Ocean Alliances – Safety in numbers

In a concentrated effort to avoid the future calamity that came with the 2016 collapse of Hanjin, the seventh largest ocean carrier in the world, other carriers have come together to consolidate the four original ocean alliances into three. By doing so, 2M, THE Alliance, and Ocean Alliance*, will hold more than 77% of global container capacity and 96% of the East-West trade lanes.  This consolidation of ocean carriers is expected to offer a more comprehensive service, at a lower operational cost with less risk. These alliances will be able to keep cargo moving in the event of a carrier bankruptcy, while avoiding the delays and seizures that followed the Hanjin collapse.

With these newly formed alliances, carriers can now offer more sailings with fewer vessels as their cohorts. They can also offer further services on their own line to enhance the options available to shippers. Narrowing the coverage each individual line offers and leaning on their partners, carriers can reduce port congestion and lessen the environmental impact, and save on operational costs when sharing entire voyages.

The most crucial point remains that these alliances are not corporate mergers to form a conglomerate of carriers. Instead, these are cooperative agreements that form a strategic alliance to offer major trade routes as no individual carrier can provide service to every trade lane and port every week. By sharing common resources and voyages, shipping alliances can cut variable expenses.

As we’ve noted that this isn’t a single corporation; these alliances will not be allowed to negotiate pricing or share customer data between themselves and must avoid collusion at all costs. This past March, the US Justice Department raided the most recent biannual meeting of container line CEO’s to serve subpoenas for suspected collusion among major players. These alliances should know their practices will be under intense scrutiny worldwide. However, there is an option for some ports and shippers to eventually enter into contracts with an entire alliance in the future. Even if uncertain, the alliances can reconfigure at a later date as the market changes. In order to serve more popular trade lanes, carriers will find more effective collaborations. The final formula for alliances may need more adjusting before finding a progressive mix of growth and stability.