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December 18, 2017
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Reshuffled ocean carrier alliances have been good for industry—so far, carrier executives contend

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New carrier groupings and industry consolidation not detrimental to shippers, but problems remain, according to speakers at Coalition of New England Companies for Trade (CONECT) conference.

Despite the domination of major trade lanes by the largest ocean carriers, the Hanjin Shipping Co. bankruptcy, consolidation among several carriers, and a wholesale reorganization of ocean carrier alliances, competition has not suffered, according to one carrier executive.

Shippers still have "a lot of choices" in port pairs and sailings, asserted Patrick McGrath, senior vice president of Hamburg, Germany-based Hapag Lloyd. "I don't think there is less competition now," he said. McGrath spoke on a panel at the Coalition of New England Companies for Trade (CONECT) 16th Annual Northeast Cargo Symposium in Providence, R.I.

McGrath cited a number of new port calls and routes that have been established or announced by the reorganized alliances in recent months, including an increase in service to and from the U.S. East Coast. "These are things we probably would not have gotten if the industry were still as fragmented as it was," he said. For example, new services would not have been possible without the density of cargo that the alliance consolidation created, he said.

McGrath called the current alliance configuration "acceptable" in terms of size, cargo and market coverage density, and competition. The alliances "complement each other" and will be able to withstand industry changes, he suggested.

In April, the major ocean carriers swapped partners and reorganized into three alliances representing 80 percent of the global container fleet and covering more than 90 percent of global container trade: the Alliance, the 2M Alliance, and the OCEAN Alliance. The alliance reshuffling was largely triggered by the sudden collapse in August 2016 of Korean liner company Hanjin, which had been an alliance member. In theory, containership alliances will help carriers more efficiently manage assets, capacity, and services.

William F. Rooney, vice president strategic development, for the Swiss freight forwarding giant Kuehne + Nagel, said the alliances have been beneficial in helping to control costs and to add services. However, most of the cost savings have ended up in shippers' pockets, he said.

Schedule reliability, defined as on-time arrivals and departures of scheduled sailings, is the worst it's been since 2014, Rooney said, citing an analysis by the research firm SeaIntel. "Carriers can now go to or from anywhere, but their schedule reliability is poor."

Rooney said further consolidation is likely, and that the major players could shrink to four European carriers—Maersk, CMA-CGM, MSC, and Hapag Lloyd—and four Asian carriers—COSCO, ONE (a joint venture of three Japanese carriers), Hyundai Merchant Marine, and a "Taiwan-based carrier," presumably Evergreen, Yang Ming, or independent Wan Hai. Rooney said he expects that only one of the Taiwanese carriers will survive, but did not predict which one.

Rooney suggested that shippers direct most of their attention to individual carriers and their ability to make space and rate commitments, as well as to the capacity and service offered by individual vessel strings. Those factors will have a far greater direct impact on shippers' businesses than the alliances themselves, he said.

The number of weekly services between Asia and the United States has noticeably increased since the April alliance shuffle, and the number of container services to the Middle East on several lanes has also grown, said Philip Damas, director of the London-based research firm Drewry Supply Chain Advisors. Schedule reliability for the new alliances "was terrible at first; it has improved but it's still not good," he said.

Toby Gooley is Editor of CSCMP's Supply Chain Quarterly.

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