The Impact of Shipping Consolidation and Alliances

With the introduction of mega ships within the shipping industry and a financial downturn within the global shipping industry, many major shipping carriers are finding it simpler and a more cost-effective route to merge and consolidate their shipping businesses or by joining shipping alliances. As a result of the Hanjin bankruptcy, shipping lines are searching for ways to prevent the similar outcome for their companies and prevent further reduction in market freight rates. In this article we examine the impact of shipping consolidation and alliances on the shipping industry.

The three major global shipping alliances, 2M Alliance, Ocean Alliance and THE Alliance, are expected to control the vast majority of the global shipping market – 37%, 33% and 21% respectively. By joining shipping alliance, a business reduces the overhead costs of shipping by sharing ships, networks and ports of call. While these global shippers consolidate, the main goal is to ship as much as much as possible using the minimum amount of vessels for transport. However, these alliances and consolidations do have major downsides that could negatively affect global supply chains.

As shippers seek to implement cost-reduction methods, it does not necessarily means savings in terms of importing and exporting in which there might not be savings for other parties that use these shipment services. As inventory space increases with the use of mega-ships, it requires the supply chain to add more inventory within each shipment. The timeframe for delivery also becomes crucial Greg Knowler writes:

“These extra costs included the need for shippers to hold additional stock and manage extra inventory. The ability to obtain reliable just-in-time deliveries would enable shippers to respond to changes in customer demand more rapidly and enable them to hold lower stocks, which improves supply chain efficiency and reduces costs.”

Another impact of consolidation is the port requirements for the mega-ships becomes greater, putting small ports at risk of losing the business from shipping alliances if port and terminal upgrades are not put in place. As a result, many ports are courting shipping alliances to become major hubs in order to remain competitive within the global supply chain network while liners seek to ship at maximum capacities using the minimum amount of vessels.

It is unknown whether shipping consolidations and alliances will reverse the downtrend

There is no certainty that shipping consolidations and alliances will reverse the downtrend or help increase freight contract rates. The major changes occurring within the shipping market may require “several new approaches between shippers and their customer base” in order to make the transition beneficial to all parties.

In the meantime, several shippers remain hopeful for the future of the industry. Shipping operator Korea Line recently won the rights to purchase assets of the now bankrupt Hanjin, and will operate a weekly route from Asia to the US’ west coast ports with their newly purchased ships. Hyundai Merchant Marine, a South Korean mid-size shipping operator, continues its efforts to become part of the 2M Alliance which will be crucial for the company’s future.