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Something’s Gotta Give

Posted on 25 Oct 2016

Something’s Gotta Give

The new shipping alliances have been formed but details about services and transit times are yet to be announced. Warrant Group’s Commercial Director Steve Cox offers some state of the industry observations on the situation.

Looking back at the last 10 years, it should not be surprising that the shipping lines have arrived at their current position.

Shipping lines have generally been under immense pressure over the last decade because of a wide variety of factors. While the size of vessels has increased dramatically, creating high levels of capacity in the marketplace, the industry has been shrinking through consolidation, mergers and recently bankruptcy. 

The abolition of the conference system around 10 years ago, which resulted in carriers having to independently set their own terms and conditions as well as the global slow down, will have inevitably added to the instability. The recent uplifts in the price of oil will do little to abate carriers' woes, with the industry posting massive losses and looking desperately for something to turn the situation around.

At the moment the 2M alliance, with the addition of HMM, should remain relatively unchanged, while two new groups the Ocean Alliance and The Alliance will be formed from the switching of carriers from the G6 and CKYH alliances.

Carriers can presently operate through different ports or terminals according to their alliances and at this stage it is not known which alliances are going into which ports, and the level of frequency. The changes will also have an impact on the myriad of agreements that are in place at ports and terminals including stevedores, feeder services, truckers and rail operators.

The reorganisation will be fine in the long-term but in the short-term there are significant, complex changes to be managed. There is sure to be a period of uncertainty and disruption while practical and transitional issues are ironed out. It would be pertinent for supply chains to offer some consideration or allowance into their planning for this.    

With an announcement expected very soon and the new alliances due to start at the end of the first quarter of 2017, here at Warrant Group we have been assessing the risks to ensure we are well placed to manage the changes on behalf of our client base.

At this stage it is difficult to predict what will happen but we already have contingency plans in place to cover a wide range of scenarios. What is abundantly clear however, is that if carriers are going to survive they will be pushing to increase their rates and to reduce cost, no doubt this is what has driven this unprecedented market shake up.  

While shippers have become accustomed to paying very little to ship goods across the world, the level of pricing needs to be compensatory to the investment. Looking at carriers results, it’s difficult to see how service can be sustained at current freight levels, and quite simply, something’s gotta give. Alternatively, we have already seen some business migrating product source closer to home which may also be a positive step forward for the UK plc and will undoubtedly reverse some of the trends of the last 10 years as business looks to address risk, lead times and supply costs.

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