By: Cory Bilicko
It’s been called “The Big Bang of 2017.” An unprecedented number of ocean-carrier mergers last year and the collapse of the seventh-largest container carrier– Hanjin Shipping– have resulted in something Port of Long Beach officials say has never happened in the shipping industry– the reshuffling of ocean carriers from four to three new alliances.
For almost 10 years, ocean carriers have been forming such alliances to save money, with more sailings and fewer ships sharing cargo space on huge vessels.
While the new alliance formation may simply seem like news of yet another merger in today’s ever-changing business landscape, shipping offiicals are bracing for the confusion that the sudden, major changes may bring.
David J. Arsenault, president of Logistics Transformation Solutions and former president of Hyundai Merchant Marine America, spoke about the issue at a “Learning from Hanjin” panel on Feb. 28 at the Journal of Commerce’s TPM 2017 Conference at the Long Beach Convention Center. He said alliances have come and gone, but those changes have been staggered in the past.
“This is a shotgun start,” he said, “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.”
According to iContainers, an American company that enables importers and exporters to compare rates in real time and manage their maritime shipments, these three alliances represent 77.2 percent of global container capacity and 96 percent of all East-West trades.
“Ocean Alliance offers the most services, with some 40 loops,” according to the company’s website. “THE Alliance follows with 32 services and 2M with 25. Among the changes, THE Alliance and Ocean Alliance will run 11 weekly Asia-northern Europe routes. 2M has also increased its services on this route from five to six. That’s mainly to cater to the additional slots under their agreement with HMM and Maersk’s takeover of Hamburg Süd.”
Officials from the Port of Long Beach– the nation’s second-busiest seaport– say the new alliances will result in new customers, new destinations and some ships likely moving off routes between Asia and Europe to trans-Pacific routes.
Officials are also preparing for potential delays, since the shifting of cargo on different ships to new terminals with different ways to load and unload and meeting different customer priorities are being further challenged by continuous equipment and terminal velocity issues, which 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,” states an April 3 Port of Long Beach press release. “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.”
Arsenault predicts bigger ships arriving at American shores.
“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.”
The three new shipping associations are 2M Alliance, Ocean Alliance and THE Alliance.
2M includes the two largest ocean carriers, Maersk Line and Mediterranean Shipping Company, with a vessel-sharing agreement with Hyundai Merchant Marine. Officials say Maersk Line is poised to acquire carrier Hamburg Süd.
Ocean Alliance 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.
THE Alliance includes Hapag Lloyd (which is merging with United Arab Shipping Company), Yang Ming Ltd., and three Japanese carriers 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).
Port of Long Beach officials say they have been closely monitoring the situation and have been interacting 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,” said Duane Kenagy, interim chief executive for the Port of Long Beach. “We’ve been facilitating meetings to enable dialogue among our stakeholders.”
According to the Port of Long Beach’s April 3 press release, port officials are partnering with the Port of Los Angeles to work 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. The press release also states that the Alameda Corridor Transportation Authority has reported that troubleshooting 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 across the nation.
Port officials also say that stakeholders are 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 release states. “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.”
Officials say that agreement, which also features data on chassis availability and use, will now be critical.
“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.
Hacegaba added that port officials will continue to engage industry partners and do everything possible to make sure they are ready to handle the new alliance deployments
“We have demonstrated our ability to handle the biggest ships,” he said. “Now we have an opportunity to demonstrate our agility and flexibility.”