Looking “down the line” on new ocean alliances

Looking “down the line” on new ocean alliances

By Julia Kuzeljevich

Three newly formed ocean shipping alliances officially took effect at the beginning of April. These alliances will control 90% of shipments on major global trade routes.

More cargo on ships that will make fewer stops is the plan-what could some of the implications be downstream?  Everyone must be prepared for impacts at Canadian ports.

According to a recent editorial in Lloyd’s Loading List, the three mega alliances are dropping 380 direct routes and adding over 330 new direct routes to their networks in the Asia-Europe, trans-Atlantic, and trans-Pacific trades. This will open up many new port-pair options and routes.

For the OCEAN and THE alliances routes, compared to the alliance services their member carriers offered before April, for the trans-Atlantic trade routes, 47% of routes have a faster transit time and for Asia-Europe trade routes, 60% of routes have a faster transit time.

The new alliances have also dropped some ports from their services, which is one reason that the transit times overall are becoming shorter.

About 37% of the trans-Atlantic trade routes and 51% of the Asia-Europe trade routes will have an average transit time difference of three or more days compared to the routes offered before April. This means that over a third of the routes offered by the OCEAN and THE alliance members will be offering much shorter or longer options for their routes.

As the carriers and alliances offer new ports, their transshipment options grow as well. In addition to searching direct port pairs and published transshipment routes, there is the possibility of new transshipment combinations that may be faster or more reliable.

There is no doubt that the new alliances are creating the need for a lot of info-gathering and restructuring across the entire supply chain. The complexities are staggering.  For example, carriers may be keeping a port in the alliance rotation, but changing the terminal they utilize at that port. This will impact on-dock operations and movement to rail. Railroads will be required to do extensive planning to accommodate any switches in terminal. It also means that imports may be handled through a different terminal with implications for eHBL filings.

In a statement from CN on the new alliances, Dan Bresolin, Assistant Vice President, International Sales & Marketing, Intermodal, said that over the past few months, CN has been gathering information from the ocean carriers through face to face meetings both overseas and in North America to prepare for the restructuring of their vessel-sharing agreements (VSA) and transition from the old alliances to the new networks.

“Through this collaboration, and in conjunction with our supply chain partners and stakeholders, we have developed a good picture of what the aggregate volumes will look like at each terminal on all three coasts that CN serves,” he said.

This will involve building a robust train plan to move the volumes discharging and loading at all CN gateway ports through weekly volume forecasts received from the ocean carriers.

Through the transition period, the railway aims to keep dwell times as low as possible collaborating where necessary with Vancouver Port operators to truck containers to CN’s Domestic Terminal.

Managing risk

In 2017, diversifying carrier selection, not only by the carriers and alliances, but also by the vessel operator for critical routes, is considered a wise move.

Managing risk may also mean contracting across alliances, not carriers. Because carriers share vessels within their alliances, shipping with two different carriers is not necessarily a guarantee that you’re shipping on two different vessels.

The shipping alliances may appear to wield the power, but partnerships can build leverage. Leading up to the alliances’ launch, many ports have been investing in infrastructure improvements to prepare for bigger ships. Some have made steps to coordinate, to look at synergies. Hopefully, this provides an opportunity for true collaboration and transparency to emerge in the relationship between logistics services providers, carriers and clients.

There are still a number of hurdles to consider: a joint survey by Drewry and the European Shippers’ Council published in April asked 189 shippers and 82 freight forwarders and non-vessel-operating common carriers how satisfied they were with services provided by ocean carriers in 2016.

On a scale of 1 (very dissatisfied) to 5 (very satisfied), customers on average did not rate carriers higher than 3.3 for any of the 16 service attributes, the survey showed.

Respondents were mostly dissatisfied with carrier financial stability, the quality of customer service, and reliability of booking/cargo shipped as booked.

On the flip side, respondents were most satisfied with the price of services, accurate documentation and the quality of equipment (containers).
Nearly 80 percent feel carrier financial stability is worse than a year earlier, and more than half say the range of different available carriers for them is worse.

(Note: as we were writing this blog, Yang Ming had just issued an update on its financial status to mitigate shipper and service provider concerns after the suspension of its shares on the Taiwan Stock Exchange the week previous.

 The carrier, part of THE Alliance, has been under considerable pressure to clarify its decision to temporarily suspend share dealing, amid fears the troubled Taiwanese carrier could follow Hanjin Shipping into bankruptcy.)
The key message from the survey was that with more complex supply chains, partnership is of key importance.

“Shippers and forwarders clearly see the necessity for the carrier industry to invest in IT and to balance the needs for cost competitiveness and for more predictability and reliability,” said Philip Damas, head of Drewry’s logistics practice.

Julia Kuzeljevich is the Public Affairs Manager at CIFFA