RISK SHARING IN INTERMODAL TRANSPORT
Edith Sorkina
www.handels.gu.se
Part of a bigger effort Part of a research project for the Swedish Transport Administration, focusing on business models for intermodal transport
Customer Relationship, examined in the study, in one of the building block of a business models Ongoing research: case studies (5) - completed survey - ongoing Study is part of my PhD thesis
2014-09-03
www.handels.gu.se
Background • • • • •
industry in the process of change new business models fragmentation & concentration heavy price pressure shippers taking a more active role
In Sweden: • • • •
fragmentation poor profitability success in niche markets shippers making conscious decision to switch to intermodal
Risk sharing in intermodal transport
2014-08-27
www.handels.gu.se
Objective of the study
…explore the risk sharing in intermodal transport between intermodal operators and large transport buyers. The questions to be answered include:
• Is there risk sharing between intermodal operator and large customers? • If so, how is risk sharing done, how is risk sharing managed in practice? • From customers’ perspective, what is the motivation to take risk? • More generally: What’s the role of shippers on the intermodal market?
2014-08-27
www.handels.gu.se
Risks ….Though various types of risk are involved in this relationship. Primary focus on:
• The financial risks from not utilizing the available transport capacity • Financial risks related to the initial investments
2014-09-03
www.handels.gu.se
Focus on shippers (cargo owners), WHY? Though many contractual relations through intermediaries…. • Interest from shippers to take an active and conscious choice to use intermodal transport • Have power to influence mode choice
• In many cases, choosing an intermodal option may require changes, have consequences on the physical/administrative setups of the transport/ supply chain - thus engagement of shippers very important
2014-09-03
www.handels.gu.se
Understanding risk sharing… …in the relationship between shippers and intermodal operators, helps to: • understand how to manage profitability & reduce uncertainty for the operators • create incentives for shippers to use intermodal transport • understand how to launch new solutions (base volume) • explore shippers’ roles/ behavior on the intermodal market
• Efficiency? Effectiveness? Understanding through good examples
Risk sharing in intermodal transport
2014-08-27
www.handels.gu.se
Current results: empirical cases • 5 shipper’ strategies towards risk sharing in an intermodal setup have been studied • All large shippers that potentially could have dedicated intermodal solutions. • All Swedish companies, while the intermodal solutions they are using are both domestic and cross-border
• Cases of various degree of risk sharing have been identified, both between shippers and for a single shipper in various solutions (dedicated, open) • Various risk sharing degrees result in varying participation from the shipper’s side
Risk sharing in intermodal transport
2014-08-27
www.handels.gu.se
Current results: willingness to take risk When shippers are willing to take full risk dedicated solutions • Mostly as a result of the intermodal operators’ unwillingness to start a new service on other conditions • Better utilization of resources through “opening up” the closed solutions, but is not shipper’s core business, complex, loss of control (third parties) • Dedicated solution allows to build the solution based on their own needs and requirements: schedule, load units, capacity, etc. • Risk sharing results in more attractive pricing
Risk sharing in intermodal transport
2014-08-27
www.handels.gu.se
Current results: unwillingness to take risk • Having smaller volumes in the intermodal solution strong unwillingness to take any risk • Shippers want to pay for the capacity they are using and not feel responsible for utilization • Direct contracts mainly through intermediaries (lack of market knowledge) • Skepticism towards quality, unwillingness to fully commit, want to test, etc. • Putting large volumes in the intermodal setup affects other parts of the supply chain (storage, production) • Dedicated solution take time to build up (uncertainty about future)
Risk sharing in intermodal transport
2014-08-27
www.handels.gu.se
Current results • Cases investigated differ: both absence of risk sharing (risk lied with single party) or
some form of risk sharing between the parties • Risk sharing is pointed out to be key aspects in the negotiations between parties
(will the solution be operationalized?) • Risk sharing is desired from the operators perspective, can be even a requirement for a new service • Outsourcing: way to reduce risk exposure
Risk sharing in intermodal transport
2014-08-27
www.handels.gu.se
Current results • Shippers reluctant to commit volumes (flexibility, choice, skepticism towards quality) • Not always a direct contractual relation between shipper & intermodal operator • Selling more “sophisticated” services, earn higher margins can reduce risks • Risk of disruptions affects willingness to shift large volumes to intermodal & take risk • Shipper do not possess competences or feel it is their business to manage capacity
2014-08-27
www.handels.gu.se
Risk sharing in practice Through…
• Longer contracts • Volume commitments
• Investments • Building up internal competence
2014-09-03
www.handels.gu.se
Thank you for your attention! Questions…
Risk sharing in intermodal transport
2014-08-27
www.handels.gu.se
