April launch of new alliances could create uncertainity in the market
THE realignment of the four global vessel-sharing alliances into three larger and more powerful alliances can be viewed as the shipping industry's latest attempt to cut costs and increase leverage in a cut-throat environment. However, the impact of these changes on ports, marine terminal operators, and beneficial cargo owners (BCOs) must not be overlooked.
As carriers consolidate their vessel calls into fewer port pairs, there will be winners and losers. For BCOs, there will be fewer choices of routes, and there will be no guarantee that the shipments they book with certain carriers will travel on those vessels because of the numerous slot-sharing arrangements that will be in place when the new alliances begin operating on April 1.
Rate volatility is possible as the alliances compete for business, according to IHS Media.
Marine terminal operators, however, could feel the biggest residual impact of the alliance reshuffling. The alliances, and the bigger ships they will deploy, will require taller cranes, more yard space, expanded gate capacity, and probably longer hours of operations. Terminal operators and operating ports will have to pick up the bill for theseadditional costs.
"The alliances are spreading the pain to the terminals," Philip Damas, director of supply chains advisors at London-based consulting and research firm Drewry said.
Although the launch of the new alliances is only three months away, there is a great deal of uncertainty as to the weekly capacity each alliance will deploy on each vessel string and, therefore, also on the impact the new groupings will have on freight rates in an environment marked by excess capacity.
The rapid changes occurring in the industry, including carrier mergers and acquisitions and the August bankruptcy filing by Hanjin Shipping are further clouding the crystal ball, because the newly merged carriers are still working out their internal operations while they meet with their counterparts in the new alliances.
Lars Jensen, partner in SeaIntelligence Consulting, said it's too early to measure the exact impact the new alliances structure will have on ports and port competitiveness in North America. Because the alliances have yet to publish their vessel sizes and transit times in the transPacific, "it is difficult to measure exactly what the impact will be on overall trade lane capacity, and hence freight rates," Mr Jensen added.
One point for certain, though, is that a major driver of the new alliances is carriers' desire to cut operating costs rather than improving service to customers or providing more rapid transit times, Ronald D Widdows, executive chairman of American Intermodal Management and chairman of the World Shipping Council, told the Port Performance conference. "If you don't get paid a nickel more to improve service, why do it?"
On the other hand, if the member lines of each alliance break down the barriers of mistrust that are common in the industry and work more closely together to share cargo data and align their information systems more closely, the new alliance structure could result in improved service to customers, Mr Widdows said.
Advanced transmission of shipment data would be of special benefit to service providers such as terminal operators and truckers.
Carriers also would be wise not to use the increased leverage they are achieving through the formation of larger, more powerful alliances to squeeze terminal operators more than they have been on the rates they pay for lifting containers on and off vessels, said James J. Devine, senior consultant at Mercator International and a former president and CEO of New York Container Terminal.