Int. J. Decision Sciences, Risk and Management, Vol. 3, Nos.

3/4, 2011 293

Copyright 2011 Inderscience Enterprises Ltd.











Pricing in sustainable global container transport
Michele Acciaro
DNV Research and Innovation,
Det Norske Veritas,
Veritasveien 1, 1363 Hvik, Norway
E-mail: Michele.Acciaro@dnv.com
and
Center for Maritime Economics and Logistics (MEL),
Erasmus University Rotterdam,
Burg. Oudlaan 50, 3062PA Rotterdam, The Netherlands
E-mail: acciaro@ese.eur.nl
Abstract: The last decade has witnessed an increase in the consideration of
environmental factors in global transportation and shipping, mostly as a
consequence of regulation and media attention. Policy measures and the threat
of public indictment have acted as powerful incentives for transport operators
to green their global supply chains. It can be argued though the effective
environmental measures are those that are embedded in the company business
thinking, and not those only imposed by law. The present paper is the attempt
to operationalise this idea in the context of global container transport. In
particular, the paper argues that in order to integrate environmental factors in
global logistics processes it is necessary to link them to the concept of value
delivery through adequate pricing mechanisms. The paper also discusses how
non-traditional forms of pricing are a valuable method to integrate the
environmental dimension in container shipping and logistics value
propositions.
Keywords: green shipping; supply chain pricing; green supply chains;
container transportation; liner shipping pricing.
Reference to this paper should be made as follows: Acciaro, M. (2011)
Pricing in sustainable global container transport, Int. J. Decision Sciences,
Risk and Management, Vol. 3, Nos. 3/4, pp.293310.
Biographical notes: Michele Acciaro is a Senior Researcher Green Shipping
at the Research and Innovation Department of Det Norske Veritas AS (DNV)
in Hvik, near Oslo. He joined DNV after seven years at Erasmus University
Rotterdam where he worked as Deputy Director and Researcher at the Center
for Maritime Economics and Logistics (MEL), with which he is still associated.
He holds an MSc (Cum Laude) in Statistics and Economics from the University
of Rome La Sapienza; an MSc in Maritime Economics and Logistics, for
which he was awarded the NOL/APL Prize for Student Excellence, and a PhD
in Logistics from Erasmus University Rotterdam. He was awarded the Young
Researcher Best Paper Prize at the IAME Annual Conference in Cyprus in
2005 and authored over 30 publications in the areas of green shipping, liner
shipping economics, port economics and management, logistics integration and
supply chain management.
This paper is a revised and expanded version of a paper entitled Pricing in
Sustainable Global Supply Chains (SGSC) presented at the European
Conference on Shipping, Intermodalism and Ports (ECONSHIP 2011), Chios,
Greece, 2224 June 2011.










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1 Introduction
The last decade has witnessed an increase in the consideration of environmental factors in
global transportation and shipping, mostly as a consequence of regulation and media
attention. Policy measures and the threat of public indictment have acted as powerful
incentives for transport operators to greening global supply chains. It can be argued
though that successful effective measures are those that are embedded in the firm
business thinking, and not those imposed only by law or fear.
Governments have recognised the necessity of creating environmental awareness and
stimulating innovation, so that policy has shifted towards a combination of command and
control and market-based measures (see the approach outlined in the Kyoto Protocol and
the discussions at IMO level). This approach appears to be more adequate to tackle
climate change and global warming, and in general environmental challenges at a global
scale. Notwithstanding the difficulties of reaching an agreement on some of the major
environmental issues, an increasing number of policies are coming in all sectors of the
economy.
The governmental focus on the environment has come together with a renewed
interest of society on the issue. Consumers are increasingly considering the
environmental footprint of products in their purchasing decisions (see Pickett-Baker and
Ozaki, 2008), and new market segments have been developed that support sustainable
sourcing and help companies in procurement decisions (Meehan and Bride, 2011).
Initiatives such as the Wal-Mart green label or the IKEA Eco Score Cards are likely to
modify how production, marketing and sourcing will be performed in the future.
Although the understanding of green consumer behaviour is still controversial (Young
et al., 2010; Peattie and Crane, 2005), there seem to be a distinct trend towards greener
purchasing (Huang and Rust, 2011; Flatters and Willmott, 2010).
Companies have understood that moving towards a more sustainable production and
sourcing may grant them the favour of consumers, allow higher margins and eventually
generate competitive advantage (Etsy and Winston, 2006). And often this does not
necessarily translate in higher production costs. A large number of emission reducing
technologies, for example, appear to be at least cost neutral in general and in shipping
(IPCC, 2001; UNDP, UNDESA and WEC, 2000; Eide et al., 2011).
Furthermore companies have realised that they need to respond to the needs of
various stakeholders, and not only shareholder value (Clinton, 2009; Heracleous and Lan,
2010). These may range from customers (Martin, 2010) but also governments and society
by and large (Hart, 1995; Tate et al., 2010; Harrison et al., 2010). Particularly relevant in
this context is the role that sourcing plays in fostering sustainability and in responding to
multiple stakeholders needs (Meehan and Bride, 2011; Harrison et al., 2010). In order in
fact to respond to multiple stakeholder needs, companies are dependent on their suppliers
(Kibbeling, 2010).
Logistics service providers (LSP) and transport operators pressure on incorporating
sustainability among core corporate values derives from two main sets of drivers
(Teuteberg and Wittstruck, 2010). On the one side there is the need to comply with
increasing regulatory pressure and government policy and on the other the necessity to
respond to customer needs that increasingly demand a greener attitude from their
suppliers. This trend is particularly relevant in those segments that are the closest to the
end-consumer markets such as retail logistics and distribution, but it is bound to move up
along the supply chain to impact also upstream chain suppliers.









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It is interesting to look at how these developments are affecting the liner shipping
industry considering the importance that the industry has on global trade. Furthermore,
liner shipping appears to be the industry segment where business innovation is
implemented more rapidly. As a matter of fact container carriers have shown a clear trend
towards the promotion and adoption of more sustainable business paradigms. This is
quite new in an industry dominated traditionally by a bottom line focus. In particular
those carriers with active interests in supply chain management appear to be keener on
embracing sustainability as a corporate core value (see Maersk Line, 2011; OOCL,
2011). The issue is becoming relevant, with carriers investing large amount of resources
in improving their green profile. NYK spent 6.2 billion yen in 2008 for prevention of
global warming and air pollution, conservation of marine environments, conservation of
resources, and deployment of environmental technologies (NYK, 2011).
A large number of initiatives are being developed, aiming at reducing the
environmental impact of ocean transportation through innovative designs, operation
rationalisation, emission and waste reduction, improved utilisation of resources, and
active green marketing. Neptune Orient Lines (NOL), for example, advertises having
been awarded the Sustainable Shipping Operator of the year in 2010 for its fuel use
reduction and the development of the 53 foot container, and, among other carriers, for the
active promotion of the use of greener fuels in ports. The reasons for which carriers are
pursuing greener strategies have though not been fully discussed in the literature and
work remains to be done on substantiating their arguments from a theoretical point of
view. The basic argument is that this move is needed following customer demands.
As correctly pointed out by Robinson (2005), summarising the value-delivery
framework developed by Porter (1985), the key focus that companies and transport
service providers should consider is the creation of value for their costumers. As
Robinson says, it is not the company with the largest network or the one with the biggest
capacity that will win, but the one that is able to offer the highest value for its customers.
Since cargo moves along chains and corridors, this perspective is the one that has
justified the integration of carriers and other transport service providers along the supply
chain. Although not applicable to all business models
1
, the environment appears to be
high in the agenda of many carriers with 41% of Maersk customers for example
concerned with sustainability of their suppliers (Maersk, 2011).
The present paper is a first attempt to uphold and expand on this idea. In particular
the paper argues that in order to integrate environmental factors in global logistics
processes it is necessary to link them to the concept of value delivery. The paper argues
that a possible way of linking environmental factors to the value delivery framework is
through adequate pricing mechanisms. Pricing in liner shipping and other logistics
services has been the subject of a renewed academic interest since the decline of the
conference system and the spreading of door-to-door pricing strategies. The paper argues
that non-traditional forms of pricing are a valuable method to integrate the environmental
dimension in container shipping and logistics value propositions.
In addition to this introduction, this article is structure as follows. Section 2 discusses
the value of sustainability from a supply chains perspective and how the green dimension
can be embedded in the concept of value delivery. Section 3 discusses more in detail the
importance of sustainability in the liner shipping industry and reviews the effort that
major carriers have been making in the area. Section 4 explains why these efforts can be
seen as an attempt by carriers to differentiate and acquire competitive advantage and how









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pricing intended as a collaborative tool can be used as an instrument to foster
sustainability in the industry. Section 5 concludes and offers ideas for further research.
2 Sustainable global supply chains
2.1 Sustainability and sustainable supply chains
Shrivastava (1995, p.955) defines sustainability as the potential for reducing long-term
risks associated with resource depletion, fluctuations in energy costs, product liabilities,
and pollution and waste management, that is a more operational definition of the one
provided by World Commission on Environment and Development, that coined the term
in 1986 [Brundland, (1986), p.8]. The concept of sustainability has emerged beyond the
idea of good corporate citizenship and has proven to offer long-term economic benefits
and competitive advantage for the firm (Savitz and Weber, 2006).
The application of sustainability to supply chain is a relatively new idea since
references to sustainable supply chains appear in the literature only in the last decades
(Linton et al., 2007). The two concepts have been merged in what is referred to as
sustainable supply chain management (SSCM) (Carter and Rogers, 2008). SSCM can be
defined as the strategic, transparent integration and achievement of an organizations
social, environmental, and economic goals in the systemic coordination of key
interorganizational business processes for improving the long-term economic
performance of the individual company and its supply chain [Carter and Rogers, (2008),
p.368]. SSCM is based on the triple bottom approach developed by Elkington (1998,
2004). The triple bottom approach entails the inclusion of social, economics and
environmental goals from a microeconomic standpoint.
2.2 Implications of sustainable supply chains
The shift towards a sustainable supply chains is hard to be attained (Carter and Rogers,
2008), since the development of supply chain thinking does not easily include the
environmental dimension (Rodrigue et al., 2001) and often environmental and social
considerations result in cost increases (Walley and Whitehead, 1994). It is often the case
though that such cost increases are the outcome of reactive compliance with government
imposed regulation (Porter and van der Linde, 1995; Porter and Kramer, 2006) and they
neglect the benefits deriving from sustainable operations (Colby et al., 1995) as correctly
pointed out by Carter and Rogers (2008).
One of the most important aspects of SSCM is whether moving towards a more
sustainable organisation can deliver advantages without increasing pressure on the
company bottom line. Firstly, there are social and environmental supply chain activities
that already lie in the intersection with the economic bottom line. The inclusion of
sustainability consideration in the company strategy can help identify these activities and
harvest economic advantages. Typical examples are related to cost savings obtainable
from packaging waste reduction, from reuse of disassembled parts, reduce health and
labour costs deriving from safer working conditions, enhanced reputation, shorter lead
times, etc.
Another alternative approach to the issue is the one proposed by Walley and
Whitehead (1994) and Clarke (1994), when they argue that if sustainability is accounted









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for in the development of products, business and services, new opportunities can be
identified that offer both financial and ecological advantages. In other words the
suggestion of the authors seems to point out at the possibility of selecting more
sustainable alternatives at the same or, as we will explain later, even lower cost as a
consequence of the account for sustainability.
Furthermore, Carter and Rogers point out that underlying economic conditions, such
as increasing fuel price, may actually transform environmental choices, that were not
viable before, in attractive alternatives. A good example to this is the reduction of vessel
navigation speed as a result of increasing fuel costs and excess capacity, in the
phenomenon that is often referred to as slow steaming (see Cariou, 2011).
This type of opportunistic behaviour should certainly not be undervalued and
can be easily linked also to the advantages deriving from proactive attitudes
towards forthcoming regulation and preventive measures taken to avoid societal
issues. Regulation in the sustainability domains is increasing and companies that
are better equipped to comply with this regulation are obviously better off. A
pricing in sustainable global container transport proactive attitude towards the new
regulation can allow companies to adapt at lower overall costs.
Companies are also increasingly under scrutiny of the media and public opinion, and
failing to show good corporate citizenship can undermine the company stock value or
increase substantially the costs of new developments. In some extreme cases it can even
wipe away the company altogether (Etsy and Winston, 2006). Consider only the delays
that can be generated on building port terminal infrastructure in some countries if the
developers fail to account for the existence of endangered species in the area or the
potential for health hazards to the local population.
Finally, there is the argument that firms that incorporate sustainability in the
provision of their services may acquire competitive advantage. This may be the result of
customer perceptions, increased innovation or their services may become more difficult
to imitate. Because of the role that this argument plays in the paper, it will be addressed
more in detail in the next paragraph.
2.3 Sustainable supply chains and competitive advantage
Recent surveys (Kibbeling, 2010; Lee, 2008; Barden et al., 2009; Lam et al., 2004) seem
to suggest that companies can strengthen their competitive position by investing in
sustainable chains, although evidence is still limited on the testing of this hypothesis,
since SSCM is an emerging field within SCM (Ratan et al., 2010). The arguments of
Kibbeling (2010) are quite complex and address the importance of sustainability for the
industry focusing on the relations between suppliers and focal firms. In the context of this
paper, the focal firm is the shipper who acquires transport and logistics services from
LSP or ocean carriers.
One of the interesting findings of the work of Kibbeling is that suppliers (read LSPs
and ocean carriers) that have a key role in the production process of the focal firm have
valuable innovative potential. This would imply that as production processes become
more and more dependent on supply chain management, the innovative impact of
logistics firms on focal firms will increase. In general the innovative potential of a
supplier is related to its corporate social responsibility (CSR) orientation. In other words
suppliers that have a CSR orientation appear to be more innovative and the level of









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innovativeness appears to be positively related to the focal firms innovativeness
[Kibbeling, (2010), p.89].
The author nonetheless points out that this relation cannot be taken as a given, since
the innovativeness potential needs to be unlocked within the focal firms practice, and is
also cautious about the benefits of CSR practices, arguing that this process demands
time, attention and maybe even investment from the focal firm [Kibbeling, (2010), p.93].
Nonetheless, this should give an indication of the criteria that focal firms should adopt in
selecting suppliers, at least to create the opportunity for such innovativeness potential to
be created.
In particular the advantages of adopting a sustainable supply chain perspective is that
such approach inherently accounts for multiple stakeholders. A multiple stakeholder
perspective, as pointed out by Freeman et al. (2004), develops company resources since it
offers a wider range of incentives to innovation both from a technological and an
organisational point of view, and in this way may become a source of competitive
advantage.
This is epitomised by the increasing number of firms that include CSR as an integral
part of their corporate strategy. It would be reductive to justify such choice as a mere
consequence of consumer demands, while it is more appropriate to consider that by doing
so firms hope to differentiate themselves from competitors, innovate faster and acquire
competitive advantage (Nidumolu et al., 2009). In order to develop a credible set of
company CSR values, firms need to build a solid reputation and they can only do so with
the support of their suppliers. Companies become then dependent on their supplier to
develop their CSR practices and build up a CSR reputation (Carter and Rogers, 2008;
Krause et al., 2009).
According to Kibbeling (2010) a supplier orientation, intended as a firm wide
Pricing in sustainable global container transport attitude towards supplier and not simply
a purchasing function, is a fundamental condition for realising better firm performance.
Firms should be aware of the more innovative suppliers and target those in their
procurement procedures. Furthermore, firms may seek cooperation with their suppliers
aiming at ensuring their involvement and participation in sustainability assurance
(Campbell, 1998; Bos-Brouwers, 2010; Hald and Olsen, 2010).
So far, limited work has addressed the incentives for suppliers to contribute to the
sustainability initiatives of their customers (Hald and Olsen, 2010; Barden et al., 2009;
Lee, 2008). Lee (2008) and Barden et al. (2009) examined drivers for the participation of
small and medium-sized suppliers in green supply chain initiatives and in SMEs to
demonstrate CSR practises. While the work of Hald and Olsen (2010) provides insight in
the supplier and buyer interaction on sustainability transfer, highlighting the multifaceted
nature of supplier selection decisions and the inherent supply chain sustainability risk
connected to the supplier selection.
A possible way to reduce the uncertainty linked to the reluctance of
suppliers to improve the supply chain sustainability may be linked to pricing.
Acciaro (2010a, 2010b) discusses alternative pricing mechanisms that could
benefit supply chain collaboration. In this article we argue that supply chain pricing
might offer useful paradigms for understanding how to foster sustainability along
the chain. The rest of the paper will outline the role of pricing as a source of
competitive advantage and its relation to sustainability, but before it is useful to
present an overview of the liner shipping practises with respect to environmental
protection and marine environment preservation.









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3 Environment protection practices in the liner shipping industry
3.1 Liner shipping and the environmental sustainability challenge
As a result of the international nature of global shipping and the consequent difficulty of
implementing regulation on the high seas, the shipping industry has not been the subject
of extensive environmental regulation if compared with other transport sectors. Only the
ecological disasters deriving from oil spillages and most notably the media attention
connected with the Torrey Canyon disaster in 1967 or the Exxon Valdez case in 1989 for
example triggered a rapid reaction from the International Maritime Organization (IMO).
Today the liner shipping industry is the subject of regulatory measures mostly through
the instruments of IMO conventions.
But if the pressure on regulating the sector has only recently increased, the liner
shipping industry has taken voluntary actions aiming at improving its sustainability
profile. The necessity of providing regular frequent scheduled services and the higher
importance of the corporate image relatively to other shipping sectors has meant that
ocean carriers have often adopted environmental prevention measures ahead of
international standards. It is therefore expedient to briefly discuss some of the technical
and operational measures adopted in the liner shipping industry.
The liner shipping industry has witnessed a multiplication of various initiatives
aiming at improving the sustainability level of the industry. Most global carriers feature
sections in their website dedicated to sustainability in general and environmental policy
in particular and the environment is high in the strategic agenda of many carriers. The
World Shipping Council (WSC) (2009) has adopted, as part of its mandate, to work with
legislators, appropriate government agencies, the International Maritime Organization,
and other organizations. The scope of issues is quite broad including regulations to
improve air quality, climate, preventing the spread of invasive species, the reduction of
marine noise, and a variety of other issues relating to protection of human health and the
environment.
In addition to the WSC a large number of sectoral initiatives have been created to
investigate possible measures aimed at the reduction of environmental impacts of liners
shipping and implications on the development of the industry. Particularly noteworthy is
the Clean Cargo Working Group (CCWG) that includes representatives of some of the
major shipping lines
2
as well as large shippers. The objective of the CCWG is the
cooperation between retailers and transport service providers for the incorporation of
sustainability principles into transportation management (BSR, 2011).
Similar objective are those of the sustainable shipping initiative (SSI) that is
promoted by the WWF and the Forum for the Future, and that includes not only ocean
carriers (Maersk), but also bulk transport companies, charterers, shipyards, suppliers,
banks and insurances.
3
The SSI initiative aims at drawing up a case for action to create
a flourishing industry with much higher social and environmental standards (Forum for
the Future, 2011). Among other issues to be investigated for 2040, the SSI includes
climate change, scarcity of non-renewable energy sources, changing market conditions,
new shipping technologies, labour issues and piracy.
In addition to these initiatives, carriers have engages in a wide array of measures
aimed at reducing their environmental footprint. These efforts can be grouped in three
main areas:









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1 emission reduction and climate change actions
2 environmental care and (marine) resource conservation
3 efforts aiming at reducing emissions and impacts in ports and along the supply chain.
3.2 GHG emission reduction and climate change actions
Most carriers have engages in some form of emission reduction strategy, also since they
are generally connected with substantial fuel savings and are therefore easier to justify
vis--vis bottom line considerations. Fuel efficiency can be achieved through a wide set
of emission reduction technologies and practises. These measures can be subdivided in
technical and operational measures.
Technical measures vary enormously in terms of impact and incidence, and range
from minor engine modifications to innovative ship designs. Some carriers have launched
new ship designs (see Maersks Triple-E or NYKs Super ECO Ship project), while other
are exploring engine optimisation technologies, such as mechanisms to improve
combustion efficiency (fuel injection or the use of water emulsions) or waste heat reuse
(K-Line, 2010). Other innovative technologies include solar energy (until now only used
on car carrier vessels by NYK) or air lubrication of the hull, and wind propulsion by
means of kite or sail has been investigated for years now. CMA-CGM has been exploring
the possibility of developing lighter weight containers so that to reduce fuel consumption,
and low energy consuming reefers are commonly used across the industry.
Particularly important in this context has been the development of the IMO Energy
Efficiency Design Index (EEDI) (see Longva et al., 2010). The EEDI has also triggered
the development of a large set of monitoring instruments targeted at calculating the
amount of emissions generated by ships and different technologies. In this context it is
worth mentioning the Shipping Efficiency initiative of the Carbon War Room, aimed at
increasing transparency on the efficiency of ships (Carbon War Room, 2011) and the
Save Bunker Campaign of the NYK Group.
One of the most common operational measures among ocean carriers to reduce
emissions is the use of weather-routing systems aimed at minimising the length of the
haul without compromising in safety and the implementation of regular maintenance
schedules aimed at the propeller and the hull free of marine growths. Technology assisted
measures can also contribute substantially to the reduction of fuel consumption, through
optimal trim, i.e., optimised balance of cargo and minimum ballast water.
An operational measure that is worth mentioning more in detail is the practise of
reducing sailing speed to cut down fuel consumption and consequently emissions that is
generally referred to as slow steaming and that has been in the centre of a large debate in
the last few years. While almost all carriers have engaged in some form of slow steaming,
their ability to sustain such practise in the long term and especially when markets would
eventually become more supply driven have been disputed (Cariou, 2011) and the first
complaints of shippers on the fuel saving benefits of the practise not being passed on
have already been aired in the press (Brett, 2011).
3.3 Environmental care and conservation of (marine) resources
In addition to practices aimed at controlling and reducing emissions, carriers have
adopted a large set of policies concerning other external effects of maritime transport.









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Some of these policies are linked to IMO conventions and regulations. In particular, they
refer to the handling of garbage, sewage, oil and chemical residuals, ballast water
management, antifouling paint, with specifically the elimination of the toxic TBT
(tributylin) on the hulls of new ships), and training of employees. In particular as far as
the ballast water is concerned, as already mentioned, shipping companies need to comply
with IMO regulation and therefore are required to have a ballast management plan and
make exchanges in deep water at least at 200 nautical miles from the coast. Bilge water is
also increasingly the cause of environmental concern, with NYK bilge system being
adopted as an international guideline.
Another set of practises relate to saving resources. These policies can be
implemented in the offices, since typically container lines have a relatively larger
network of agencies and higher overheads than bulk transport companies, or at an
operational level. The offices of all major carriers are certified ISO 14001 and NYK
and CMA-CGM, among others, are experimenting with bamboo flooring inside
containers. Other policies relate to increasing environmental awareness. APL, among
other carriers, has developed an information website that addresses the environmental
challenges faced by container shipping, while other carriers are active in the protection of
cetaceans.
3.4 Efforts aiming at reducing impacts at ports and along the supply chain
Several carriers are active also as LSP and in ports. Various carriers (Maersk,
CMA-CGM, etc.) promote modal split and intermodal transport (the River Shuttle
Containers of CMA-CGM for example). Most carriers that engage in logistics activities
strive to reduce empty moves and optimise inland networks. Packing is also an important
area of environmental management. Noteworthy is the development of a 53 foot
container introduced by APL, that increases efficiency and reduces the need for off-dock
loading and unloading.
Ports and terminals have also witnessed an increase in the efforts of carriers to reduce
impacts. OOCL reconverted its Longbeach and Kaohsiung terminal in Taiwan to a green
terminal by eliminating straddle carrier operations (OOCL, 2011). NYK introduced solar
cells on the Tokyo Ohi Container Terminal and converted the Yusen Terminal Inc. (YTI)
in Los Angeles to electric cars. Further research is conducted in the use of fuel additives
to reduce soot and on hybrid cargo handling that is able to reuse waste energy.
Transport to and from the terminal by truck has also been targeted for emission
reduction, with the clean truck programme of Port of Longbeach being implemented by
OOCL (2011) and others. The port of Longbeach has been particularly active with the
Green-flag initiative that has been adopted by all major carriers. Similarly the port of
Seattle has developed the Green Gateway Partners Award for the comprehensive
environmental achievements of the carriers calling at the port. Recipients of the award
were, among other, APL, Maersk Line and COSCO.
Several ports (Los Angeles/Long Beach, Oakland, Seattle, Vancouver, and
Hong Kong) have adopted low sulphur fuel requirements. Several carriers, for example
APL and NYK that regularly call in California, will be switching off vessel diesel
generators and use shore-side electrical power to cut nitrogen oxide and particulate matter
emissions. Several initiatives, such as the Hong Kong-based Climate change business
forum, aim at offering a platform to discuss the challenges of climate change and share
best practices at port level.









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4 Pricing for sustainability
Investment in sustainability in liner shipping in order to be effective should be motivated
by the advantages that accrue to ocean carriers and their customers from a different way
of transacting. This is consistent with the approach taken by Robinson (2005). In his
insightful paper, the author explains what characterises shipping lines competitive
advantage.
Shipping lines will only derive competitive advantage by delivering the value
that the customer will accept not by operating on extensive networks, or by
operating with larger and faster ships or by operating clever e-business
systems through these may be fundamental to the value proposition offered by
the line and accepted by the customer. [Robinson, (2005), p.252]
One of the important insights in the work of Robinson (2005) consists of looking at ocean
carriers strategies beyond the operational point of view of vessel sizes, network coverage
or scheduling. Operational aspects, albeit crucial, are not sufficient to explain carriers
success and performance and the focus is shifted towards building a unique relation with
their customer where the carriers offer is fine-tuned with the needs of the customer. Such
approach can be implemented through service differentiation.
If in general it is hard for carriers to differentiate their service offer, since container
transportation is perceived as a rather homogeneous product (Haralambides, 2000),
possibilities exist as a result of route densities (Hummels et al., 2009), cargo difference,
customers relations, shipment time sensitivity, volume, need for upstream and
downstream logistics services, risk and security issues (OECD/ITF, 2009; Sjostrom,
1992; Acciaro, 2011). An alternative way to differentiate services is on the basis of the
quality of transportation and the inclusion of sustainability considerations can be treated
similarly to differentiation on the basis of quality.
This issue has not been addressed explicitly, but references exist in the well
documented context of the shipping cartels know as conferences (Devanney et al., 1975;
Fox, 1992, 1994; Haralambides, 2007). Although these contributions explicitly focused
on the conference system, their discussion on competition among carriers on the quality
of service highlights the relevance of quality issues in container transportation. In their
effort of analysing the quality attributes in liner shipping, Devanney et al. (1975) and Fox
(1992, 1994) focused on speed, arguing that some conference members have been able to
offer quicker services or preserve sailing schedules therefore charging a premium to their
customers. Haralambides (2007) indicates that carriers may improve the quality of the
services offered by acquiring a better control of the supply chain through higher shipment
visibility, better integration with inland transport and control of terminals and equipment,
among other things. The issue of whether better quality has been able to grant carriers
higher margins has not been tested though so far, with the exception of a few
contributions that touch on the issue indirectly (Notteboom, 2006; Saldanha et al., 2006;
Chen et al., 2009).
Pricing in the context of liner shipping appears to be the result of complex
negotiations, where the quality of the service offered contributes jointly with other
tangible and intangible factors, such as carrier reputation, network extension,
environmental considerations and the quality of the overall door-to-door logistics
proposition (Acciaro, 2010a; Lyridis et al., 2005; Wong et al., 2008; Haralambides and
Acciaro, 2010). Each shipment then becomes unique and can be priced according to what









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the shipper is willing to pay and its specific costs. The literature has only marginally
touched upon these issues and non-systematic testing has been performed to evaluate
until what extent this is a successful way of differentiating ocean transport [see for further
reference Brooks (1985), Wong et al. (2008), Notteboom and Rodrigue (2008) and
Acciaro (2010a, 2010b, 2011)].
It is important to observe that the inclusion of environmental aspects in the value
propositions offered to buyers also requires the adoption of a chain perspective for being
effective. This is also in line with some of the developments in the liner shipping
industry, with more and more carriers integrating vertically along the chain. Such chain
perspective allows for sustainable transportation to be effectively achieved and carriers
and buyers to benefit from it. In other words effective sustainability can only be achieved
through SSCM. But how then to reconcile the apparent diverging objectives of pursuing
competitive advantage and chain collaboration?
In answering this question, we build on the same assumptions of Robinson (2005),
that are in the end based on the alternative view on competitive advantage proposed by
Porter (1985), Penrose (1959), Cox (1997) and Cox et al. (2002). In particular Robinson
(2005) extends the chain system framework (CSF) developed for ports elsewhere
(Robinson, 2003) to the liner shipping industry. This framework is structured around the
following concepts and assumptions (we refer the reader to the original article or to
Acciaro (2010a) for a discussion on the assumptions):
1 ocean carriers are LSP
2 ocean carriers activities are framed within networks that are artefacts of corporate
strategy
3 ocean carriers do not only compete in markets but also in chains
4 power and dominance relationships are the determinants of chain structures and
operations
5 ocean carriers achieve business success when they are able to achieve and exploit
supply chain and market power.
On the basis of these five assumptions Robinson argues that chain perspective is
appropriate, even mandatory.
Let us see why a chain perspective is mandatory also when environmental aspects
need to be accounted for. Shipping lines operate not only on market places but on
structured chains that reflect particular logistic functions and spatial pathways (Robinson,
2003). Since carriers derive competitive advantage by delivering the value that their
customers will accept and ocean carriers are third party service providers, their customers
are the end-users of the service process, i.e., shippers or consignees (Robinson, 2005).
We have seen, in Section 3 that sustainability and CSR deliver values for end-users and
suppliers have a key role in facilitating this. Therefore, carriers should invest in
sustainability.
But what matters to buyers is not only the sustainability of a transport provider but of
the chain as a whole, since it is from the whole chain that they derive their competitive
advantage. But effective sustainable supply chains cannot be achieved by supply chain
parties alone. Carriers need therefore to cooperate with other chain parties to improve the









304 M. Acciaro












sustainability profile of the chain where they operate. Carriers need therefore to
strengthen their position along the chain and control the chain so that they can derive
competitive advantage and at the same time cooperate with other chain partners to
increase chain sustainability. Implicitly in the argument of Robinson is the struggle
within chain parties in capturing competitive advantage along the chain.
What should be noted though is that chain cooperation increases the total chain
competitive advantage and therefore the competitive advantage of the parties that operate
along the chain (and in the end of their customers). The objective is then to generate
chain competitive advantage through chain collaboration. When the chain competitive
advantage increases, all parties along the chain are in a position to improve their position.
The problem then becomes that of distributing the benefits deriving form the supply
chain collaboration. This problem can be solved through supply chain pricing.
Supply chain pricing allows sustainable value offers to be priced at a chain level,
therefore requiring transparency on the costs and benefits deriving from the offer. Such
approach could be more easily implemented in a vertically integrated chain, while in a
competitive environment it would result in the well-known conflict of collaborative
games, or prisoners dilemma. Possible solutions to the problem include the adoption of
supply chain pricing concepts. Sellers and buyers abstain from optimising their own
position in order to achieve an optimum that is in the interest of all the providers of chain
components. All profits made along the chain will then be distributed across all parties
involved in the chain (Voeth and Herbst, 2005).
The role of supply chain pricing in fostering supply chain cooperation is fundamental.
Important implications to supply chain pricing are that resources are shared both
upstream and downstream. Prices are seen traditionally as ex-ante distributive
parameters, and current supply chain pricing practises are based either on cost plus
(mark-up), outcome-based compensations or mechanisms involving a set of incentives
and penalties, mostly subjected to competitive forces. When we take the perspective of
relationship building, competition does not offer an adequate basis for understanding the
formation of prices.
As Voeth and Herbst (2005) have outlined, certain types of investments are too risky
if taken without the collaboration of buyers. Suppliers will be willing to invest only when
customers are also prepared to put themselves in a position of dependence. Certain
investments would not be viable without the active engagement of the buyer. Pricing can
in this respect then become a collaborative tool.
The following managerial practises then can favour the development of sustainable
supply chain pricing (Voeth and Herbst, 2005):
The clear development of agreements concerning the costs that are generated in the
implementation of SSCM, through for example a sustainability cost book;
1 the clear negotiation of a proper system to distribute profits and losses deriving from
SSCM
2 adequate investment in architecture and control system for sustainability that could
be considered as an increase in chain visibility
3 total sustainability management, where tasks and responsibility for the
implementation of sustainable supply chain pricing is accounted for.









Pricing in sustainable global container transport 305












In order to be able to allocate the benefits deriving from sustainable supply chain
pricing, carriers would have to work at a chain level to improve the sustainability of the
global supply chains where they operate. They would have to increase transparency
on the effective costs undertaken in fostering sustainability. New information
pricing in sustainable global container transport structures would have to be set up that
offer shippers a full overview of the sustainability level offered along the chain.
Furthermore, the costs and sustainability chain effects would have to be audited
independently in order to avoid hold-up problems (Williamson, 1985).
Shippers on the other side would have to be willing to commit to use of certain
chains, so that to allow for investment to be undertaken. This implies an increase in the
level of dependency of shippers to the chain suppliers. Efforts would have to be made in
order to ensure fair distribution of the optimised margin across the contract parties. An
additional implication of the arguments presented above is that as the level of
dependency increases, also the attractiveness of hierarchical organisational forms will
increase with respect to market-based structures. The inclusion of sustainability in the
strategies of carriers would also imply then a preference for vertically integrated
organisational structure (hierarchies) instead of economic organisations structured around
market transactions.
5 Concluding remarks
This article offers a first attempt to conceptualise the relations among environmental
sustainability, pricing and supply chain thinking with particular reference to global
supply chain and the liner shipping industry. Since sustainability represents one of the
new frontiers of corporate strategy for transportation, the article makes a case for its more
radical inclusion in the research work on liner shipping economics.
The article is based on two set of arguments and one fundamental assumption. The
first line of argument is that carriers are LSP and therefore they derive their competitive
advantage from the chains where they operate and the value propositions they offer to
their customers. The second argument is that effective environmental sustainability for
carriers can only be achieved through supply chain collaboration. The assumption refers
to the fact that shippers and consumers value sustainability.
Through the use of supply chain pricing arguments the article postulates that ocean
carriers can improve their competitive advantage by cooperating with other parties along
the chain and their customers to improve the sustainable profile of the chain where they
operate. This cooperation will result in higher chain profitability. In order to overcome
the difficulties connected with the sharing of the deriving profits and the hold up
problem, adequate managerial practices will have to be put in place.
The article still requires validation and empirical testing. Although from the overview
offered it appears that many carriers are already actively pursuing sustainability along the
chain. Further, operationalisation of the concepts might offer fertile grounds for future
research. A more formal approach to the problem of supply chain pricing might be
beneficial to a clearer understanding of the problems discussed and of the opportunities
that the application of supply chain pricing might offer in this context.










306 M. Acciaro












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Notes
1 While most carriers dedicate extensive sections of their website to their environmental
policies, some others, such as MSC do not provide any information on the corporate position
to environmental issues (MSC, 2011).
2 Among the carriers: OOCL; Maersk; Cosco; APL; Hapag-Lloyd; K-Line; HMM; Safmarine;
NYK Line; Yang Ming and Hamburg Sd. Among the shippers: IKEA; Coca-Cola; Shell;
Nike; Walmart; Nordstrom; Starbucks; Li & Fung; Polo Ralph Lauren; Electrolux; Johnson &
Johnson; John Wiley & Sons; and Phillips-Van Heusen.
3 Maersk; BP Shipping; Gearbulk; Tsakos Energy Navigation; Cargill; Rio Tinto Marine;
Daewoo Shipbuilding & Marine Engineering; Wrtsil; ABN Amro; RSA; WWF; and Forum
for the Future.