsidiary is not necessarily direct.
The three subsidiaries may conduct their business independently of each other and work for different
clients. They operate as profit centres. The AP Möller and NOL groups are typical examples of thistype of organisation and, to a lesser extent, so is CMA-CGM with its intermodal and logistics
subsidiaries. The turnover of these subsidiaries can be identified clearly from company annual reports.
Conversely, in the second type of organisation, it is impossible to identify the activities of logistics
subsidiaries from the annual reports, which suggests a low level of activity and/or close or virtually
exclusive relationship(s) with the maritime parent company. Handling is not set up as a subsidiary: itis therefore considered not as a profit centre but as a cost item in the integrated management ofmaritime lines.
A comparison of the turnover for the logistics activities of maritime groups and the world’s
largest freight forwarders/logistics operators also shows the limits of vertical integration. The logistics
subsidiaries of maritime groups are dwarfed by the world’s largest logistics operators (Tables 7 and 8).
Their overall turnover is very substantially lower than the overall turnover of logistics operators. If we
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take into account only the maritime business of the latter, where that information is provided, theyremain substantially dominant. Only NYK Logistics and probably Maersk Logistics attain a level ofbusiness comparable to that of groups like Shenker or Panalpina. The predominance of freight
forwarders /logistics operators can be seen, too, in terms of agency presence worldwide: the networks
of freight forwarding/logistics companies are much thicker on the ground than networks of thelogistics subsidiaries of shipping lines.
Lastly, the scope of activity covered by the logistics subsidiaries of maritime groups is not clear.
The annual reports of freight forwarding/logistics companies draw a distinction between
straightforward transport operations, differentiating between maritime and air, and inland transport(intermodal) and logistics, i.e. supply chain management on behalf of a shipper. This is a distinctionthat is not made by the maritime groups. One therefore has to ask what the term “logistics” means tomaritime groups.
Table 7. Turnover by main segment of activity (in USD billion), number of agencies
and number of TEU carried (in millions) by shipping lines in 2007

Group
AP Möller
NYK
CMACGM
NOL/APL
MOL
Hanjine
OOCL

51.2
20.7

Maritimeshipping lines
21.1
5.2

11.8
8.6
8.5
6.5
5.6

11.5
6.7
?
?
?

Total

Terminals

Logistics

Agencies

2.5
1.1

3
4.3

200
291

TEU
Million
13.6
?

?
0.6
?
?
?

0.3
1.3
?
?
?

650
95
120
200
100

7.7
4.7
?
3.6
4.6

Source: Annual Reports 2007.
Table 8. Turnover by main segment of activity (in USD billion), number of agencies
and number of TEU controlled by the largest freight forwarders in 2007

Total
DHL
38.3
Logistics*
Kuehne&Nagel 19.1
20.5
Shenker**
7.6
Panalpina

Freight
forwarding
Intermodal Logistics
Air
Maritime

Agencies

TEU
Million> 2000
8.4
4.5

5.4
7.6
9.8

3.7

2.8

5.3
2.8
8.4
0.0

19.2
4.1
2.3
1.2

> 750
> 1500
> 500

2.8
2.6
1.4
1.2

*: DHL Logistics is a subsidiary of the Deutsche Post group.
**: Schenker is a subsidiary of the Deutsche Bahn group.
Source: Annual Reports 2007

Frémont — Discussion Paper 2009-1 — © OECD/ITF, 200919

4. THREE TYPES OF LOGISTICS

4.1. The findings of a survey
Between 2001 and 2004, we conducted a series of interviews in Europe and East Asia withshipping lines asking them systematically to provide a definition of their activity and a description of
the changes in their relations with forwarding agents. These surveys are not exhaustive, but they doprovide some clear indications. The table below shows systematically the content of the answers foreach shipping line with which we met. It shows the extent to which, despite the widespread but
unsupported idea that containerisation is driving an ongoing revolution that is giving birth to a single,
all-encompassing entity known as “logistics”, each actor’s respective activities remain very clearly
identified and separate and their content is only changing slowly.
Table 9. Inland carriage, relations with clients and definition of logistics:
some viewpoints of shipping lines
Your management of pre- and Your relations with
post-shipment carriage
forwarder clients
MSC
AntwerpTake
advantagecompetition between
carriers.

shipper and/or What is logistics?

of Forwarding agents are the main clients.
road

Provision of door-to-door service on
the basis of client demand.

Direct contact with large shippers.

2004
Dedicated block trains in acontract with BCargo.
HanjinDevelopment of inlandtransport by the shipping line.

Le Havre
2001

Limitation of inland transport
by forwarding agents.

Partnership with forwarding agents.

Optimum management of container
fleet.

No transit unit and no customs
operations except at the explicit requestof clients.

Special relations with ten
local road carriers.
MOL
Le Havre
2001

20

60% of land transport
controlled by shipping line,
compared with an average of
40% for the port of Le Havre.

60% of clients are forwarding agents and Optimised management of container
40% are direct clients, most often large
fleet through the European Logistic
shippers (Danone, Carrefour).
Center of Rotterdam. Which implies, if
possible, control of inland transport
Need to have some clients who are large through carrier haulage.

Try to develop transport
under the control of theshipping line, including when
the client is a forwarding
agent.

forwarding agents (Shenker), whoprovide regular volumes.
Do not encroach on the territory of
forwarding agents.

Frémont — Discussion Paper 2009-1 — © OECD/ITF, 2009

P&O
Nedlloyd

Subcontracting with large
road haulage companies thathave a network of agencies
throughout France.

Le Havre

90% of containers handled are FCLs,
mainly with forwarding agents.

Optimum management of container
fleet. Manage imbalances in shipping
flows.

LCL activity is marginal. This is handled
by P&ONedlloyd GLD (Global Logistic
Distribution)

2001

MaerskLe Havre

Has subsidiary Macadam for Maersk Logistic is a separate entity fromroad transport but outsourcing Maersk Sealand.
predominates.

Optimum management of container
fleet.

Consolidation (LCL) is carried out by
forwarding agents, who are very large
clients of Maersk.

andMarseilles
2001

Before integrating logistics, a need to
CMA-CGM Outsourcing for road haulage. Shippers do not want to have to deal
“It is not the same business”. with shipping lines that have a monopoly control port terminals.
position because they would also be
Marseilles
freight forwarders.
To integrate logistics, the simplest
method is to purchase a freight2001
forwarder.
Hanjin and Weakness of door-to-door
service in South Korea.
HyundaiSeoul

In South Korea, the need to use acustoms declarant for customs
operations.

The maritime line’s key activity is
port-to-port service.

Strong position of forwarding agents on
the European market.

On transpacific, need to develop
logistics to meet shippers’ demand.

10% at most.

2002
P&O

Outsourcing of feedering
since competition is strong.

Nedlloyd
Singapore
2001

Maximise relations between
feeders and mother vessels.
Importance of PSA for the
success of this process.

P&O’s investment in logistics is recent
and still generates little income.

Same as for P&O.

Direct relations with both forwarding
agents and shippers.

Evergreen confines itself to the role ofmaritime carrier. Logistics is not ourbusiness.

NOL

Same as for P&O.

Forwarding agents are more efficient for
LCL than shipping lines.

APL Logistics is based in Oakland andorganises logistics for large shippers.

Singapore
2001

When NOL took over APL,
this did not include the US
rail subsidiary Stacktrain.

Evergreen
Singapore
2001

Frémont — Discussion Paper 2009-1 — © OECD/ITF, 2009

21

MOL

Same as for P&O.

Singapore2001

As a maritime line, MOL cannot
compete with the biggest forwarding
agents.

MOL has invested in logistics for
17 years but this activity remains
limited and adapts to client demand.

Ability of forwarding agents to provide
volumes to fill vessels.

In Singapore, logistics provided for two
clients in the field of chemicals.
“The key is to remain focused on thecore business, which is that of carrier”.

CMA-CGM Dedicated barge service on
the Yangtze.
Hong Kong

Chinese market: capture freight more
rapidly than competitors by opening
commercial agencies in continental
China.

Chinese market: priority is to capture
freight, and then to optimise flows forclients and inside the company.

2001

Source: surveys.
4.2. “Container logistics” and “vessel logistics”
For shipping lines, the logistics that count are “container logistics”. This consists of optimising
the management of the container fleet. This fleet represents, along with vessels, a substantial amountof fixed capital. For a container vessel to operate effectively requires two to three times morecontainers than the vessel’s capacity, with one set of containers on the vessel at any given time andtwo others on shore. The cost of this large investment can be kept proportionately lower through better
management of turnaround times and the time that containers are immobilised on land.
To optimise the repositioning of containers on trade routes that are by nature unbalanced,
shipping lines must not lose control of container flows, including on inland segments, which explains
the development of the practice of inland haulage of containers by shipping lines (carrier haulage).
This allows shipping lines to triangulate3 and consolidate pre- and post-shipment carriage using moreadvantageous transport modes while adapting commercial objectives to logistic constraints (Gouvernal
2002). We observe in our survey that when the pre- and post-shipment carriage is carried out mainly
by sea via feeder vessels as in Singapore, the approach of shipping lines remains identical, i.e. tooptimise co-ordination between mother and feeder vessels to ensure the turnaround of containers andmore fully loaded vessels. These techniques of triangulation and co-ordination are easier to implement
when they are based on major maritime networks and large volumes that multiply the possibilities ofrepositioning (Gouvernal 1998).
On the other hand, inland haulage of containers by freight forwarders (merchant haulage) does
not allow the shipping line to have full control of information on its containers, which considerably
hampers the turnaround of containers. At the same time, however, it is not willing to impose financial
penalties on a client that keeps its containers too long out of fear of losing its business.
The development of intermodality and door-to-door transport under the responsibility of shippinglines is taking place to the detriment of the activity of forwarding agents, who are in fact losing sometheir organisational power over the entire transport process. However, what interests shipping lines is
not so much to challenge forwarding agents as to optimise their container flows before and after sea
carriage on their vessels. What is more, the situations differ from one market to another, most often forhistorical reasons. Carrier haulage, for which it is very difficult to obtain figures, predominates in
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North America because of the importance of dedicated rail freight services, and in the United
Kingdom, where the shift in port activity from the west to the east coast has led to the disappearanceof the network of UK forwarding agents. Elsewhere, in Europe and in Asia, where forwarding agentsand shippers continue to play the dominant role in organising surface transport (Heaver 2002), theshare of inland transport directly controlled by shipping lines can reasonably be estimated at
approximately 30% (Notteboom 2004b). But this average conceals deep-seated differences between
shipping lines. In Le Havre, the representative of MOL stated that his company has a rate of 60% andwondered how some competitors, such as CMA-CGM, manage to survive with low rates. Thisdepends on the differing extent of involvement of companies in a given market and, with regard to
CMA-CGM, on some very recent successes, which are still limited mainly to the strictly maritime
component.
The involvement of shipping lines in the inland component of transport in no way means thatthey are buying up inland transport companies. It is limited more simply to more or less long-term
outsourcing contracts with companies specialised in road, rail or waterway modes or feedering
companies, for shipping lines take full advantage of the competition existing between many operators.
When shipping lines announce that a dedicated rail or waterway service has been opened, it is mostoften for commercial reasons, but their actual involvement in terms of capital in these services ismarginal. E. Gouvernal (2003) shows that this is true with CMA-CGM’s rail subsidiary Rail Link:“Like many other rail services, RL’s service provision stems from co-operation between the various
existing actors. There is no new competitor in these services, nor any specific investment by a leader,
but a strategy for integrating the service” by strengthening co-operation between the actors involved indifferent activities and who continue to focus on their core business. The Metrans and Polzug rail
services (Dubreuil 2002) from Hamburg and the services of the European Rail Shuttle (ERS)
established jointly since 1994 by Maersk-Sealand and P&ONedlloyd mainly from Rotterdam have thissame organisational rationale even though in the case of ERS, Maersk has now entered into a phase ofinvestment in traction.
Similarly, the extensive integration of the activities of shipping agents by shipping lines and theless widespread integration of stevedoring activities can also be interpreted as the desire of theseshipping lines to gain better control of container logistics. By controlling the activities of shipping
agents, shipping lines have more information on the origin and destination of containers, whichenables them to have better control of seamless transport services and to set up an information systemcovering their entire network and thereby, once again, to optimise container flows. In the case of a
dedicated terminal, the rationale is identical. No aspect of freight logistics take precedence over theterminal, except at the margin, for dockside space is too limited and scarce to develop
consolidation/deconsolidation operations there. On the other hand, the objective of a terminal, whether
it is multi-client and run by a stevedoring specialist or is dedicated and run directly by a shipping line,
is to minimise the negative effects of breaking bulk, which is to be “streamlined” as much as possible
so that container flows to or from the vessel and the various inland transport modes will take placevirtually seamlessly. The key priority is to ensure that nothing disrupts the turnaround of container
vessels, which have very high operating costs, or that of large-volume inland carriers (trains andbarges), although this is less important (Heaver 2005). The process again involves this same
optimising of container turnaround that we call “container logistics”.
Container logistics is very closely linked to the efficient operation of vessels, which also
corresponds to a specific and widely studied type of logistics, i.e. vessel logistics, which consists of
optimising the cash flow generated by a vessel while minimising the costs of operating it. Shippinglines remain shipping lines. They fit out and operate vessels. Container logistics is quite closely related
to vessel logistics. Once a container ship reaches port, it becomes a puzzle that is broken up into as
Frémont — Discussion Paper 2009-1 — © OECD/ITF, 200923

many boxes as it contains. The efficient operation of a container vessel, i.e. which enables it to sailwith a high load factor and at least cover its fixed costs, begins on shore by bringing together as
quickly as possible the pieces needed to put together again this never-ending puzzle. Container
logistics, even if it broadens the activity of shipping lines to include inland components, is primarily
based on a rationale of supporting maritime shipping.

4.3. Are shipping lines interested in freight logistics?
4.3.1. The logistics of freight forwarders
There is, consequently, beyond “container logistics”, “freight logistics”, which consists ofcontrolling flows of freight and even transforming it in a process guided by various needs, ranging
from those of producers to those of intermediate and final consumers. If we base our assessment on theInternet sites of shipping lines and forwarding agents and advertising in the maritime press, thisactivity would now appear to be widespread, to have reached maturity and to be made available toshipper clients by all carriers and logisticians. Here again, we must take this with a certain degree ofcaution both with regard to shipping lines and freight forwarders.
Let us begin with freight forwarders, since this is normally their business. Those with whom wemet (SDV in Le Havre, Singapore and Hong Kong; Shenker in Singapore; Rhenus Alpina and Kuehne& Nagel in Antwerp) all focused on the minor extent of the changes that have taken place in thecontent of their business. The business of forwarding agents can be defined simply. Both now and in
the past, they make their money mainly by carrying out consolidation/deconsolidation operations on
freight. Forwarding agents make a profit by reconsolidating consignments in a single container forvarious shippers and consignees and by charging a commission on maritime freight. They are
specialists in LCL containers (Less than Container Load). The other traditional strong point offorwarding agents resides in their ability to manage all customs operations. This “primary” activity offorwarding agents can be seen to be clearly identified in the annual reports of the groups in Table 3.
For example, it accounts for over 50% of the turnover of Kühne and Nagel and nearly one-third of theactivity of Panalpina. These groups perform the same type of activity for air freight.
Should we use the term “logistics” to describe a simple and longstanding activity the content of
which has ultimately not changed much over time? According to one of the people we spoke with, anumber of planning engineers have formalised concepts of the 1970s-1980s and “given a number oftechnical sounding words such as packaging or re-packaging to ordinary operations. But we have beenhandling freight from here and elsewhere for a long time. For many years, we have been adding value
to freight at certain points on its itinerary. What does labelling lipstick destined for the United Statesentail? A handling worker who is paid the minimum wage takes the lipsticks out of cartons, puts themon a conveyor belt which goes through a machine that prints information on the lipsticks, and at theother end another worker puts the lipsticks back into the carton. That’s all there is to it.”4
According to everyone that we interviewed, the importance of supply chain logistics, in which
forwarding agents are positioned before and after the production process and manage flows of goodson the basis of the parameters provided by their shipper clients, must not be overestimated in theactivity of forwarding agents. In fact, logistics only accounts for a minor percentage of the turnover ofgroups that have historically focused on maritime forwarding. Should this also include these groups’
inland transport activities, which can be interpreted either as being part of seamless logistic services ormore simply as a mere transport service provided? These inland transport operations generatesignificant turnover.

24

Frémont — Discussion Paper 2009-1 — © OECD/ITF, 2009

Table 10. Share of the various activity sectors in the turnoverof freight forwarders/logistics operators in 2007. As a %.

DHL Logistics
Kuehne&Nagel
Shenker
Panalpina

Total
100.0
100.0
100.0
100.0

Freight forwarding
Air
Maritime
21.9
14.1
23.6
39.8
47.8
0.0
48.7
36.8

Intermodal Logistics
13.8
50.1
14.7
21.5
41.0
11.2
0.0
15.8

Source: 2007 Annual Reports.
Today as in the past, the services provided by forwarding agents are based on an in-depth
knowledge of the market through networks of agencies whose staff is their main resource. Capital
investment is very low, being limited to a few warehouses for consolidation/deconsolidation
operations. The real change in the business is due to the emergence of a limited number of global
operators who are able to offer their clients worldwide services through a global network of agencies.
Information and communication technologies have made it possible to achieve productivity gains andestablish these global networks, but it is by no means certain that the content of the business of
forwarding agents has radically changed.
4.3.2. Logistics and shipping lines: a myth?
Since freight forwarders admit that they do not do much logistics, what about shipping lines, forwhom this is not their core business? In the annual reports provided by shipping lines, the turnover
generated by the logistics subsidiary is considered as a whole, without the possibility of distinguishing
between consolidation/deconsolidation activity, inland transport services or logistics contracts. In fact,
the situation seems fairly simple. Line shipping operators develop direct contacts with large shippers(of automobiles, consumer goods or agri-food) who provide them with regular and large volumes of
FCL containers. This privileged relationship between a shipping line and one or more large shippers
can account for up to half of the activity of a shipping agency in a given port. For shipping lines, thishas many advantages, i.e. the guaranteed and regular filling up of vessels over a long period since thecontracts are generally for one year; identical origins and destinations of containers over time, whichmake it possible to ensure the continuity of maritime service; the establishment of large volume inlandtransport for pre- and post-shipment carriage, such as block trains and barges; and, lastly, full controlof the container fleet. In Antwerp, for example, MSC works for the German car manufacturer BMW
which generates sufficiently large flows to justify its own block train to Wackersdorf, Bavaria5. Thishas been the location since 1990 of a BMW logistics centre for the redistribution of parts both inside
Germany and from and to foreign countries.
Does this mean that we should speak of logistics in this case? The shipping line does deal withthe freight directly, which is entirely the responsibility of the shipper. The container remains sealed.
The shipping line makes money by providing a maritime transport service that it controls and that it
extends to the inland segment essentially through outsourcing agreements with land-based partners.
This service meets logistic needs dictated by the shipper, who requests, for example, that containers bedelivered to its warehouses on a specific day because it has scheduled this flow as part of a production
and/or distribution process. But the activity of shipping lines remains strictly confined to transport andFrémont — Discussion Paper 2009-1 — © OECD/ITF, 200925

does not extend to freight logistics. A large share of FCL containers transported by shipping lines infact contribute to container logistics from which these lines derive major benefits because they remain
essentially maritime-oriented.
Besides this direct relationship with shippers, the main clients of shipping lines continue to be
forwarding agents, since shipping lines are not interested in LCL containers since this is not theirbusiness. They prefer to leave this task to forwarding agents, with whom they do not wish to compete
directly for fear of losing business, which would immediately lead to lower load factors for theirvessels. When they develop these activities, they do so through subsidiaries entirely dedicated to thissegment of the transport chain. In the opinion of a representative of CMA-CGM, the simplest solution
for developing logistics activity is to buy a company specialised in this field, which clearly illustrates
the lack of direct relations between the business of shipping lines and that of forwarding agents. Whenthey exist, these logistics subsidiaries do not necessarily maintain privileged relations with themaritime branch of the group. For commercial reasons, the Bolloré group has clearly separated theentities SDV and Delmas since SDV is developing its transit activities worldwide while Delmas is
specialising in the regular North-South line to and from Africa. The fact that these two activities are
independent was clearly shown by the sale of Delmas by the Bolloré group to CMA-CGM in June
2005, which provides yet another example of vertical disintegration. Inside the AP Möller and
APL/NOL groups, the logistics subsidiaries, Maersk Logistics and APL Logistics, choose as maritime
carriers either the group’s maritime subsidiary or another carrier depending on the market and theclient, even though there is in fact a natural tie between the maritime carrier and the freight forwarderof the same group. For example, for Maersk Logistics, its objective, according to its Website, is toprovide integrated logistic solutions for its most important clients. But shippers should at no time feelthat they only have a single partner, who controls the entire chain and is able to impose its transportand logistics solutions and above all its prices (Heaver, 2002b).
The maritime groups that really develop a logistics activity in addition to their liner shipping
operations remain very limited in number, i.e. APL/NOL, NYK and Maersk. These shipping lines,
which might be described as consolidators, nevertheless continue to be careful to maintain good
relations with forwarding agents, for they cannot do without the volumes of business that they provide.
For the other shipping lines, logistics remains an activity that is limited and at the very least uncertain.
It has more to do with publicity slogans that with reality.

4.4. Striking a balance between the three types of logistics
4.4.1. Vessel logistics and container logistics predominate
The ongoing integration of the transport chain is a fact that has profoundly altered the activities ofthe various transport actors. However, the magnitude of the upheavals should not conceal the fact thatthe process of integration of the chain is far from being complete, as is proved by the distinction madefor liner shipping operators between “vessel logistics”, “container logistics” and “freight logistics”.

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Figure 4: The balance between three types of logistics

For liner shipping operators, the objective is to strike the right balance between these three typesof logistics in order to generate maximum revenues while meeting the needs of their shipper andforwarder clients. In fact, as Figure 3 shows, the activity of shipping lines is marked by contradictions
between the effort to respond to the needs of its clients and the overriding need to remain competitive
with its competitors by reducing its costs. Ultimately, shipping lines have very few means of actionthat enable them to go in both directions simultaneously (to reduce the total transport cost, to provide a
global network and door-to-door services). Otherwise, they choose between expanding the range ofservices provided to their clients, which generates revenues but also additional costs, and optimising
their activity, which often means responding less effectively to the client’s expectations.

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Between container logistics and freight logistics, liner shipping operators are initially focusing
their efforts on the former, for it provides them with the greatest operational advantage for managing
their maritime lines. This “container logistics” is prompting them to invest significantly in the inland
segment of transport, which does not necessarily mean that they are really and deeply involved in“freight logistics”. Consequently, the real intensity of vertical integration needs to be strongly
qualified. This conclusion highlights the continuing relevance of the core business of shipping lines,
i.e. vessel logistics, even though the organisation of their networks of maritime lines can only beunderstood by taking into account their integration into larger transport chains that include inland
segments.
4.4.2. Control of inland transport chains to support the core business
It is clear that carrier haulage of FCL containers by liner shipping operators is perfectly consistent
with this desire to control vessel and container logistics. It enables them to remain focused on theircore business, which is maritime transport. The inland transport segments support the activity ofmaritime lines. In the case of carrier haulage of these FCL containers, shipping lines are able toprovide a more efficient and less expensive door-to-door transport solution than what shipper clients
could provide using their own resources or relying freight forwarders. Why is this so? It is because themanagement of inland pre- and post-shipment carriage in fact also contributes to vessel logistics, i.e.
the efficient operation of maritime lines. It makes it possible to compress door-to-door transport costs
while providing an additional service to shipper clients. The same holds true for port stevedoring,
since it contributes to vessel logistics, which explains the ever growing integration of this function by
shipping lines, with the sole difference that it does not provide an additional service to shipper clients.
To manage these inland transport chains (road, combined rail/road or waterway/road transport),
shipping lines cannot, to use the terms of the theory of transaction costs, simply rely on the market toprovide inland transport services when needed or ensure outsourcing, for these chains are sustained
over a long period of time and require relations of trust if they are to be reliable. Similarly, tointernalise the chain completely (a top-down process) requires considerable financial resources andlarge volumes of freight to justify establishing inland transport companies. Only the group AP Möller
has adopted this approach with, for example, its rail subsidiary European Rail Shuttle, even though it
does not work exclusively for Maersk Line. This is why liner shipping operators prefer hybrid formsof organisation, in which they play the role of an orchestra conductor. They co-ordinate thecontributions of the inland partners of the transport chain – road, rail and/or waterway carriers –particularly in setting up combined transport chains. In this way, liner shipping operators do not
replace the other land transport actors, who also remain focused on their core business. However, thelatter’s activities are co-ordinated upstream by liner shipping operators, and this helps improve theperformance of the entire transport chain. The example of CMA-CGM with its intermodal subsidiaries
is a good illustration of this approach.
However, this co-ordination of the entire inland transport chain by shipping lines who set up
these types of organisation is conducted with a very specific objective, i.e. to contribute to the efficient
operation of shipping lines by extending their freight transport services to the hinterland and by
optimising the management of the container fleet, while at the same time providing an additional
service to their biggest shipper clients. Consequently, this integration of the transport chain byshipping lines is aimed at strengthening their core business, i.e. liner shipping.

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5. CONCLUSION

Without questioning the reality of the upheavals in the organisation of transport chains caused bycontainerisation over the past fifty years, we argue that there is a discrepancy between the assertions ofprofessionals and academics and the actual facts observed regarding the vertical integration ofcontainerised transport by liner shipping operators, which have historically played a key role in all the
innovations linked to containerisation. This is no doubt explained by an overworked use of the term“logistics”, without any real definition of what it means.
Despite the wide number of possibilities provided by containers, which can range from basic
port-to-port service to externalised management of their freight flows by shipper clients, the corebusiness of shipping lines remains the essential factor for understanding the greater or lesser extent of
their involvement in the transport chain. The prime concern of shipping lines is to fill their vessels,
which must, at the very least, generate sufficient revenues to cover their cost. Everything else issecondary or aimed at meeting this concern.
It is clear, from this perspective, that shipping lines emphasise two types of logistics, i.e. vessel
logistics and container logistics. The former leads them to become involved in ports by making major
investments in sea terminals. The latter explains why they are becoming involved in inland transport
by setting up road, rail and waterway services. The latter services do meet a real demand on the part ofclients, or else they would serve no purpose. However, the underlying rationale behind these services
remains primarily related to liner shipping, for they are aimed at capturing freight in the hinterland,
managing flows of containers and bringing them to ports at the lowest cost in order to fill vessels.
Nevertheless, this involvement in inland transport most frequently remains confined to an organisingrole. It consists of co-ordinating the various links in the transport chain to achieve reliable andcompetitive door-to-door service, particularly when combined rail/road and waterway/road modes are
involved. However, it is much less frequent for shipping lines to become directly involved as inlandtransport operators. For this, they rely on specialists that provide these services as their core business.
In terms of the core business of shipping lines, freight logistics has little to contribute, except for
forcing shipping lines to become involved in a new activity that already has its own specialised
operators. However, shipping lines do not have enough financial capacity to invest everywhere, which
explains they have chosen to focus on vessel and container logistics that support their core activity toenable them to remain competitive with their competitors. For shipping lines, this balance can be
expected to continue in coming years.
On the other hand, one could no doubt imagine vertical integration in the opposite direction, fromland to the sea. Certain major logistics groups control very large volumes worldwide and haveconsiderable financial capacity. In response to a shipping line market that is becoming increasingly
concentrated, controlling the maritime segment might prove to be a judicious means of optimising
services to shipper clients. However, this is a move that would have to be approved by shippers, whorarely like to depend on a single provider for their logistic services.
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All this to say, simply, that the assertions of professionals and academics are ahead of the reality
observed on the ground, although, with regard to containerisation, these assertions, because of thecompelling prospects that they open up, will gradually shape the reality to come.

NOTES

1.

Journal de la Marine marchande, 30 juin 1966, p. 1468.

2.

« Nedlloyd: transport total », Journal de la Marine Marchande, 5 October 1989, p. 2406.

3.

Instead of taking an import container directly to the port, to try to reuse it directly for export fromits import delivery point.

4.

Transcription of an interview with a representative of SDV France in Paris in 2001.

5.

Containerisation international (2004), “MSC blocktrain from Antwerp begins”, June, p. 31.

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