LINER SHIPPING ALLIANCE: STRATEGIC MANAGEMENT OR BLACK SWAN EVENT

In the mid-1990s, global alliances, also known as strategic alliances, were established. These are cooperation agreements on a worldwide scale existing between liner shipping companies. The agreements incorporate deep-sea carriers operating on major trade routes. Specifically, carriers on the main East-West trade routes (Asia-Europe, Asia -US, and US-Europe) constitute the largest share of global containerized cargo flows. Initially, a strategic alliance wasn’t something of the west; instead, it was steered and hard up by the Asian carriers in contrast to consortia which was dominated and controlled by European carriers. The consortia were typically on a regional scale between the 1960s-1980s.

Over the last few years, consortia have submerged with time, giving way to global alliance dominance as a dominant feature of international container shipping. In the past, cooperation among liner shipping companies took the form of coordinating prices and capacity. However, the last two decades have witnessed a global alliance consisting of competing shipping companies that share vessel capacities and slots purposely for achieving operational efficiencies and extensive coverage in terms of service (market and geography). The character of the global alliance has changed over the last few years. Currently, there are only three global alliances consisting of two or three enormous companies of about equal size, which is entirely different from the practice experienced within the last decade. The alliance (Hapag-LloO.N.E. ONE, and Yang Ming), Ocean alliance (Cosco shipping OOCL, CMA CGM, and Evergreen), and 2M alliance (Maersk line MSC) are the three main global alliances that were formed in April 2017 except for 2M alliance which started in 2014.

 It is domineering to note that these three alliances constitute 80% of the global container market, as indicated by Alphaliner. Before the formation of these alliances, global liner shipping alliances were mainly made up of a limited group of medium and small-size carriers to achieve economies of scale and scope. The global container shipping alliance has far-reaching impacts on the maritime industry, especially the transport system and its stakeholders. Among them are notable decreases in service frequencies, less direct port connections, declining schedule reliability, and longer waiting times. Freight forwarders are part of the main stakeholders impacted by decreasing schedule reliability and service quality.

The rationalization strategies of carriers in the alliance have homogenized service quality mainly when all the top eight ocean carriers belong to an alliance. According to Drewry’s satisfactory survey in 2018, transit times, reliability of booking, and cargo shipped as booked were considered to have declined since 2016. Unfortunately, non-alliance carriers cannot provide better service due to the lack of resources in terms of capacity, fleet size, and market share. As a result, freight forwarders lost their bargaining power despite the considerable supply of volumes to carriers simply because they ran out of options.

Alliances continue to impact freight forwarding, high consolidation, and sharing of slots as a feature of these alliances lean towards a depressing impact on traceability and visibility in the logistics chain. When cargo is loaded on any of the larger vessels or feeder of alliance members vessels not owned by the same company and sailing gets canceled, or bookings get rollover, freight forwarders and shippers experience low-quality information flows, complicating the activities of freight forwarders. Empirically, during the alliance reshuffle in early 2017, freight forwarders were faced with refusals of bookings, rollovers of containers, and blank sailings. The lack of information on these incidents further complicates the task of freight forwarders.

Another central plight of freight forwarders following the alliances in container shipping is the active involvement of carriers in local freight forwarding. The issue with carriers’ dynamic freight forwarding is the unequal playing field conditions. Many of these carriers receive state aid in tax exemption and subsidies, whereas indigenous freight forwarders do not enjoy the such preferential policy. Due to carrier consolidation, freight forwarders face less choice and consider it inevitable to work with all major carriers, even if they are not satisfied with the quality of their services.

Carriers capitalize on emerging digitalization information on onshore transportation and logistics that they use to strengthen their position as global integrators. Currently, the vertical integration of carriers is facilitating contacts with freight forwarders, and clients, directly with competitive transport rates than what they give to freight forwarders and financial assistance, which eliminates the intermediary role of freight forwarders. At the moment, some alliance members are actively operating in the Ghanaian freight forwarding industry and other international settings in the name of door-to-door.

On a broader scope, the increasing market power of alliance is disintegrating or eroding the quality of service, low cost, reliability, choice, and fast transit times in international shipping, causing disruptions in the supply chain which tends to generate substantial expenses to shippers. Shippers are operating on the Just-In-Time) supply chain strategy and traders in perishables are heavily impacted. Shorter product life cycle time coupled with delays and longer transit times are taking a toll in the form of product devaluation and obsolesce. To avoid shortages of raw materials and products due to the current service quality, some manufacturers and distributors must keep high inventory levels, ensuing high inventory costs.

In the autumn of 2016, when the Hanjin insolvency and eventual dissolution occurred, shippers booked cargo slots with either of THE Alliance members. Automatically risked, their cargo being loaded on a Hanjin vessel, causing major supply chain disruptions and months-long delays, causing nearly 520,000 containers to be stranded (Barnard, 2017). This incident affected cargo owners who had booked with Hanjin directly and shippers who booked with carriers who had slot-sharing agreements with Hanjin. Additionally, glitches arose during the cyber-attack on Maersk Line and APMT; the close integration of IT infrastructure highlighted the risk of horizontal and vertical adulteration of the attack’s operational impact.

Interestingly, alliances in container shipping have been enabled by government policy across the globe. There is a long history of specific shipping exemptions from competition law. The treatment of shipping competition law can be grouped into three categories. There are no shipping-specific exemptions in countries such as China, South Africa, Brazil, Chile, Vietnam, Indonesia, and Russia. Secondly, Block immunity for shipping alliances operating in countries like the EU, Hong Kong, Israel, Malaysia, and New Zealand. Lastly, U.S.e US, Japan, South Korea, Canada, Australia, and Singapore operate treatment to competition law where there is an exemption for all agreements, including Pricing. It will be inappropriate to mention some countries attempting to repeal regulations geared toward subjecting shipping agreements to antitrust rules even though block exemption will continue to operate.

So, the question is who hears or feels the cry and plight of freight forwarders, shippers, supply chain managers, and other affected stakeholders in the transport system. Do shippers, freight forwarders, or supply chain managers also form strategic alliances to build up negotiating muscles or deep voices to protect their interests? Or continue to rely on the government till it conducts proper repealing legislations to feature their interest. In refuge, maybe the world shipping council and its members will take the reins as a coordinated voice for the liner shipping industry. Work with policymakers and industry groups to shape the future growth of a socially responsible, fair ethics, and environmentally sustainable, safe, and secure shipping industry.

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