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Derek Johnson |
Presented to
the CSA, 21st October 2002, Fort-de-France, Martinique
By way of background, I have been in
shipping all my working life, I commenced my career in the shipping industry
in August 1954, and worked for shipping lines in the U.K. through to 1976
when I saw the light and became a ships’ agent.
I,
therefore, spent 22 years working for shipping lines, at that time all being
involved on the North Atlantic trade route. One carrier - United States
Lines - who unfortunately is not around today, had its own offices and
management but changed within the U.K. from their own organisation to
sub-agents and rotated back and forth, invariably upon the whims of new
Vice-Presidents.
The regular Longshoremen’s strikes at that
time, every three years, in the USA also had a bearing on when they switched
from a direct owned organisation to agents. After 12 years with United
States Lines I joined Sea-Land Service Inc. where they started with an
agent, a division at that time of P&O and after a successful start-up fired
their U.K. agent in favour of their own direct Line organisation, which was
in place until their merger with Maersk and, of course, we all know the
situation with the Giant Maersk Sea-Land Group.
After 3 years I joined American Exports
Lines/American Export Isbrandtsen Lines, who did have an agent. They then
switched to their own organisation, and with a change of President and
upcoming East Coast USA strike, they then switched back to a New agent
before they were gobbled up by Farrell Lines.
My own organisation started in 1976, and
some 26 years later We are the largest independent agent, with a new twist
in our portfolio, two joint venture agreements - one with the China Shipping
Group Company, and one with the WEC/Yemen Gulf Line/Holland Maas Group of
Companies.
I, therefore, feel that I am in a very good
position to talk on the subject of the future role of the ships’ agent,
having been an employee with shipping lines for 22 years and having been an
agent for 26 1/2 years, meaning that I have been in the shipping industry
for some 48 1/2 years, which in itself is somewhat frightening.
I am also heavily involved with the
Institute of Chartered Shipbrokers and are their Liner Committee Chairman.
My colleague, who is our Director of Operations in the U.K. - John A. Foord
- is currently their Chairman for Federation Council, and will soon be doing
a presentation to your organisation in Kingston, Jamaica. I am also Chairman
of BRISCOM, which is the British and Irish Range committee of FONASBA, and
it is remarkable how our problems and concerns etc. are much the same the
world over, and as I communicate with fellow agents around the world I find
that not only are our problems and concerns the same, we always live in fear
of losing the Principals we represent, bearing in mind that most of our
Contracts bear a 90 day cancellation clause. I suspect that also holds true
here in the Caribbean, in Martinique.
Our Liner committee Group in the U.K. meet
three times a year, and we believe we get great benefit discussing our
problems together, helping each other solve our problems, and looking for
new ways to improve our income.
...
there is a role for the ships agent, both now and in the foreseeable future
I personally feel that there is a role
for the ships agent, both now and in the foreseeable future. I must confess,
however, the role has changed somewhat since my Company’s commencement of
operations in 1976, and we must always be ready for change.
In 1976 we could have comfortably lived
from our standard commission of 5 per cent on exports and 2 1/2 per cent on
imports, plus whatever we could have obtained by way of an equipment control
fee, contribution towards communications, and possibly a vessel husbanding
fee, but rates of freight - as low as they currently are today - have made
us adjust for survival. We have had to change our way of thinking and
perform additional roles to give us our income, including consolidation of
LCL boxes, acting as an NVO on trade routes where we do not have direct
service, customs clearance, inland trucking, documentation, and doing things
today where we now make a charge, where years ago we might have done the
same thing for nothing.
At one time we would have steered clear of
accepting a lump sum box price commission because we would have earnt more
money at the standard 5 per cent, but today if we can obtain a lump sum box
price minimum, we are more fortunate than where we have to live on our
commission alone. In the U.K. we have thousands of freight forwarders,
bearing in mind anyone can start up a freight forwarding business without
licence but clearly has to have business, so being dependent on such a high
number of bookings from freight forwarders has made us become very discreet
when it comes to handling freight forwarding matters.
Most of us have had to set up sister
companies to handle this function.Ships agents have to therefore be
innovative in the future and be prepared to change, and take on functions
which today we may not do, but are intra-related with being a ships agent.
We must always be on the look-out for additional Lines to represent, and to
seek additional ways to make income.
Whilst there is always fear that a shipping
line will someday want to dump his agent in favour of setting up his own
direct line organisation, with the number of islands throughout the
Caribbean and the fact that the Caribbean, including Martinique, is quite a
long way away from where some of the major shipping lines are headquartered,
plus the fact that the Caribbean is fed with intra-Island services, perhaps
the fear of shipping lines setting themselves up in the Caribbean is perhaps
less of a fear than it is for us in the U.K. and throughout Europe.
...
we have to continually look for new ways to make income
We always live in fear of having our income
cut, not only by commission on freights which are constantly dropping, but
by our shipping lines reducing some of the areas of our income, for
instance, the equipment handling fee, hence we have to continually look for
new ways to make income.
One of the ways of making income, which we
really introduced in the U.K. in 1993, was a documentation service charge on
imports. We determined that an import service charge, under a variance of
names, was being charged in ports throughout the world, some European
countries were making such a charge, and in Ireland they had made a charge
for many years. When it was observed that this charge was being increased in
either Singapore or Hong Kong it made us look at what this charge was for,
and whether we could introduce it. In 1993 we came up with a figure of
around £6.50 to £7.00 per Bill of Lading, which today varies but is in the
region of £15 to £25 per Bill of Lading, which is a major source of income
for liner agents. It is also being levied by the Lines who represent
themselves as a major source of income.
We introduced this charge in 1993 because
of the amount of money we were having to expend on buying computers and
setting up procedures for the release and handling of imports. All of our
Lines were using differing systems, we were doing the usual Notice of
Arrivals etc., but we introduced this charge.
The charge varied in the amount from one
agent to another, but this was an innovative way of making extra income and
most agents throughout Europe now look for incomes of this nature, plus
incomes from inland haulage, supplying computer software and the like.
I recollect many years ago discussing with
a fellow agent in Seoul, Korea, the fact that the Principal we were
representing at the time - which was Yang Ming Line - was going to introduce
a THC - Terminal Handling Charge - which would invariably reduce the ocean
rate. We had to collect the money and we would not be given commission on
it. And when I told this South Korean friend he said that if this happened
in Seoul, Korea, he would accept the decision but since he was also the
stevedore and was the agent for most of the competition, he would increase
the stevedoring rate to offset what he was losing from the THC.
Unfortunately, in the U.K. and throughout Europe, agents do not appear to be
stevedores and can only earn their income from commission on ocean freights
and other activities.
In the U.K., U.S.A., and throughout Europe,
liner shipping agents are becoming a bit of a dying breed, since with
takeovers, companies going out of business because they have not been able
to make it pay financially, the numbers are dropping rapidly, and I know
there are few proper liner agents throughout the whole of The USA. In Europe
the quantity varies from Country to Country – for example in some Countries
like Scandinavia, the quantities of agents are higher than say main ports in
Europe and the U.K., and we in the U.K. have very little competition, and
there are few true independent liner agency companies.
...
trend to enter into joint venture agreements, which gives a certain amount
of comfort
There is a trend to enter into joint
venture agreements, which gives a certain amount of comfort since a joint
venture agreement will clearly last a lot longer than a general agent versus
Principal relationship where there is invariably a 90 day cancellation
clause.
My company has two such joint venture
agreements - one with the new but now giant China Shipping Group Company of
Shanghai, and another one with Holland Maas Shipping BV, a small but three
times a week service to and from Portugal, and I believe that Principals
like these arrangements.
There are some Countries where legalities
would not allow, but invariably shipping lines feel a certain amount of
comfort in having a joint venture, they would expect to share in the
profits, but would usually allow the agent to supply and perform the
back-room services.
...
trend throughout Europe for agents to get together and perform back-room
services jointly for Principals ...
There appears to be a trend throughout
Europe for agents to get together and perform back-room services jointly for
Principals, hence my mention of a few minutes ago of being innovative. Once
again, I personally feel there is a role for the ships agent in the future.
Whilst I will consider someday fading away,
I have encouraged two sons - Michael and David - to join the Company, and I
have faith that Johnson Stevens Agencies Ltd. will be around for years to
come but, once again, my two boys and my Company’s management will have to
be constantly on their guard. They will have to constantly be looking for
new Principals to represent and they will have to look at new ways to earn
income without straying too far from our core business, since experience
also tells me that getting involved in areas which you do not necessarily
understand, can be an expensive exercise.
I also believe that there is still a need
factor to be British in the U.K., Dutch in Holland, French in France etc.
and I would not consider opening up offices overseas, but would enter into
arrangements with fellow agents overseas.
...
there is somewhere up to half a billion tonnes, or 500 million tonnes, for
shipping lines to carry who do use agents
When I last took a look at statistics and
of course we could use statistics to help identify a point or even sabotage
an issue, I believe from figures which I read in Containerisation
International, that by now worldwide container cargo would be up to or
exceed a billion tonnes. If we then consider that the 20 or more large
carriers report that collectively they are carrying little more than 51 per
cent of the cargo, this indicates to me that there is somewhere up to half a
billion tonnes, or 500 million tonnes, for shipping lines to carry who do
use agents, so there is a role for The agent.
World personnel rules and regulations also
make it more difficult today to dispose of personnel than was the case 20
years or more ago, and I can recollect hearing from major shipping lines,
one or two I used to work for some 30 years or more ago, that having your
own organisation means that you have direct control. You can hire and fire
as you wish, and it is your name on the door, but once again employment
rules and trying to work on our commission levels, makes this difficult
today versus a few years ago.
I have also heard it said that global
carriers representing themselves have global identity. They also say that
they have global control on equipment and operations and in all the articles
that I have read the third item usually says that they have global cost
management. If we look at these three issues, I think you will find that the
liner agents always have the interests of their shipping lines at heart.
Some like my Company could be considered global agents due to worldwide
coverage and I question what a global identity means.
Way back in 1969 American Export
Isbrandtsen Lines introduced the interfreight concept based on global
identity, whereby they would use their services that they had as underlying
carriers, they would team up with a local well known shipping line in each
Country, and they would buy space on other vessels where they did not have
their own coverage. This was a brilliant idea, but it did not work because
it was too big, and here we are today, 30 years later, hearing exactly the
same thing being mentioned.
However, a Company like mine is doing it
and doing it quietly, whereas the so called global carriers are still
specifically identified by their main trade routes and their nationality,
and they become global and take on new trade routes by rate cutting
activities rather than cost cutting activities. So far as global control on
equipment and operations is concerned, here again this could easily be done
by back-room agents who right now attend to issues like booking up tugs to
trucking and handling stevedoring to storage, and agents are in an excellent
position to do the back-room services for shipping lines, benefiting from
the economy of size and leaving them to worry about their global identity.
With modern computers and technology, there
is nothing that a Principal shipping line can do that an agent cannot do,
and the agent can be directly connected and invariably is to the shipping
line.
The last issue that major carriers talk
about is cost management, but they only talk about it, they never spell out
what this means, because quite frankly representing themselves is extremely
costly and global carriers and the shipping lines who have dumped their
agents, apart from working with each other in consortia or alliances, have
been incapable in most cases of finding additional Lines to represent as
agents.
I was told, just prior to coming out to
Martinique, that Maersk Sea-Land in London, as a result of bad figures, are
relocating their human resources and accounts people to Southampton where
they have an office. They are relocating their customer service personnel to
Liverpool, maintaining a small pricing office in London, which is expected
to go to the same area as customer service in the near future, with
documentation now being done in India. I cannot begin to believe how
documentation can be put through a telephone line to India for them to
process and then print out documents back in the UK without errors and to be
cost effective. We all know how important it is to have accurate
documentation and to have access to customers where information is not
clear. It is obvious that transferring these functions will mean that they
will have to pay off some of their existing staff, some may relocate, but
they will obviously have to take on new personnel which will then have to be
trained, and it is hard to envisage how cost savings can therefore be made.
... a
shipping agent has to be cost effective versus a direct line organisation
purely representing itself
Another good reason why a shipping agent
has a role in life: a shipping agent has to be cost effective versus a
direct line organisation purely representing itself. The motivation with a
shipping agent is to book cargo. If they do not book cargo they do not get
an income since income is derived purely from Commission on cargo booked.
I personally think that a shipping line has
strong control over its agent since, as already stated, an agent earns his
commission on what he sells - what better motivation.
In this world where costs on most items and
services increase regularly, the agent has to live on the same percentage
commission as he did in sail boat days - usually 5% on exports and 2 1/2% on
imports - 6% and 3% if you are lucky, plus all the other add-ons that you
can obtain, but stevedore companies, insurance companies, trucking
companies, and the like, have the ability to seek increases. We therefore
have to accept rising costs, rising salaries on lesser income, hence the
need to be flexible, look for additional principals, and find other ways to
make income. Never in a million years can a shipping line represent himself,
in any Country, on 5% on all exports and 2 1/2% on all imports, plus the
add-ons. Therefore, from a cost point of view, an agent has to be a better
option than a shipping line owned organisation. I also believe that issues
like this are cyclical.
I started by saying that changing from a
Principal to an agent, or vice versa, is often done on whims of senior
management, and I believe that where Companies are having difficulties with
regards their income versus overhead, or take a look at what percentage it
is costing to represent themselves, that following on from Companies like
Maersk relocating functions, they might conceivably consider that being
represented by a shipping liner agent might be more cost effective, and
perhaps better for them in some areas, other than perhaps the country of
their nationality than doing it themselves.
I also believe that where shipping lines
represent themselves, there is often a considerable amount of in-house
fighting, whereby for example an import manager and/or the export manager
dislike each other because of results and/or seek promotion. I could go on
for hours giving comparisons of costings, and pros and cons of a direct line
organisation versus agents, whether they be total general agents, area
agents, or port agents. However, at the end of the day, based on cost, there
is a role in this world today, in most Countries, for a liner agent.
I have said several times that we have to
be innovative since whilst our rates of commission have remained constant
our income today, in most cases, has decreased as a result of the ocean
freight rates. I can also tell you that in the UK, a few years ago, being a
husbanding or port agent for tanker companies, it would not be unreasonable
to consider an institute commission for handling tankers to the tune of
£1000 per port call, where perhaps just a Port Captain would be needed, and
extra income could be derived at supplying ships stores etc. Today in the UK
a husbanding agent handling tankers is likely to only obtain less than £100
per vessel. No way would this business be thought to be handled by
themselves. They thought £1000 was a good figure, they are now getting it
done for £100 or less.
...
we always have to be on the look-out for additional Lines to represent and
to find ways to book cargo where we do not have service
Thankfully, volume, and in our case the
ability to represent many Lines, means we are profitable, but we always have
to be on the look-out for additional Lines to represent and to find ways to
book cargo where we do not have service, and find additional ways to make
income.
It is a crazy world where, for example, in
the UK the UK inland haulage, either by road or rail, is greater to the port
of exit or entry than the freight on the ocean voyage, which can literally
be to theother side of the world. It is also crazy where there are vast
imbalances of equipment where the need to get equipment back, like for
example in the Far East trade, to book up cargo which is awaiting shipment
where the imbalance can be as much as 4 to 5 times to one ratio. In areas
like the Far East, where the revenues can be 4 times greater on imports from
the Far East into the UK than exports for reasons just quoted, even at 2 1/2
% commission, the import traffic is of a greater value, and agents therefore
have to sell inbound cargo as well as outbound, something which is seldom
done by the shipping line direct.
This is because there are distinct
demarcation lines between imports and exports. It is known that management
always ask what is booked today but seldom ask what did we import today.
Line agents are certainly not paying their way versus the cost of An
independent agent, and in my opinion there are enough areas, Like here in
the Caribbean, where there is the need for aggressive Liner agents, and if
we can survive during these difficult times,and if we have enough patience
to wait, cyclically shipping lines will one by one switch back to agents.
Shipping lines do appear to have the herding instinct and tend to follow
each other.
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Mr. Johnson is Managing Director and Chairman of Johnson Stevens Agencies (www.j-s-agencies.co.uk) of the UK.
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