Mike Troy’s 30-year NVOCC (Non-Vessel Owning Common Carrier) career at Troy Container Line essentially spans the history of the NVO industry in the United States.
It’s a unique segment of the maritime industry and despite the NVOs’ service of providing a daily stream of container freight on-and-off containerships in US ports, it is still a misunderstood segment of ocean carriage. The words themselves hardly roll off the tongue – non-vessel owning common carrier. It’s hard to envision a parent listening to a child say, ‘I want to be an NVO when I grow up,’ (see box on page 18 – NVO definition) yet without NVOs, the US maritime industry would be greatly different and arguably much less efficient.
Troy didn’t start out as an NVO or even know what one was. In 1981, he was gainfully employed in the “hospitality industry” (tending bar and bussing tables at a restaurant) when one of his regular customers suggested trying something very different – working for a Danish firm named Maersk. While Troy might have become a successful New York City restaurateur, the chances were that the serendipitous foray into the maritime industry worked out pretty well.
He described his years at Maersk as a “paid education.” Later, he moved into freight forwarding sales but was already thinking about dipping his oar in the water. So when the opportunity presented itself to partner with Catucci warehouse, in a wholly new industry, the Non Vessel Common Carrier – NVOCC, Troy took the plunge.
On March 24th 1984, the newly minted company, Troy Catucci Line opened for business. The NVOs first LCL (Less-container-load) service began with a departure on an APL vessel to Hong Kong.
1984 - A New Era: Re-defining US Shipping
1984 was a landmark year for the US maritime industry, which had a great deal to do with the shaping of the NVO business.
On one hand the controversial 50-mile rule was deemed legal after a lengthy wrestling match between four federal agencies. In essence the 50-mile rule said that waterfront union labor under “the Rules on Container” were entitled to strip or stuff containers within 50-miles of a port, the exception being beneficial owners of the cargo.
The 50-mile rule was a sticking point for NVOs, as a prime feature of their business is moving LCL (Less-Container-Load) shipping. Consolidiators that strip and stuff the boxes are often a division, or key partners with an NVO. In practice this meant any warehouse within the 50-mile radius of the port couldn’t be used for stripping or stuffing containers, forcing the business to look farther inland for the services, to avoid confrontation with waterfront labor.
However, the most far-reaching development was the “The Shipping Act of 1984.” Prior to the 1984 act, US maritime trades were under the Shipping Act of 1916, which was woefully out of date with the advent of containerization. Tariffs (filed with the FMC – Federal Maritime Commission) prior to containerization were largely commodity and service route driven, but the box revolutionized the shipping industry and made such tariffs obsolete. Under the 1984 Act, contract carriage was introduced to the freight rate process rather than exclusively using the public tariff posting system.
The 1984 Act also included a review process that would ultimately result in the much more far reaching legislation in 1998, OSRA (Ocean Shipping Reform Act).
Finally, a segment of the act often overlooked, for the first time, defined what a NVOCC was within the context of US maritime legislation.
Between Acts – NVO Business Builds
Although the regulatory paradigm of US ocean shipping had shifted the real change was happening at the pier side. As Troy explained in an interview with the AJOT, in 1980 the average containership calling the East Coast was around 3,000-teus. By 1984 a 4,000-teu containership wasn’t uncommon, and container traffic was rapidly rising.
For Troy and other independent NVOs their role as an intermediary, buying slots from the steamship lines and selling space to shippers and forwarders, was predicated on the role the NVO played with all its partners in transportation transaction.
An NVO’s customer-base came through the freight forwarders side of the business. So part of the balance was avoiding poaching the freight forwarders’ clients. Steamship sales were for the most part directed at FCL (full container loads), and that left the LCL business to NVOs. The working concept being that with business booming, the steamship line sales staffs should be able to lock in the commitments on FCL freight. The LCL or consolidated business was considered too time consuming for the effort, especially as the box business was growing.
The problem was when a shipper had some FCL and LCL freight: what’s fair game? The same holds true on the forwarder side. What if the shipper goes direct to the NVO? Or worse the NVO goes direct to the shipper?
There are a dozen variations on the theme, but keeping the roles straight is akin to working for the UN. Troy often describes his position as “chief negotiator,” and it’s easy to understand why.
Another aspect of the NVO business that’s often overlooked is the extensive number of business alliances that are necessary to make the business work. It is a deal-driven business. There are the basics such as warehousing, consolidation and de-consolidation services and trucking. Securing reliable overseas agents are equally important to expanding the range of services for the independent NVO.
In Troy’s case building an arsenal of business alliances enabled the company to expand with LCL exports services to Europe/UK, South, East & West Africa, Middle East & South East Asia all within a few years. The first FCL service didn’t occur until 1989, when the company introduced an FCL service to Rotterdam.
One of the greatest changes in the NVO business came from an unexpected quarter, the steamship lines. As a business model goes, for most ocean carriers, NVOs were an ancillary part of the ocean shipping equation. The exception was an up and coming Swiss/Italian ocean carrier Mediterranean Shipping Company (MSC). MSC looked at the LCL market as an undervalued segment, and by targeting the LCL side looked at NVOs more like an extension of their sales team. It worked, and MSC’s growth (now the 2nd largest containership operator) reflected a new way of looking at NVOs. There is a certain lemming quality to ocean shipping, and to various degrees, other ocean carriers began embracing the NVO business as a way of bolstering their export box numbers.
In 1980s and 1990s there was a real reason for the interest in finding new export freight. As the Wal Mart retail boom fueled inbound consumer laden box growth, the imbalance of inbound to outbound containers, especially from Asia, saddled ocean carriers with equipment repositioning charges. Finding export boxes were key to offsetting the equipment expenses. In the US market finding an outbound FCL with cost effective freight was extremely difficult and the LCL freight, even with the ocean carrier volume discount was extremely valuable. From an NVOs perspective, the ocean carrier slots were a nice starting point against a business that was behaving more like a spot market. It was generally a highly profitable period for the emerging NVO industry. With a good NVO business climate came more competition, particularly from affiliated NVOs – companies looking to add the NVO arrow to their quiver of services. Some of that competition turned into 3PLs, and in turn, NVOs themselves began adding services.
Troy says during the days with booming business, you’d go weeks at a time with little sleep just trying to keep up with customers’ container flow.
Along the way, the NVO industry got another boost as the 50-mile rule was declared unconstitutional in 1989, taking one of the more onerous waterfront issues off the table.
A New Act & Recessions
With the end of the roaring ‘80s, the recession of 1990 began. As Troy recalls the downturn hit the business pretty hard at first, but Troy and NVOs in general (and the nation) came out pretty fast. Troy said the lessons learned in the recession helped the company ride out the next two downturns. Troy says, “You always remember to prepare in the goods times for the downturn.”
The “Great Recession” (2007-2009) was particularly devastating to the shipping industry, as there was a complete collapse across all industry sectors. Troy recalls, “Back in 2007, we sat down - the five of us [management] to talk about what we’d do. Our sales hadn’t yet been impacted by the downturn, as an NVO [with the contracts with the ocean carriers and shippers] is usually slightly behind the [spot] market. But the writing was on the wall.” “We survived the crisis and looking back we’re actually up 28%.”
From the company perspective, operations moved from Brooklyn to Red Bank and in 1997. Troy bought out Catucci’s Patricia Fitzgerald interest, and the company was renamed Troy Container Line.
In 1998, OSRA (Ocean Shipping Reform Act) came into effect, and the NVO business was one of the sticking points. Under OSRA, ocean carriers were allowed to enter into confidential contracts (service contracts) with shippers (BCOs- beneficial cargo owners). While the ocean carriers couldn’t collude on pricing, they were allowed to work collectively on operational side agreements. However, the NVOCCs still had published tariffs, which put them at a disadvantage with the ocean carriers.
One of the immediate impacts was that the number of individual NVOs slightly declined while the number of OTIs (Ocean Transportation Intermediaries) that are both freight forwarders and NVOs increased.
Three Decades In
Among the observations that Mike Troy has made over his three decades in the NVO business are the tremendous changes at the office level. When he began it was the telex, and he recalls, “How excited we got with a fax machine.” With e-mail, high-speed scanners and all the new communication tools, the business has really changed, and the IT department has become the heart of any transportation company.
Like many observers Troy wonders about just how prudent it is to keep building ever-larger containerships. Thirty years ago, 3,400 teus was a big ship. Less than twenty years ago, 6,000 teu ships were line haul vessels. Now with 18,000 teus, is the bottom line any better?
For an independent NVO the curious business of buying slots from the steamship lines and reselling them to shippers still continues to evolve. With the many cutbacks by ocean carriers on the sales side, perhaps even more than the old days, the NVO sales force is now an extension of the ocean carriers. How the next thirty years will pan out is anybody’s guess, but the role of the NVO has certainly made the maritime business more efficient in the US.