Benefits for the shipping industry

In just over a week, most of the world’s top ocean freight carriers will set sail into charted waters with their corresponding new partners. The three big alliances, OCEAN Alliance, THE Alliance, and 2M, and their members have, in one way or another, gone through changes the past year – some significant, some expected.

It will be interesting to see how THE Alliance and OCEAN Alliance play out. In previous alliance groupings, there were usually patterns of certain carriers working really well together. But now, there are new constellation of carriers that I do not recall having worked together before. I look forward to seeing how former partners will compete against each other, now that they’re no longer selling the exact same services.

As for the 2M Alliance, the two giants have had starkly different approaches to how they have managed things in the past. Maersk’s greatest strength stems from the reliability of its vessel operations – something MSC has never excelled at, to put it kindly. MSC, on the other hand, has always tried to provide and maintain a high level of customer service and introduce more flexibility than a lot of the other carriers. Prior to 2M, MSC had already been improving their operations. But we have definitely seen great changes as a result of this 2M partnership.

What changes will the reshuffle bring?

Such alliance reshuffles allow carriers to have a lower overhead and provide more options in terms of sailings since they will be sharing vessels and services. And so, directly, carriers will benefit from a cost reduction. With that said, the benefits are visible and obvious. As I will explain later on, this will turn out to be rather limiting for shippers.

In any case, there’s the downside that most shippers aren’t but should be aware of – the friction. If there’s friction between carriers, it wouldn’t be unusual for one to delay or in some cases even refuse to grant approval for hazardous shipments or late gates, etc. It’s petty, since all it achieves is create issues and problems for them which, in many cases, means delays for the shippers.

Inevitable effect on freight forwarders

Also, we must not forget the effect on the pricing aspect as well. As a freight forwarder, we have seen carriers belonging to the same alliances compete heavily on prices or work together to keep rates up. We can only hope the carriers manage to find an acceptable level that is healthy for the industry as a whole.

There can also be service issues and rates issues that will affect us as ocean transportation intermediaries. It’s not always the price that’s the driving factor. We often live off of being able to offer multiple different options in terms of routing, sailing, schedules. That said, we will certainly feel the effects of having fewer players in the market. Given the sharing of vessels and routes, this basically translates into multiple carriers having the exact same schedule. Instead of having seven or eight carriers offering a sailing of their own, we will perhaps only be getting three. Generally, this means having fewer alternatives when customers need to meet certain deadlines, which can be rather frustrating.

Scheduling wise, freight forwarders can expect a certain amount of dealing with clients needing to change their booking habits. That’s in order to get used to working with the new schedules. But we also need to learn to maximize what they can offer clients based on the services available. With iContainers US based in Miami, we’re very close to one of the regions in the world with the highest amount of small niche carriers like we have in the Caribbean and Central American trades. Some of them may hope to increase market shares or possibly even add to their service portfolios – depending on the services the big alliances are offering in the area.

One benefit that may result from the alliances would be the scheduling and planning for bookings from port. This is due to equipment availability. Also, we should also see improvements in schedule integrity due to the increasing pressure to ensure that vessels are keeping to their schedules.

Emergency fund

Post-Hanjin, THE Alliance unveiled an emergency fund in the event of an insolvency of any of its members. This means carriers are paying a certain amount into this, which will be used to ensure vessels are docked and discharged so the other carriers and arrange cargo delivery to its final destination. The big problem when Hanjin collapsed was that there was no money and nobody to pay for the cost of discharging the vessels, which resulted in a major supply chain bottleneck. Given the financial trouble certain carriers have faced over the past few years, this is a wise move. It’s a sign that carriers have learned from it. But let’s hope that we’ll never get to see this fund in action.

Conclusion

We may see changes in some of the traditional patterns we’re used to seeing. Hopefully, this will shake things up a little and we can see a healthier industry again: One where good service forms an integral part of shipping lines’ attraction and not just a component of an ocean freight quote.