What yield management actually is
Liner shipping is capital-intensive, requiring large investments in vessels and containers. In the current fiercely competitive market, monitoring and managing revenue closely is no longer optional. Carriers are still struggling to generate reasonable returns to stakeholders, which is why effective service-route planning, ship scheduling, and revenue management systems matter.
Yield management is the integrated management of price and inventory to maximise the profitability of a company. Cross, R. G. (1998, Trends in airline revenue management) frames it as the application of disciplined tactics that predict consumer behaviour at the micro-market level and optimise product availability and price to maximise revenue growth. The effectiveness of yield management is in focusing on revenue — using basic techniques to convert market uncertainty to probability, and probability to revenue gain.
“Yield management enables the liner business to sell the right service to the right customer, at the right time, for the right price.”
The vicious circle
Most trades are plagued with overcapacity, fierce competition, and low rates. The reason is structural — and the chain of cause and effect is the same every time.
- Cutting costs to compete
- Increased space supply as bigger ships are built
- Over-capacity created by larger fleets chasing the same demand
- Carriers compete by reducing freight rates
- Carriers suffer from low rates — and start cutting costs again
Why it keeps spinning
The vicious circle speeds up because of undifferentiated services and lack of customer loyalty — there is no meaningful service differentiation or saving from the customer's point of view, so the only lever is price.
Sales and trade managers often do not understand their relevant market because they lack quality real-time information. They go out and buy cargo at reduced freight rates to lift vessel utilisation. The competition responds in kind. Many carriers focus on short-term performance by trying to control load factors, but a full vessel is not the same as a profitable one — equipment repositioning, additional bunker, and trade-lane mix all impact sailing profitability. Lowering prices to drive demand only triggers another downward spiral.
“Loyalty is directly linked to service differentiation and quality of service from the client's perspective.”
Four benefits a yield system actually delivers
When yield management is implemented properly — not as a software bolt-on, but embedded in operating culture — there are four discrete improvements a carrier can expect.
- Customer expectations — insight into what customers want from the trade lane, so the product and its presentation can be shaped to match
- Competitive pricing — pricing strategy in the right trade lane for the right reasons; carriers without yield management increasingly cannot understand the bottom-line impact of their own decisions
- Market segments — visibility into the full extent of current segments, and into unexplored segments the carrier has under-served
- Company divisions — sales, marketing, and frontline customer service coordinated against the same revenue picture
What to look for in a yield manager
When selecting a yield management system, the features that actually matter are the operational ones. The list is small, but each item has direct margin implications.
- Improvements in cash-flow management
- Accurate, maintained financial information at trade-lane granularity
- Efficient management of vendor and supplier contracts
- Effective management of global equipment repositioning
- Effective management of vessel and container profitability per trade lane
The managerial side
Very little has been written about the managerial implications of yield management — which is part of the reason so many implementations fall flat. The cultural changes that determine whether a yield system actually delivers margin are:
- Competitive focus that filters down to every commercial decision
- Employee morale tied to the revenue picture, not just the volume picture
- Reward systems aligned to yield rather than load factor
- Commitment from top management — not delegated to a single analyst
- Identification of areas where employee training is the bottleneck
Bottom line
Yield management presents a tremendous opportunity for profitably managing capacity in a capacity-constrained liner business. The emphasis should be on developing quick, easy-to-use methods that begin producing results immediately — not perfect, infinitely-configurable systems that take 18 months to roll out. The carriers that get this right innovate in product, service and pricing in ways their cost-cutting competitors cannot.