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Home » Large retailers mull formation of NVOCC network
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Large retailers mull formation of NVOCC network

October 20, 2010
Mark B. Solomon
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Several large U.S. retailers, concerned about securing reliable and adequate ocean vessel capacity at reasonable rates, are looking to form non-vessel operating common carrier (NVOCC) networks with the goal of locking in cargo space that can be marketed to other retailers, according to the authors of a study on the supply chain's impact on the retail trade.

Professor Brian J. Gibson of Auburn University's College of Business, who was part of a team at Auburn that co-authored the study with the Retail Industry Leaders Association (RILA), said Tuesday that the strategy—which is just in the discussion phase—reflects the retail industry's frustration with its inability, especially in the past two years, to obtain the space it needs in a timely and cost-effective manner.

It is also part of a broader strategy by retailers to take a more active role in managing the inbound flow of goods from vendors, rather than giving their partners free rein to manage the retailers' freight. In the United States, large retailers, notably Wal-Mart Stores Inc., have begun taking control of inbound freight from their suppliers and arranging for the transportation themselves. The authors of the report, 2010 State of the Retail Supply Chain Study, said it may soon be commonplace to have retailers position their transportation professionals at foreign factories to coordinate the movement of goods from the manufacturing site to the port of origin.

Gibson wouldn't identify the retailers exploring the NVOCC strategy. However, he said "we are seeing a greater interest" from those retailers with the volumes and expertise to wield influence over carrier negotiations. An NVOCC, which primarily operates in the ocean trades, buys space from a carrier and resells it usually to smaller shippers or third parties. The NVOCC issues bills of lading, publishes tariffs, and otherwise conducts itself as an ocean common carrier, except that it does not provide the actual ocean or intermodal service.

Gibson acknowledged that such an initiative would involve companies that compete with one another. "I don't think the process has been clearly developed," he said. "It is just now under discussion internally as opposed to something that will happen in the next two or three weeks or months."

He said many retailers have been worried about the erratic nature of ocean service pricing and availability over the past 10 years, not just the last two. However, the friction between shipping lines and the beneficial cargo owners has increased since the recession as carriers mothballed vessels to stabilize rates and resorted to operating at slower speeds—known in the trade as "slow steaming"—to reduce costs.

In a comment that may capture retailers' frustration trying to find available capacity amid a global economic recovery, an unidentified retail executive was quoted in the report saying that "after a ridiculous and unnecessary down and up roller-coaster rise, we'll probably end up close to rate levels where they were two years ago."

Separately, the report found that 65 percent of executives said revenues from e-commerce transactions would grow faster than store revenues during 2011. The issue did not arise in the 2009 study, and Gibson said he was surprised that the percentage in the 2010 report was so high. He said retail supply chains must "evolve" to support transactions from multiple channels including the Web, phone, catalog, the physical store, and the emerging platform of smart phones.

The 2010 study is the second to be conducted examining the supply chain's growing role in supporting retail operations.

Transportation Maritime & Ocean Transportation 3PL
KEYWORDS Retail Industry Leaders Association
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Marksolomon
Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.

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