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Editorial: Alliances on Oceans Keep Carriers Abreast in Trade

Image Courtesy: Shipspotting.com

Port Wings, 20 March 2019:

It is a hard-hitting fact that the ocean freight transportation industry has been badly challenged by global supply and demand disparity. And in the last one decade, so many things have happened which were even out of anyone’s wild imagination.

Yes, there has been a wave of consolidation throughout the market, especially to limit problems for both carriers and shippers. Though ocean carriers benefited from periods of increased demand due to unstable trade pattern,

The Great Recession of 2007-2009, when supply decreased rapidly for container shipping, instigated a chain reaction for ocean carriers, making it vital to ensure that freight rates didn’t tumble too far. In response, ocean carriers began forming new alliances mainly to stay afloat. What used to be four main alliances has recently changed into three larger unions — 2M Alliance (MSC, Maersk, Hamburg Sud, Hyundai), Ocean Alliance (CMA CGM, APL, COSCO, China Shipping, OOCL, Evergreen), and The Alliance (NYK Group, “K” Line, MOL, Yang Ming, Hapag-Lloyd, UASC).

The current state of the three-carrier alliance takes into account almost 80% of the container trade in the world and nearly 90% of container volume on primary trade lanes.

The absence of competition that has been created due to these major unions has permitted carriers to recapture productivity, control rate changes and space accessibility. As a shipper looking for other possibilities, it can be troubling that five or six worldwide carriers control all major international trade routes.

Under the changing scenario, there are only two possibilities. Big players will become major players maintaining main trade routes and smaller players will be left to hold shorter routes.

While the shipping liners may not term it as a compulsion to save their face, the users clearly know that it is a timely decision by carriers to save their depreciating assets.

However, for the users, formation of more alliances is something written on the wall, as it would drive away the needed competition among them and culminates at a point where it will be on geography-based slab basis with any shipping liners.

Since 2009, most of the shipping lines were passing through the dilemma. At one point of time, there were surplus availability of boxes and slots and it has led to sudden nose-diving of rates way below of their margin of profit.

Since then, the prominent shipping lines, which are often competing for slots and portrayed as rivals in the domain, began backdoor negotiations to put an end to the volatility in the trade. And the need to bring uniformed rates for freight and slot by the competing shipping lines to reduce their losses has reached in formation of consortiums.

With the new alliances taking shape, the pertinent question of competitiveness arises in the minds of the users.

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