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How Will New Ocean Carrier Alliances Affect Shippers?

THE Alliance is here! And no, I don’t mean those guys in the funny hats from that cult science fiction television show. I’m referring to the latest major ocean carrier alliance. Cult sci-fi shows may not be for everyone. Perhaps it’s more accurate to say that when it comes to ocean carrier alliances ‘the more things change, the more they stay the same’. It may also help to better understand the most recent alliance changes if we keep their original purpose in mind.How Will New Ocean Carrier Alliances Impact Shippers

In order to extend their geographic footprint and service offerings carriers have historically entered into vessel-sharing agreements which allow them to use each other’s ships to move containers. It’s basically about extending service and increasing profitability without messy and expensive capital investment.

There was plenty of industry speculation leading up to the April 1st launch of THE Alliance regarding how much this latest iteration of major-carrier alignment will impact shippers going forward. For now, we can run through the numbers and offer some observations about the nature of carrier alliances and how they continue to influence your day-to-day supply chain operations.

The Big Three Alliances by the Numbers

 Big 3 Carrier Alliances 2017 colors.jpg Big 3 Carrier Alliances 2017 colors chart.jpg

 

 

 

 

 

 Source: https://www.porttechnology.org/news/infographic_carrier_alliances_ready_for_world_trade

 

Current Alliances by the Numbers

  • Carrying 77% of global container capacity
  • Carrying 96% of the East-West container capacity
  • Overall the new alliances will drop 22 port pairs and add 19 port pairs
  • Suez Canal transship service will decline by 7% from the big three alliances

 

Potential Positives

The case in favor of alliances has always been based on the advantages such cooperation brings to both consumers and the carriers themselves. The truth is that no single carrier can afford the immense capital investment required to assign ships to every potential service routing. This fact became painfully obvious after 2008 when carriers started building bigger and bigger ships boasting unprecedented capacity. The result of the space explosion was consistent with the laws of supply and demand. Capacity went up and prices fell – dramatically. So carriers began to form alliances as a way to fill space on the new larger ships and eliminate the need for each individual carrier to commit their own vessels to every route.

According to alliance carriers, the case for how these agreements benefit consumers can be made in several ways. For example, alliance partners are still competitors and are prohibited from colluding on price. They maintain their own marketing strategies and pursue their individual corporate goals in terms of growth and expansion. This emphasis on competition should result in lower prices for consumers. There are other positive aspects to the alliance models.

  • A more tangible benefit may lie in the predictability of operational networks. By working together through alliance membership to coordinate port service, carriers are committed to maintaining service schedules. Consumers can develop their own supply chain strategies with more confidence.
  • THE Alliance has taken steps to provide financial contingency plans in the event of insolvency of a member carrier. This may give shippers some peace of mind, particularly after Hanjin’s financial woes last year.

 

There is a Downside

Conversely, there are disadvantages for shippers that are a direct result of carrier alliances. Not the least of which is a lack of competition. I mentioned earlier that competition between alliance members should result in lower rates. However, consolidating service routes and ports of call means fewer choices for consumers overall. Historically, less choice within markets never results in a truly competitive environment. The reality of today’s ocean carrier market is that shippers simply have fewer options for moving their freight. Some other downsides include:

  • The latest carrier alignments will result in fewer ships calling on North American ports. However, those ships will be larger capacity and increasing the number of larger-capacity vessels is likely to strain terminal operations at some US ports, at least in the short-term.
  • It can be hard for shippers to differentiate between carriers when their containers could be on any of several alliance member ships. This lack of service differentiation is compounded at the port when those same containers may be offloaded at any of several different terminals. This makes the case for one carrier to claim better service over another a bit more complicated.
  • The end result is a more complex industry environment as a whole.

 

A Short-Term Headache

Considering the scope of the changes that have been announced as a result of the April 1st alliance there will be inevitable challenges across the industry. Shippers are encouraged to work closely with their logistics partners to proactively address these potential problems.

  • Shippers may expect delays on some routings as new routings are implemented.
  • Terminal operations will be affected as carriers change terminals in key ports.
  • Additional delays may result as terminal equipment is re-allocated to service larger vessels.
  • Finally, there may be capacity issues or short-term shortages of container equipment on some routes.

 

What can Shippers do?

There are some strategies that you, the shipper, can utilize to mitigate some of the less appealing realities of carrier alliances.

  • Investigate your options and communicate with your forwarder. There may be other options including trans-shipment combinations that will work for you.
  • Where possible, consider building additional time into your delivery schedules to allow for potential delays.
  • Leverage the positive. Some of the new service pairngs offer faster or better routes that may be worth taking advantage of.
  • Mitigate your individual risk by identifying the vessel operator.
  • When possible, consider contracting across alliances to further mitigate risk.

 

There is an expression sometimes used in referring to the weather ‘if you don’t like it, stick around because it will change.’ And change is certainly a constant reality when it comes to ocean carrier alliances. Meanwhile, watch this space as we discuss other developments with ocean carrier alliances in future installments.

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