Worried About The New Container Shipping Alliances?
On April 1, while many Americans were indulging in the levity of practical jokes, a major milestone was taking place in the world of global trade that likely went unnoticed by the vast majority of business owners.
That milestone was the initiation of a new set of alliances among ocean carriers that was coordinated in the aftermath of the high-profile Hanjin bankruptcy in October 2016, and in response to dwindling global trade activity that has prohibited many carriers from being able to fill their ships’ capacity.
The new regime will see the world’s ocean carriers organized into three key alliances, each of which will have a stronger or lighter presence on international waterways than they had previously. For example, the Wall Street Journal reports that 2M (an alliance consisting of Maersk and MSC) will have a far heavier presence in Europe-Asia where it will hold 34 percent of the market, versus North America-Asia where it will hold only 17 percent of the market.
These alliances will be critical to American businesses, particularly those in consumer goods. Container shipping moves the vast majority of the world’s manufactured goods and does so through increasingly larger vessels being unloaded at international ports.
While the new alliances could eventually lead to greater predictability for shippers and perhaps more consistent pricing, the short term is likely to be a period of disruption as carriers and ports find their footings in the new world order of global ocean freight.
That disruption will inevitably affect the global supply chains of US businesses that rely heavily on the free flow of imports from around the world and the transport of finished products to key global markets. Those businesses will need to take preemptive steps to mitigate the impact of that disruption, or to ensure it’s managed in a manner that doesn’t adversely affect cash flow and/or relationships with customers and vendors.
Here are four things business should consider to help themselves through this transitional period:
Review carriers. Business that are not forced to change their carriers as a result of the new alliance aren’t immune to disruption. The new alliance model will mean some carriers that have used the same ports for years will now be docking elsewhere, which could lead to delays in processing at their new ports of call. Shippers should also look into whether their container ship will be traveling direct to port or as a transshipment, the latter of which will lead not only to additional transit time, but potentially additional costs.
Set expectations. Making an international supply chain work means communicating and collaborating regularly with vendors, suppliers, distributors and carriers. It’s critical to let your supply chain partners know if the new alliance structure may lead to delays and disruptions. Doing so allows them put in place their own contingencies so that they’re able to minimize the disruption to the overall supply chain. This will limit the amount of additional cost businesses may need to incur and will result in fewer delays and disappointed customers.
Evaluate the cost impact. Carriers that use different ports than they had previously may be subject to higher docking and processing fees, which they will inevitably download to shippers via transport fees. But the potential cost impact doesn’t end there. Most goods being processed at seaports are destined for inland destinations. New ports being used due to the shift in carrier alliances could be farther away from their final inland destinations, leading to additional ground transport costs. It’s also worth considering that lengthier processing times at ports could lead to longer idling times for ground carriers, once again adding to the overall cost of getting goods from point A to point B.
Avoid single-carrier use. Many businesses have been using the same carrier or alliance for years, but during times of disruption it’s worthwhile being flexible. Businesses should be consulting with their trade advisory partners to determine whether it makes sense to stick with their traditional carriers, or if the new alliance structure means a change (with some redundancy built in) might make more sense, at least in the short term. Being proactive means avoiding delays and headaches at international ports and border crossings that not only disrupt supply chains but potentially tarnish relationships with partners and consumers.
To be sure, the new alliance structure won’t grind global sea transport to a halt, but it’s more than likely some level of disruption will take place in the short term – disruption that could have adverse effects in the long term. Businesses would be wise to proactively consider how they can minimize the impact on them, rather than deal with the transitional pains as they arise.
Mike Meierkort is the president of International Freight and Transportation solutions at Livingston International, a trade services firm specializing in customs brokerage, freight forwarding, global trade management and trade consulting.