Launching a new business in a traditional industry such as container shipping can be very tough regardless of the promising potential of the untapped market you are targeting.
Johannes Schlingmeier and Christian Roeloffs launched their startup xChange in Hamburg, Germany, in November 2015, as they wanted to tackle the issue of repositioning empty containers by digitizing the process and allowing for carriers and logistics companies to interchange their empty boxes with the aim of cutting operating costs and the environmental footprint thereof.
The cost of repositioning empty containers amounts to USD 15-20 billion per year industry-wide, impacting container carriers, leasing companies and other logistics companies such as non-vessel owning common carriers (NVOCC) and container traders, according to xChange.
Namely, more than 200 million containers are being moved every year with one-third being moved empty. As such, for a typical carrier, repositioning costs represent 5 to 8 percent of total operating costs.
Two and a half years since the company’s launching, World Maritime News spoke with Christian Roeloffs, Managing Director, and Florian Frese, Director of Marketing at xChange to get an insight into the company’s business, challenges faced during the initial stage of operation and plans ahead.
They business started as an excel sheet with entries like: company A has container in location A, company B needs containers in location B.
“The list quickly exploded via word of mouth among companies involved in container shipping and was the start of xChange,” Frese said.
Today the online platform offers, real-time tracking, invoicing, payment handling as well as insurance services.
Experiences as a company operating digitally in a traditional business as container shipping
“The industry in itself is not inherently traditional—certainly all of our clients and the majority of the rest of the market have understood that digitalization is the future. We all have to adjust our business processes and how we interact with the market in order to stay relevant and competitive in the changing market environment.
“However what is definitely super conservative is the perspective of established companies on ANY newcomer—whether digital or not. It took us about 2 years to be taken seriously and the comments at e.g. trade fairs were quite literally: Hey, you guys are still around!? This must be worthwhile at last… can we have a chat?
“If you give up after 1.5 years because nobody is listening, then you never reach that stage!”
As explained, when xChange was first introduced, the industry complained about the low number of xChange’s original users, just eight, and the complexity of the product, as it added more steps to the repositioning procedure. Hence, over the recent period, the company has been working on fine-tuning the product to make it more user-friendly.
Now the company has the majority of the top 10 leasing companies and top 20 container liners on board, which provides a great liquidity basis, the duo explained. Moving forward, the biggest growth potential is seen in NVOCCs and traders who use /supply containers on xChange.
“Currently we see a few thousand transactions per week with ~20% month-on-month growth,” Frese said.
Benefits from interchanging containers
The average savings per interchanged container range between USD 200-400, arising mainly from the avoidance of expenses related to land transportation and the use of terminals. This corresponds to potential annual savings (per carrier) of approximately USD 350 million to USD 700 million. Scaling up this impact to the top 100 carriers would promote annual savings of up to USD 4.5 billion, according to xChange’s data.
If all other equipment providers and operators are included into the calculations, such as leasing companies and other logistics companies, this would increase the potential savings from USD 5 billion to USD 7 billion annually.
In addition, the interchanging of containers helps reduce CO2 emissions from shipping as moving an empty container between Europe and China produces 1.9 kilos of CO2.
xChange covers more than 2500 port locations and sees most activity in the “belt” between Europe, the Middle East/India and South East Asia.
“Other hotspots of course are newbuilt containers ex China into North America, ANZ and Europe. We see increasing traffic on stretches such as ex China to the US, ex China to Australia/ New Zealand and in South Africa,” Frese and Schlingmeier commented.
“Due to trade imbalances, countries with more exports than imports tend to have a high demand of containers whereas container life cycles end in the United States or Europe – countries/ regions with a surplus of containers in general. This means everyone wants to use containers in China while there might be containers stuck in Europe/ United States.”
Speaking about the competitors and risks for a company like xChange, Frese and Schlingmeier, said that when it comes to competition, there were “no real digital competitors to what we do… as a platform we’re unique.”
“However, there are of course competitive products which are (a) brokers who match container supply and demand manually and without creating transparency and (b) quite simply personal contacts between market participants.”
“As for the risks, cyber risks are certainly high up on the list but we think the biggest risk for us is losing neutrality and thereby our clients trust. Without trust, we will not get any updated information anymore and could close up shop.”
Plans for the future
“For us, everything is and will remain focused on the container and facilitating collaboration between market participants along the entire transportation and logistics value chain. Going forward that will mean increased system integration with our clients through e.g. API/EDI etc. but also extending our service offering to e.g. container resale,” Frese and Schlingmeier said.
When asked to give advice to other tech companies launching their business in the industry, our interviewees said:
“Expect a slower start-up than you might think. As noted above, it takes a long time for established companies to take you seriously!”
Interview by Jasmina Ovčina Mandra; Images; Unsplash, xChange