On paper, the Port of Salalah in Oman and Maersk Line are a perfect match. The port, a typical transhipment hub partly owned by APM Terminals, is situated between the Far East and markets in Europe, the US and Africa, where Maersk Line needs transhipment services to discharge millions of containers from the Far East, and have them loaded onto other ships to be taken to their final destinations.
However, when it came to negotiating the fee and terms for the discharging and loading of containers, each defined as a separate ‘move’, the relationship between the Port of Salalah and Maersk Line left at lot to be desired.
“Our negotiations were hard as nails, even brutal, and we didn’t approach those talks any differently than we did with those we had with their competitors,” says Mark Rosenberg, Head of Procurement at Maersk Line in West Central Africa. “Our ambition was to obtain lowest possible cost for the benefit of Maersk Line.”
Thus, up until 2016, Maersk Line would send about as many containers to the competing ports, in which APM Terminals has no ownership, as it did to Salalah. Then, a new incentives-based contract turned things upside down, seeing Maersk Line’s number of moves at Salalah increase by a whopping 40%, up from 820,000 between January and July 2016 to 1.2 million over the corresponding period in 2017.
Helping each other
“It’s quite a journey we’ve been through,” says Laura Kooijman, APM Terminals’ Commercial, Strategy and Pricing Manager for Africa and the Middle East. “We’ve gone through the phases from treating each other like two independent companies to becoming gradually more integrated in our approach. Basically, we have more trust in the fact that we will come to a solution that is in the interest of both parties, which will be a win for the company as a whole.”
Today, the agreement between the Port of Salalah and Maersk Line is set up in a tier system, so that pushing more volume through the port gives Maersk Line better rates. In return, Salalah sees more volume pass through the terminal, allowing it to make better use of its capacity and fixed costs. The deal has a built-in productivity incentive for Salalah and the combined, bottom line win amounts to USD 5 million annually.
Moving the volumes from the competing terminals to Salalah, Maersk Line ships have – naturally – had to call at different ports, thereby adjusting its network, which is an expensive exercise and according to Mark Rosenberg not something that is taken lightly:
“We look at the cost-side and the upside for APM Terminals, but there’s also the commercial element for Maersk Line. We look at potential changes to the transit time and reactions from existing and potential customers. We don’t want to lose any business in the process, so there are a lot of things to consider,” he says, adding:
“However, the current deal has also driven a performance based mindset for the Port of Salalah, and clear incentives to deliver above the agreement. This is a two-way street, and the port has been very responsive when we have voiced our expectations.”
Winning new business
The collaboration can even make the Port of Salalah more attractive to other shipping lines.
“Today, we have open and trustful discussions about how we can help each other. In other words, our collaboration has led us to a synergetic relationship whereby real savings can be realised through network optimisation,” says Prakash Krishnamoorthi, Container Manager at the Port of Salalah.
“It can be as simple as adjusting a berthing window, minimising peaks in our operations and reducing turnaround times for Maersk Line or helping develop Maersk Line’s value proposition on the basis of services that Salalah can offer. What can be a small detail for one of us can have a big impact on the other.”
The Port of Salalah has not lost business from other shipping lines after the closer collaboration with Maersk Line was initiated. On the contrary, volumes from other lines have increased.
“It’s important to say that we’re still very much open for business from all shipping lines. In fact, the closer collaboration with Maersk Line is a means to help us improve the services we provide to others. We have the capacity to service additional customers, and they’ve been interested so far, as long as our business proposition remains interesting enough,” says Prakash Krishnamoorthi.