Vereda San Miguel:

In general, shipping lines service operations require close work with freight forwarders who are employed to represent the shippers (Bowen & Leinbach 2004). Freight forwarders can help liner shipping companies to streamline the fluctuation of cargo volumes by purchasing freight space in advance from carriers (Panayides et al. 2012). In the current competitive liner shipping market, ocean container carriers are moving towards the practice of logistics hubs and spoke systems. As a result, exerting pressure on ocean container carriers to deal with freight forwarders in order to generate cargo volume (Nam & Song 2011).

International shippers are looking for carriers that can provide seamless global transport services with the ability to pre-clear customs, provide single bills of lading, and handle all documentation (Fawcett & Birou 1992; Fransoo

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& Lee 2013). Freight forwarders provide logistics-related services through effective transport coordination that helps shippers overcome transport- related challenges in international cargo movement (Ireton 2007). Shippers use freight forwarders to enable the former to respond to the needs of manufacturers or consignees in the just in time system. Shippers in most cases contract freight forwarders to manage their logistics operations in order to allow them to focus on their core business, thereby improving customer service (Crum & Allen 1997; Lieb & Miller 2002; Qureshi, Kumar & Kumar 2007). Modern freight forwarders assist shippers to respond to their market need on-time (Krajewska 2008). In the logistics process, freight forwarders add value to shippers by performing services that are otherwise not available, and help lower transport costs by passing on a portion of the discount they receive from the carriers to the shippers (Gupta 2008).

Liner shipping companies sign contracts of allotment with freight forwarders in order to secure stable volume for a reasonable period, and to benefit from maximum utilisation of capacity (Levin, Nediak & Topaloglu 2012). The cooperation between freight forwarders and liner shipping companies is a strategic means for bringing service satisfaction to shippers. Liner operators recognise the importance of freight forwarders in coordinating and organising cargo information flow within international logistics chains. Freight forwarders are the information hubs, due to their superior knowledge in international logistic processes, and their social network with cross-border contacts to colleagues in foreign countries (Schramm 2003).

Amaruchkul, Cooper and Gupta (2011) studied contractual relationships between carriers and freight forwarders and showed that freight forwarders typically offer more services than carriers, and that freight forwarders offer lower prices to shippers in terms of standard tariffs provided by carriers. Freight forwarders offer a lower freight rate because they receive a volume discount from carriers. Carriers pre-allocate a large proportion of available capacity on board their carriers to freight forwarders (DeLain & O'Meara 2004). For carriers to remain competitive in securing reasonable cargo

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volume, they allocate cargo capacity to freight forwarders prior to the start of each season (Amaruchkul & Lorchirachoonkul 2011).

Carriers’ ability to maintain their competitiveness depends on the establishment of close relationship with freight forwarders (Burkovskis 2008; Lillie & Sparks 1993), because freight forwarders have marketing expertise and long-term relationships with shippers, which enable them to attract demand that is not directly accessible to carriers (Gupta 2008). For example, freight forwarders act as wholesalers and provide value-adding services such as packaging, assembling, warehousing, which carriers are usually not

equipped to perform on their own (Amaruchkul & Lorchirachoonkul 2011).In

some scenarios, ad hoc demand is typically not large enough to use all available cargo space. Therefore, carriers sell cargo capacity through freight forwarders to maximise space utilisation and to reduce carrier's risk of underutilisation of capacity on board their carriers (Gupta 2008). The MergeGlobal Value Creation Initiative (2008) explained that freight forwarders can take control of the end-customer relationship better than ocean container carriers.

Both volatility in cargo capacity and uncertainty in securing volume poses a challenge to carriers (Becker & Dill 2007). These cause carriers to rely on freight forwarders for volume and thereby reduce the risk of space loss. Risk sharing between freight forwarders and carriers for cargo volume management is also discussed in the literature (Hellermann 2006; Li & Zhang

2015). Due to door-to-door movement of goods, most liner shipping

companies work in close collaboration with freight forwarders because shippers like to deal more with freight forwarders than with carriers. Freight forwarders accept LCL cargo from shippers and consolidate into full container load and ship to same destination, thereby reducing freight cost for shippers (Ding et al. 2016). Thus, enable them to attract shippers than carriers.

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2.5 SELECTION OF LINER OPERATORS

The previous section showed the competitiveness of liner operators from the perspective of freight forwarders. One critical factor identified that influences the competitiveness of carriers in international business is cost, which in turn depends on logistics cost. The maritime sector not only carries more than 90% of international trade, but it is subject to high business and operational risks (United Nations Conference on Trade and Development 2009). As such, selecting the right carriers is critical to the success of international business.

Competitive ocean carriers often offer comprehensive, diverse services that reduce the need for shippers (and their representative) to deal with many parties in international freight and logistics (Chen et al. 2010). Competitive carriers tend to be better integrated with other service providers in the logistics chain in order to establish their name and build their reputation with customers (Van Der Horst & De Langen 2008).

A number of studies have been conducted to evaluate the competitiveness of carriers from a shipper's perspective. A number of factors were identified that influence a shipper's choice of carriers. For example, transit time and reliability were the most important factors identified that affect the decision of shippers (Swan & Tyworth 2001; Zhang & Lam 2015). As shown by Notteboom (2006), liner shipping companies are faced with challenges in developing a strong focus of liner services within short transit times, combined with a high degree of schedule reliability. Unreliable schedules and longer transit times increase the total landed costs of products, and unreliable transit time affects both cost and service, resulting in an increase in overall inventory costs (Tyworth & Zeng 1998; Vidal & Goetschalckx 2000). Allen Mahmoud and McNeil (1985) and De Jong et al. (2014) explained that enhancement in transit time and reliability can make shippers more competitive in international trade, and that enhancement in a carrier’s reliability has a great impact on the total cost for shippers. However, Durvasula, Lysonski and Mehta (2000) were of a different opinion, stating that shippers do not perceive transit time to be a high priority and therefore

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do not consider the impact of ocean carrier transit time variability on their logistics costs. Even though the timing dimension of the carrier service was a significant predictor of shipper satisfaction, transit time, which is a measure of the timing dimension was not an important service characteristic observed by shippers (Lu 2003c). The empirical study of Gallagher (2010) revealed that shippers believe that better schedule reliability can reduce uncertainty and subsequently protect the safety stock level. Additionally, Wiesmann (2010) also showed that longer transit times directly increase shipper in-transit (goods in progress) inventory levels. Longer transit times can also extend the shipper's forecast dimension, thus, they are likely to increase safety stock needs leading to a high increase in production and total logistics costs (Wiesmann 2010).

The empirical investigation conducted by Lambert, Lewis and Stock (1993) revealed that shippers place a far greater emphasis on the quality of service delivered by carriers than on lower rates, in that the shippers may be willing to pay more for a better service. However, some shippers split the freight business among various carriers as a management strategy to mitigate risk associated with the transportation of goods (Brooks & Trifts 2008). The shipper's conception of not placing all eggs in one basket leads to a decision to deal with alternative sources for buying freight services to minimise and share risk among carriers.