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Shipping alliances: are they good for movers?

Jan 15, 2015
There was a time when there was a wide choice of shipping lines for every destination. If you didn’t like the service from one - the scheduling, the transit time, the quality of equipment or even the telephone manner - you could switch with ease.

But the shipping world has changed.  Now it’s not so easy.  In the last few years we have seen an unprecedented consolidation of the shipping industry driven, in part, by the recession.  But is this good news for shippers, or bad?    

In recent years four key alliances have emerged all sporting rather prosaic names:

  • G6 – comprising Hapag, APL, OOCL, NYK, Hyundai and MOL;
  • 2M – a vessel-sharing agreement between the world’s two largest lines Maersk and MSC;
  • CKYH + E – an inspired name for an alliance of Cosco, K-Line, Yang Ming, Hanjin and the newcomer, Evergreen;
  • Ocean3  - a new alliance of UASC, CMG CGM and China Shipping.

According to Harm Meierdirks, Chairman of OSA (Overseas Shippers Association), these have come about as the shipping lines struggled to become more competitive.   “Since 2008 the difference between supply and demand has become bigger,” he said.  “Lines lost a lot of money so had to focus on cost reduction.”

This strategy used two key tactics: cost reduction programmes such as slow steaming, investment in areas with cheap labour and a reduction in European staff, “Nearly 50% of the customer service staff at Maersk were fired,” said Harm; and bigger vessels.  Before the recession the average vessel size on the main routes was 8-9000 TEUs; the new generation of 18,000TEU vessels use 35% less fuel thereby reducing the cost per TEU by 26%. 

But it was clear that more had to be done if the smaller lines were to compete, especially with the giant Maersk. Maersk was running a service called Daily Maersk which provided a conveyor belt from Asia to Europe which gave the other lines a hard time.  “G6 was the first alliance to form to compete against Maersk,” said Harm.  “But the remaining single lines were not able to run this high-frequency service and there was not enough cargo to fill vessels.  Step by step other lines followed G6 and created their own alliances.”

So is this good news for HHG shippers?  Harm doesn’t think so.  He explained that the HHG market is very sensitive because we are dealing with personal possessions and customers own travel plans.  Reduced flexibility means that it is less likely that collection days can be matched to vessel sailing schedules.  Now, if a shipment is collected just after a vessel has sailed there is little option but to hold a container on demurrage until the next sailing. “Demurrage can be €60-€90 a day so the costs can build up quickly.”

The larger vessels also reduce flexibility for the shipping lines at times when cargo is short. In the past it was possible for a line to stop one sailing and switch the cargo to the following vessel.  “But stopping an 18,000 TEU vessel leaves a very big hole in the schedule,” said Harm.

In practice, the multitude of shipping lines that we had at our disposal in the past have been reduced to no more than four options. This reduction in competition must have an effect on rates and Harm is expecting the worldwide shipping rates to increase next year as a direct result of the consolidation.   

So is this the end? Are there even more changes around the corner?  “I don’t think so,” said Harm.  All the main lines are in alliances now.  We just have to accept that this is the way things will be for the foreseeable future.” 

Photo: Harm Meierdirks

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