Commentary: New alliances will wrinkle supply chains

The consolidation from four major east-west container carrier alliances to three is designed to improve operational efficiency and profitability for the carriers, but it may also limit service options for shippers and increase total landed costs.

   What’s good for the container carriers may not necessarily be what’s good for shippers and non-vessel-operating common carriers. This could be said about the recent consolidation of the major carrier alliances from four to three at the start of the second quarter.
   The new vessel sharing agreements that came into effect April 1 include the OCEAN Alliance of CMA CGM, COSCO, Evergreen Line and OOCL and THE Alliance of Yang Ming, “K” Line, NYK Line, MOL and Hapag-Lloyd. And the existing 2M Alliance of Maersk Line and Mediterranean Shipping Co. got a boost from new slot purchasers Hamburg Süd and Hyundai Merchant Marine.
   They are large, commanding entities. The OCEAN Alliance, for example, includes 41 loops with a deployment of 323 containerships, while THE Alliance will offer 31 services with a collection of 240 vessels.
   A new reality for shippers relying on these carriers in 2017 will be an evolution toward fewer options and less competition when negotiating service contracts.
   Here’s why: Fewer service loops means fewer direct port pairs, which could mean shippers have to transship more or rely on third-party logistics providers to help them get their cargo overland to and from the right ports.
   The shift to alliances a few years back—and their recent consolidation—stems primarily from the increasing size of containerships, and these vessels are expected to grow even larger in the next few years. Their deployment has also caused a cascading of these assets throughout the global trade lanes, deteriorating rates even in once profitable off-line trades.
   From the carriers’ perspective, the bigger ships are more efficient to operate. However, this currently doesn’t translate to a similar outcome when they arrive in ill-equipped ports, like those in the United States. It’s basic math that the more cargo on board a behemoth containership arriving at a single terminal, the more time it takes to unload and place those boxes onto truck chassis, railcars or into yards compared to that same volume of containers delved out among multiple vessels calling at separate terminals in a port complex.
   Carriers and their NVO brethren need compensatory rates for their services in order to operate their businesses profitably, but this probably won’t happen any time soon. Even with fewer alliances and less direct competition, rate increases will be slow in coming as long as the carriers continue to add capacity to an already oversaturated market.
   And although shippers will continue to benefit from low container freight rates for the time being, they will likely experience increases in their total shipping costs due to the wrinkles that manifest themselves as the surrounding links in their supply chains adjust to the alliance realignment. These added costs, which extend beyond the scope of container freight rates to drayage, inland and last- mile, are the direct result of an ocean carrier industry that’s still in disarray after a dismal 2016.