I interviewed Arnold Kamler who discussed Research on Improving Ocean Freight Pricing.
Can you please tell us a little bit about your company and roughly how many containers you ship each year?
Our company is engaged in a couple things. Number one, the importation of complete bicycles from China. Most of it goes to either Los Angeles or the Port of Charleston right now. A little bit to New York. That probably is about 6,000 forty foot containers. The rest of the business adds up to about 500 to 1,000 containers. This represents our newly opened U.S. bicycle assembly factory in South Carolina. There are a lot of containers going to Charleston for that. We’re also warehoused in Charleston.
We also have a nice bicycle accessory business and we import mostly to two places. East Coast and West Coast, Charleston and in Los Angeles. We sell predominantly to the mass market, to the Walmarts, the Targets, Toys R Us, Academy Sporting Goods, Amazon, people like that. And all together, it’s getting close to about 7,000 forty foot containers.
How satisfied are you with the level of service that you get from your carriers?
If we’re not talking about pricing, the service on all the carriers is good. I mean, more or less the transit times are pretty reliable. I think we’ve had two claims in the last year, probably amounting to less than $10,000 in damage. So the information flow is good. The service is good on virtually all the carriers.
In particular, what is your experience with the carrier pricing practices or processes? What are the pricing related pain points that you have?
I’ve been in this business dealing with the steamship companies, believe it or not since 1972, at the very beginning of the containerization, with people like Sea Train from Japan and K Lines. The business used to be very stable. It used to be you would start the year, you would have the meetings with the steamship companies, I’m talking pre-NARA. You would negotiate with each company, it was a real negotiation on a company by company basis. Despite the fact that there were a lot of companies, typically we did the majority of our business with two carriers.
Now our volume wasn’t as large as it is now, but still basically there were two companies we did most of our business with. We negotiated the price once a year. Occasionally during the year you might add a new port and you might have a little bit of a battle for a few weeks on trying to get something done in the middle of the year. When the things started going really crazy was the group called the NARA.
Now they have the TSA. Before the TSA, there was a group called the NARA, and I’m not sure what that stands for. They would have the conference carriers and the non-conference carriers going way back there. The conference carriers all agreed that they would all have the same exact price from point A to point B for one company. So in other words, Company A could negotiate a price of $2,000 from point A to point B. A similar company might be paying $300 more, $500 more, even for similar volumes. It had a lot to do with your ability to negotiate and long time relationships.
But that was, at the beginning of NARA when everybody would agree to do the same price. In order to get that price, you would have to meet with almost all of the ten or eleven carriers that were members of that group, and they would then load in crazy meetings that they would go all night long in Hong Kong. I wrote a very famous letter toward NARA expressing my frustration well over 20 years ago, where all the companies and all the sales representatives that we spoke to. This is the beginning of the pain.
"They all agreed to give us a price from Shanghai to New York and Shanghai to Los Angeles, and then I get a call from somebody wanting to come and say Arnold, it was defeated 11 to 1 in the vote. And what we realized is that the, there’s still a, so it started back then, there’s a basic distrust between the owners and their salespeople. The owners lie to their salespeople constantly and it’s gone on for 25 years. So the poor selling agent coming in talking to people, they get fed a line of garbage, never the real story. And then they go out and sell it. It’s a crazy industry, as I guess you’re coming to know, as to why people would invest a lot of money in this. I don’t know of a crazier business than the ocean."
How do you think the carriers could improve their pricing practices or their processes?
For the longest time, we had one price for one year, and we would agree. It was a real contract, it was a real service contract, a time volume contract, and if they would honor that we would honor it. But what started happening about five, six, seven years ago, is the moment business would get really good, they start rejecting your cargo.
"They start talking, well the spot rate is. I said, I don’t care about spot rates, we had a contract. I’m willing to honor my contract. And they look at me like I’m completely goofy."
But this is how I’ve done my business for 40 years, and suddenly they go no, no, we’re so bold, we have to a, charge you $1200 more per container. I said, but we have a contract. You’re supposed to carry, you know, fifteen of my containers every week at X price. How can you, you can’t raise the price. I can’t go to my customers with a 1½ percent increase. With that increase you’re stealing. So they started the game. So then what’s happened is they’ve created just a scenario right now where as a shipper, the moment the prices start to go down, you go like, screw you...I’m not paying $2,000. Somebody charged me $1,200.
It’s just combativeness, the relationship between the carriers and the customers. How to fix it? Step by step. Quote a price and live with it. And maybe give bonuses to the companies that honor their commitments. But at the same time, penalties. I mean, you know, things happen sometimes in business where you might lose a major customer, and so your volume goes down. That might be an exception you put in there. But assuming that your business volume, your overall numbers stay the same, each company, the companies will be entitled to share in a real damage if the volume contract is not met.
I’m prepared to live with that. But when I negotiate a price with a steamship company, I mean I’m no longer doing negotiating but...but right now you get a price that’s just like, well, OK, I wonder how long they’re going to honor this price?
So you asked me how to fix it. Show integrity. When you quote a price, live with it. I do. We sell almost two million bicycles to Walmart a year. If their business goes up 30 percent, I don’t raise the prices. It’s nuts.
About Arnold Kamler
Kent International, Inc.