Expect Shipping Disruptions in April and May Due to the Transitioning within the new Alliances

SHANGHAI — There is mounting concern from shipper groups and forwarders that the new mega alliances launching in just over a week will create significant disruption to their supply chains.

Container lines will be transitioning from the old alliances to the new networks on April 1, but with such a total restructuring of the vessel-sharing agreements (VSA) and the huge number of port pairs involved — 420 on Asia-Europe alone — a smooth rollout is not expected.

“The VSA structures will bring big changes and rough seas are coming in April. As the carriers start to reposition and pull ships out, it is going to cause chaos,” said Ken Sine, vice president of global ocean product at Crane Worldwide Logistics.

The Ocean Alliance, THE Alliance, and the 2M Alliance plus Hyundai Merchant Marine will provide 17 weekly strings between Asia and North Europe, one more than offered by the four existing alliances (2M, G6, CKYE, and O3).

Sunny Ho, executive director of the Hong Kong Shippers’ Council, agreed that disruption was on the cards, with fears that capacity management and manipulation could be a major threat to carrier customers.

“The top four carriers account for 47.7 percent of total capacity. Most other operators are too small to offer real sense of rivalry,” he told delegates at the Intermodal Asia conference in Shanghai. “There is also concern of product diversification, such as port calls, routing, network, and frequency.”

Jessica Zhang, international trade operations for the Shanghai branch of Dow Chemical, said even though the container shipping world was undergoing a major restructuring, shippers’ commitments remained the same.

“Shipping lines are sharing slots in alliances, but even though their operational model has changed, our fundamental need is for them to provide a reliable service. On-time delivery is one of our KPIs [key performance indicators] that we commit to our customers, and we expect that same commitment from the lines,” she said.

Even though the new alliances would redraw the global networks and port calls, Zhang said her needs were straightforward. “We need to make sure we have enough space to fulfill our requirements.”

Chris Welsh, secretary general of the Global Shippers’ Council, said the problem was that in the formulation of the new market structure, the customer was largely absent from the discussion, with the focus on what works for the container lines.

“There is little differentiation in price and service offering by carriers. Shippers are seeing less choice and less competition. We all need to be worried about that,” he said.

Welsh said the Global Shippers’ Council was questioning the entire alliance business model, as in the past the VSAs had failed to provide shippers with the kind of certainty they needed to operate their just-in-time supply chains.

“Previous alliances resulted in uncertainty because of blanked sailings, delays, and port congestion, and there is no reason to believe the new alliances won’t continue to undermine that certainty that shippers require,” he said.

Alan Murphy, CEO of SeaIntel, said disruption would be difficult for the carriers to avoid. “There are three alliances that are reconfiguring, two of them completely new. There are a lot of services that need to move from one set of partners to another set of partners, and it could be sorted out soon or it could take weeks,” he said.

SeaCube Container Leasing chief operating officer Robert Sappio also raised the potential of a shortage in boxes as the new alliances start to operate in April.

“That will take some time to get right and to get in effect for the peak shipping season, and it is possible there could be some inefficiencies as the alliances get used to their new networks and new rotations,” he said. “That may also cause a need for new equipment, at least in the short term.”

As shippers try to make sense of the new alliance networks, Sine warned delegates that maintaining a diversified portfolio of carriers was critical and a shipper or consignee needed to fully understand what they were getting in the new alliances.

“When you contract with a carrier, you need to avoid single sourcing yourself. If an NVOCC [non-vessel operating common carrier] comes with a great offer but doesn’t tell you that their solution is Maersk Line and MSC [Mediterranean Shipping Co.], they have single sourced you and you are not managing your risk,” Sine said.

“And it is all about managing risk as we learned from the Hanjin Shipping bankruptcy. Understand the services you use and know what is involved in the alliances you are using. Understand what you are contracting, but understand that you are not just dealing with a carrier that is moving cargo under a bill of lading for you. You also need to worry about its VSA partners.”

One of the big worries for shippers at the moment is related to carriers shifting vessels around in preparation for the launch of the new alliances and creating serious space shortages for North Europe exports to Asia. It has had the effect of driving up rates on the backhaul route, with CMA CGM just announcing that its freight-all-kinds rate, or FAK, from Rotterdam to China would be $1,400 per 20-foot-equivalent unit (TEU) from April 16.

That is more than $500 per TEU higher than the current headhaul spot rate from Shanghai to North Europe, which is tracked on JOC.com’s Market Data Hub.

Welsh said from a customer point of view, this was totally unacceptable. “Cargo space is being rationed by carriers. It is causing a lot of shippers to consider other alternatives to ocean freight, such as air or rail. There is huge interest in the China-Europe rail because of this,” he said.

Contact Greg Knowler at greg.knowler@ihsmarkit.com and follow him on Twitter: @greg_knowler.

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