Developments in the international carrier business mean shippers managing supply chain operations may be able to gain an advantage by identifying which shipping alliances are most effective in facilitating supply chain efficiency.
Most major liner carriers are part of an alliance in which members share box space on each other's vessels. These alliances are aimed at achieving better utilization of the new generation of large ships and enabling the parties to realize the cost savings that such large ships are designed to achieve. The alliance members collectively agree on the sailing schedule for the relevant vessels, but remain commercially independent competitors: they continue to compete strongly through their separate sales, pricing, and marketing functions, and the coverage and reliability of their individual feeder networks.
Although the benefits of alliances to shipping lines are widely recognized, the Global Shippers Forum (GSF) has claimed that they adversely affect supply chain efficiency and should be reassessed by the competition regulators. The GSF published a position paper on 14 November (The Implications of Mega-Ships and Alliances for Competition and total Supply Chain Efficiency: An Economic Perspective) stating that alliance members were unable to compete with each other on important dimensions of competition on a particular route – namely capacity, sailing frequency, transit times and port calls – because any changes were subject to unanimous agreement. Where no prior agreement was required – e.g., short term operational adjustments in a contingency scenario – the decision was ultimately made by the relevant vessel operator, which may not be the company with which the shipper has entered into a contract of carriage. This has caused service quality to deteriorate and, in turn, shippers to incur unanticipated supply chain costs and business disruption.
These arguments were dismissed by the World Shipping Council (the WSC) in a response published on the same day. According to the WSC, the effects of alliances on the supply chain are the result of carrier reactions to the signals that they are receiving from their shipper customers and the global economy: what are customers willing to pay for and how do you run a business on the available revenue? A shifting regulatory landscape is the last thing that global trade needs at a time when the liner industry is adjusting to a new economic reality.
It may be that structural changes to alliances would provide an alternative means to improve supply chain efficiency. The P3 alliance between Maersk Line, MSC Mediterranean Shipping Company, and CMA CGM, while ultimately rejected by China’s Ministry of Commerce (MOFCOM), incorporated a number of innovative features which would have transferred decision-making authority on key operational matters, including schedule changes and capacity adjustments, from the alliance members to a structurally separate network center.
All of the network center’s decisions would have been made on the basis of a pre-agreed rule book, designed to optimize schedule integrity and to react to changes in capacity demands even where this might conflict with the commercial preferences of an individual alliance member. Ironically, the establishment of the network center and the consequential increase in operational integration between members were among the principal reasons for MOFCOM's rejection of the P3 alliance. However, this does not mean that structurally innovative solutions to operational issues affecting supply chain efficiency will not be implemented as existing alliances develop and new alliances form.