Ocean Carrier Alliances Part 2: What Do New Carrier Alliances Mean for You?

By: Mollie Bailey, Director, International, LCB, Transplace

In our recent Shipper Symposium Series Webinar, I discussed some new ocean carrier alliances that have come about in 2017. In part one of this blog post, I shared what the industry has looked like over the past ten years and which global ocean carriers have partnered. In this post, I’ll be discussing how these new alliances could affect shippers, what we can expect to see in the marketplace moving forward and some industry best practices that can be of help.

Rebooting Alliances for the Good of the Industry

As I discussed in part one of this post, what used to be four primary ocean carrier alliances has now transformed into three different ocean carrier alliances. Many carriers are now “rebooting” in 2017, and alliances are collectively designing loop services in order to provide competitive networks.

There is a concerted effort on the part of the carriers to collectively examine how different trade lines should be serviced, how they can provide these services in the most competitive way and how their overall costs can be managed most effectively. In light of the rocky path of continued supply and demand imbalance and challenges with overcapacity, the goal is for ocean carriers to truly get in better financial shape for the future.

Alliances Strengths, Weaknesses and Potential Impacts

Overall, carriers are pleased with the three recent alliances for a number of reasons, and there are some great benefits that have resulted from the partnerships, including:

  • Fewer competitors controlling more vessels
  • More effective management of existing capacity
  • Greater alignment of future vessel orders with demand forecasts
  • A reduction in operating costs and cleaner negotiation with service providers such as tugboat operators, container lessors, terminal operators and stevedores
  • An expanded scope, allowing alliance members to call on new ports or take advantage of new route opportunities

However, there are also weaknesses in these alliances and some things to be aware of. For example, there are certainly concerns that one or more members of these alliances may be in debt, and the impact of any one member’s financial challenges could be passed off to the rest of the alliance, similar to what the industry saw during the Hanjin bankruptcy.

Some of the other concerns within the industry include:

  • Terminal congestion: In Asia and Europe especially, ship bunching has become a larger problem due to redrawn vessel rotations – leading multiple vessels to call on a terminal too quickly and causing increased challenges loading and unloading those vessels within the terminals
  • Chassis dislocations: Container ships are calling different terminals and ports, changing where many chassis need to be – causing concerns that the shipper or importer may be bearing the brunt of that impact and paying any associated dislocation fees
  • Delays in spotting and releasing intermodal trains: Some scheduled intermodal trains have been delayed or had other challenges due to increased congestion and ship bunching in a number of key ports

Other critical impacts of the carrier alliances have included an overall industry shift to a “hub-and-spoke” network, similar to how airlines deploy their fleets. And this type of network leads to greater demand being placed on vessels and yard and gate operations. Many ports can’t handle the really large vessels used by some of the carriers in these alliances, and the continued investment that is being poured into building such large vessels that can only be handled by the minority of ports is cause for concern.

What Do These Alliances Mean for You?

Shippers can certainly adapt to the changes brought on by these carrier alliances and thrive in the industry with a few key best practices.

What can shippers do as more and more ocean carriers are partnering together?

  • Contract across alliances – not just carriers – to manage risk. Make sure that you partner with diverse service providers that are represented in all three alliances. This will ensure that containers are being carried on different vessels, and it will help to manage your risk if one alliance member runs into financial issues.
  • Contractually require ocean carriers to carry a certain percentage of your cargo on their own vessels, and ensure that a certain percentage is on specific vessels within an alliance.
  • Reserve the right to reduce your quantity commitment (MQC) based on specific declining carrier metrics such as on time performance, services scope, transit requirements and direct ports of call.
  • Review your carriers’ financial results frequently. A carrier’s “Z-Score” can tell you a great deal about their current financial health.
  • Stay up-to-date on shipping industry headlines and ask your 3PL provider for the latest shipping news and industry trends. These partners should be filling you in on what is happening within the industry on a regular basis.

For more on this topic, check out the video of our recent Shipper Symposium Series Webinar!

How are you keeping up with current shipping industry headlines?

 

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