Lars Jensen, CEO & Partner, Vespucci Maritime, and JOC Analyst May 04, 2022 9:07AM EDT
source : JOC.com (The Journal of Commerce)
Lars Jensen, CEO & Partner, Vespucci Maritime, and JOC Analyst
May 04, 2022 9:07AM EDT
source : JOC.com (The Journal of Commerce)
One such development that would have a material impact on industry dynamics in the coming years is the potential breakup and reassembly of the container carrier alliances.
The three alliances — 2M, Ocean Alliance, and THE Alliance — do not expire until the second half of the decade. Despite this, it is increasingly likely that the agreements will be terminated on mutual agreement and new alliance constellations will emerge.
But shippers seeing alliances as a de facto cartel should not rejoice too early. Note that the expectation is a reshaping of the members of the alliances, not the removal of the alliances.
The alliances serve a vital purpose as they allow carriers to combine the scale advantage related to the size of the vessels with the scale advantage related to the granularity and frequency of the network. This is not just an advantage to the carriers, but also a vital ingredient in ensuring as many direct port-port products as possible.
But why would the alliances change — and do so before the agreements expire?
Basically, the alliances are operational and make strategic decisions on the design of the network as well as tactical decisions related to more short-term market fluctuations, such as blank sailings, port omissions, and schedule adjustments, for example.
This works best when all alliance members have aligned strategic interests. The current alliance structure was formed in a period when freight rates were historically low and all carriers struggled with managing vessel overcapacity. The strategic interests were mainly aligned across all carriers in the alliances: How to reduce the operating costs of the networks and absorb the new generation of ultra-large container vessels. Different carriers, different visions But we are now at a different point in the market evolution. Carriers are increasingly making different choices related to their commercial and operational future. Some focus on improving profitability on existing vessels while others invest to grow volumes significantly. Some focus on end-to-end logistics where others want to remain ocean carriers. Some increase their share of customers with whom they have long-term contracts where others focus on reaping the benefits of the spot market. Some increasingly shun small and medium-sized forwarders whereas others embrace them.
All of these are perfectly fine business choices — and from a competitive perspective, it is good to see that the carriers indeed do choose different approaches.
However, the different choices also lead to a misalignment in an alliance when it comes to network design, blank sailings, etc. Continuing with the current alliances means that each alliance will have to make a network which is a compromise stretching across quite different strategic choices — and as such a network not fully satisfactory to any member.
This will increasingly cause tension in the alliances and ultimately lead to a re-shaping. The new alliances that will emerge will instead be comprised of members who have more aligned strategic interests and as such can create a network better suitable for that purpose. Competitively speaking, this would also lead to a larger difference in the operational products offered by the new alliances.
It is difficult to predict exactly when this change will happen, but a likely time frame would be 2023-2024.
Barring any major curveballs, the market is likely to start its descent down toward normality after peak season 2022, or even earlier if the inflation leads to a consumer recession. This will alleviate the bottleneck problems and release capacity back into the market, further fueling a rate decline toward normality.
The lowering of rates and increased capacity will reinforce these internal strategic differences among the alliance members during 2023, and hence the scene is set for a change to be implemented the in spring of 2024 as a baseline — with the possibility that a swift consumer recession could make it happen earlier.