For nearly a decade, ocean carriers have been forming alliances as a cost-saving way to offer more sailings with fewer ships by sharing cargo space on mega vessels.
But last year’s unprecedented number of ocean carrier mergers, along with the collapse of seventh-largest container carrier Hanjin Shipping, has created something never seen before in the industry: the reshuffling of ocean carriers from four to three new alliances, all starting on April 1.
“I’ve called it ‘The Big Bang of 2017,'” said David J. Arsenault, president of Logistics Transformation Solutions, and former president of Hyundai Merchant Marine America.
Arsenault was part of a “Learning from Hanjin” panel that took place Feb. 28 at the Journal of Commerce’s TPM 2017 Conference at the Long Beach Convention Center.
“We’ve had alliances form and come and go but that’s been staggered in the past,” he told the international audience of supply chain stakeholders who came to the annual event. “This is a shotgun start and it’s the first time we’ve ever seen three mega alliances kick off all at the same time, and it has tremendous upstream and downstream consequences.”
In anticipation of the change, the Port of Long Beach has been closely monitoring the situation, and has been engaging with leadership and operations staff of shipping lines, terminal operators, labor, truckers and railroads.
“Our goal is to make sure our Port partners are communicating with each other and coordinating operations. We’ve been facilitating meetings to enable dialogue among our stakeholders,” said Port of Long Beach Interim Chief Executive Duane Kenagy.
The three new alliances, which were cemented in 2016, are:
- 2M Alliance, which involves the world’s two largest ocean carriers, Maersk Line (which is poised to acquire carrier Hamburg Süd), and Mediterranean Shipping Company, with a Vessel Sharing Agreement with Hyundai Merchant Marine;
- Ocean Alliance, which consists of third-largest ocean carrier CMA CGM, (with APL, which CMA CGM acquired in its deal with Neptune Orient Lines); China COSCO Shipping (the newly merged COSCO and China Shipping), Orient Overseas Container Line (OOCL), and Evergreen; and
- THE Alliance, made up of Hapag Lloyd (which is merging with United Arab Shipping Company (UASC)); Yang Ming Ltd.; and three Japanese carriers that are expected to merge into a single company this year: Mitsui OSK Lines (MOL) Ltd., Nippon Yusen Kaisha (NYK) Lines, and Kawasaki Kisen Kaisha, Ltd. (K Line).
Shipping and maritime news portal Container News reports that the three new alliances will account for about 77.2 percent of global container capacity and 96 percent of all container capacity in the East-West trades.
These new ocean alliances will mean new customers with new destinations, with some ships likely moving off routes between Asia and Europe to trans-Pacific routes.
The changes could also mean potential delays, as the shifting of cargo moving on different ships will move to new terminals with different ways to load and unload and different customer priorities to meet. This, paired with ongoing equipment and terminal velocity issues, could compound supply chain challenges.
It has put a massive supply chain – which includes shippers, ocean carriers, terminal operators, truckers and everyone else in between – on high alert. One major port chief has already warned beneficial cargo owners and truckers to anticipate “another wave of confusion” while the three new alliances go through the learning curve of working together to get products to where they need to be in a timely manner.
“So we’re now going to see, I think, larger vessels in U.S. ports,” Arsenault said. “That’s going to certainly start to contribute to challenges with terminals, with trucks, with chassis and all the stakeholders that are there until things get resettled.”
How smoothly the cargo – and the information related to that cargo – moves will be key at the Port of Long Beach, the nation’s second-busiest seaport, handling an estimated $180 billion in trade annually.
“In anticipation of the new alliances, the Commercial Operations team and I have spent the past three months assessing readiness and making sure our industry partners are talking and transferring information,” said Dr. Noel Hacegaba, Managing Director of Commercial Operations and Chief Commercial Officer at the Port of Long Beach.
“Communication, collaboration and coordination are critical to ensure a smooth and efficient transition,” he said.
The Port of Long Beach, in partnership with the neighboring Port of Los Angeles, has been working with stakeholders to find opportunities to optimize the supply chain, including better coordination among ocean carriers and rail and terminal facilities to ensure that rail cars and other equipment is readily available. Troubleshooting any issues associated with rail transport will be critical considering roughly 40 percent of imports that come through the twin ports depart by rail to destinations all over the country, according to the Alameda Corridor Transportation Authority.
One of the things also being discussed among stakeholders is addressing the availability and location of chassis, the metal-framed trailers that allow trucks to tow containers from Point A to Point B.
More than two years ago, the twin ports facilitated the "Pool of Pools" agreement among the three major chassis pools operating in Long Beach and Los Angeles. The agreement frees up more than 72,000 chassis that can be used interchangeably at 13 marine terminals and four rail facilities. The Pool of Pools has reduced wait time, confusion and other inefficiencies by allowing chassis providers to work together.
The agreement, which also feature data on chassis availability and use, will be critical come April 1.
A few weeks ago at their quarterly meeting and in a series of conference calls, the ports of Long Beach and Los Angeles were kicking it up a notch, speaking with stakeholders on sharing information based on how ships are deployed and how many chassis are needed to meet the demand of the new alliances.
“We will continue to engage our industry partners and do everything possible to make sure we are ready to handle the new alliance deployments,” said Hacegaba. “We have demonstrated our ability to handle the biggest ships – now we have an opportunity to demonstrate our agility and flexibility.”