Proposed P3, bigger G6 to have major impact on box shipping: Drewry
THE current push among shipping lines for greater economies of scale through the creation of bigger alliances, such as the proposed P3 and expanded G6, has far reaching consequences for the container shipping industry that regulatory authorities will find difficult to agree upon.
The proposed expansion of G6 Alliance members Hapag-Lloyd, OOCL, NYK, HMM, APL and MOL into the Asia/West Coast North America and North Europe/East Coast North America tradelanes in the second quarter of 2014 is just another step in the current process of ocean carrier schedule rationalisation.
More is set to come, including the merging of services, should the P3 Alliance between Maersk, CMA CGM and MSC be approved by regulatory authorities, according to Drewry Maritime Research.
Not much will be gained through economies of scale on its own without schedule rationalisation. Services will subsequently need to be merged to enable the deployment of bigger vessels, which will reduce frequency, and this is planned in 2Q 14.
On the one hand, big shippers stand to gain much from improved service frequency and a more regular supply of vessel capacity in the short term, thereby reducing the risk of shut outs and roll-overs in times of tight supply.
On the other, the risk to shippers of reduced competition is clear to see, although those sharing vessels may well find themselves competing more on price than service differentiation, given that direct port pair frequencies, transit times and schedule reliability will all be the same.
But there is a longer-term danger that also has to be considered by regulatory authorities. As recently submitted by the niche Transatlantic market player Atlantic Container Line to the US' Federal Maritime Commission, "should the P3 alliance be approved, every remaining carrier will be forced to join forces in a similar bloc to remain competitive.
"The single independent carrier will go out of business. American exporters will no longer have a large portfolio of carriers to choose from. Instead, he will have only two or three big consortia to choose from, with service one or two days per week instead of seven days per week as today. The smaller terminal operators, smaller truckers, smaller logistics vendors and smaller ports will quickly disappear."
Although these arguments are very presumptuous, they resonate well with the popular view that 'small is beautiful, not inefficient'. Moreover, they also appeal to those wanting to see the likes of CSAV remain independent of Hapag-Lloyd.
CSAV may be no minnow, but approximately 75 per cent of its cargo involves South American exports and imports, so it can be described as a niche market specialist.
In Drewry's view the advantages gained through the formation of bigger shipping line alliances will outweigh the disadvantages. Shippers will receive better service, and there will still be room for sufficient service differentiation between ocean liners.
THE current push among shipping lines for greater economies of scale through the creation of bigger alliances, such as the proposed P3 and expanded G6, has far reaching consequences for the container shipping industry that regulatory authorities will find difficult to agree upon.
The proposed expansion of G6 Alliance members Hapag-Lloyd, OOCL, NYK, HMM, APL and MOL into the Asia/West Coast North America and North Europe/East Coast North America tradelanes in the second quarter of 2014 is just another step in the current process of ocean carrier schedule rationalisation.
More is set to come, including the merging of services, should the P3 Alliance between Maersk, CMA CGM and MSC be approved by regulatory authorities, according to Drewry Maritime Research.
Not much will be gained through economies of scale on its own without schedule rationalisation. Services will subsequently need to be merged to enable the deployment of bigger vessels, which will reduce frequency, and this is planned in 2Q 14.
On the one hand, big shippers stand to gain much from improved service frequency and a more regular supply of vessel capacity in the short term, thereby reducing the risk of shut outs and roll-overs in times of tight supply.
On the other, the risk to shippers of reduced competition is clear to see, although those sharing vessels may well find themselves competing more on price than service differentiation, given that direct port pair frequencies, transit times and schedule reliability will all be the same.
But there is a longer-term danger that also has to be considered by regulatory authorities. As recently submitted by the niche Transatlantic market player Atlantic Container Line to the US' Federal Maritime Commission, "should the P3 alliance be approved, every remaining carrier will be forced to join forces in a similar bloc to remain competitive.
"The single independent carrier will go out of business. American exporters will no longer have a large portfolio of carriers to choose from. Instead, he will have only two or three big consortia to choose from, with service one or two days per week instead of seven days per week as today. The smaller terminal operators, smaller truckers, smaller logistics vendors and smaller ports will quickly disappear."
Although these arguments are very presumptuous, they resonate well with the popular view that 'small is beautiful, not inefficient'. Moreover, they also appeal to those wanting to see the likes of CSAV remain independent of Hapag-Lloyd.
CSAV may be no minnow, but approximately 75 per cent of its cargo involves South American exports and imports, so it can be described as a niche market specialist.
In Drewry's view the advantages gained through the formation of bigger shipping line alliances will outweigh the disadvantages. Shippers will receive better service, and there will still be room for sufficient service differentiation between ocean liners.