Volume shippers set to benefit from new alliance launches

3/21/2017

Volume shippers seeking ocean freight capacity on the Asia to North Europe trade’s main corridors are set to benefit from the best transit times, most competition and cheapest rates because that is where the new container shipping alliance structure is focused.

However, the reverse will be true for shippers seeking capacity on niche trades, where cargo owners face downgraded services, reports container shipping analyst Drewry in today’s Container Insight Weekly bulletin.

After analyzing the service structure of the new alliances launching on 1 April, it said these were “skewed in favour of the main corridors in the Asia to North Europe trade, which makes perfect sense for carriers seeking the big volume business. Shippers along these routes will get the best transit times, most competition and cheapest rates; the reverse will be true for niche shippers.”

Confirming a report last week in Lloyd’s Loading List  based on analysis by Alphaliner, Drewry said new capacity in the key battleground of Asia-North Europe will add downwards pressure to freight rates, “but perhaps not as much as some think, with nearly one-third of all direct service port pairs unique to one alliance”.

Drewry said the Asia-North Europe is the only East-West route in which the alliances operate exclusively – i.e. there are no independents competing against them. Analysing the services, it said the first thing that stands out is that from 1 April there will be one more weekly service for shippers to choose from as the number of loops will increase from 16 in March to 17 in April, bringing the number back to the same level as seen in April 2016. The additional service comes courtesy of 2M carriers Maersk Line and MSC in the form of AE7/Condor.

The non-2M alliances will have a total of 11 services, just as they currently do – the difference being that as of 1 April they will be split between two alliances, rather than three, said Drewry, adding: “The extra service will inevitably put some downwards pressure on freight rates in the trade, which after recovering strongly in the final couple of months of 2016 are once again starting to regress.”

Drewry’s World Container Index reading from Shanghai to Rotterdam last week slipped to $1,580/40ft container – its lowest since late November and some $630 down from its 2017-peak attained in mid-January.

Drewry said carriers’ reluctance until recently “to furnish the shipping public with vessel deployment details stems from them not wanting to publicise the extent of the capacity increase, particularly during the commercially sensitive annual contracting season. Judging by the recent deflation to the westbound spot market it seems that shippers are savvy to the situation, even if they do not know the full picture.”

It continued: “However, while we can expect to see further price reductions in the busiest lanes, such as Shanghai to Rotterdam, that trend might not be universally followed in every lane the alliances offer. This is because there are lanes from Asia to North Europe with significantly less competition, which will allow the dominant carriers to resist rate downgrades.”

Drewry said importers in Scandinavia and the Baltic are the least well covered in the new alliance network, with zero direct services from North Asia and just one export option (Yantian) from the Hong Kong/Taiwan/South China region. And even to the busier North Europe regions, Drewry said its analysis reveals how the three alliances often set off from different ports in the Far East.

“While this ensures shippers have a broad geographical scope to select from, it does mean that those (shippers) with inflexible port-pairs have no choice in some cases,” Drewry noted.

Drewry’s “matrix” also reveals that the Ocean Alliance has the highest number of fastest or joint-fastest transit times from Asia to the North Europe regions with 43, ahead of The Alliance with 35 and 2M with 26. The 2M carriers just shade the number of unique port pairs with 41, ahead of the Ocean Alliance with 40 and The Alliance with 32.

The anlayst noted: “Shippers will have a total of 372 direct port pair options in the westbound Asia to North Europe trade to choose from as of 1 April. However, due to the fragmented way in which the alliances have set up their networks to distinguish themselves, 113 of those port pairs (approximately 30% of the total) will be unique to one alliance. Therefore, the commercial pricing pressure in nearly one-third of all port pairs will be greatly reduced.”

Drewry said that the three alliances have, broadly speaking, decided to “impress” shippers in the main corridors. For example, while the number of calls from Shanghai to Rotterdam will remain at 12 per week, the average transit time will speed up to 31.1 days (from 34.8 days) with five services offering quicker transit times (25 being the best) than the previous best of 29 days.

“It makes commercial sense for carriers to follow the cargo, but it does mean other more-niche shippers suffer from slower transits and fewer service options,” Drewry observed. It said carriers will not have to increase the operating speed of their ships in order to meet these quicker transits; instead, they will achieve it by giving priority to the major inbound ports such as Rotterdam, Antwerp and Hamburg by making them the first inbound call. 

While data shows that the 2M alliance will be operating the fastest ships, this does not automatically mean they offer the quickest transit times, Drewry said, adding: “Because 2M tends to cram its services with more port calls (averaging 16 per round voyage in Asia-North Europe – versus 14.3 for Ocean Alliance and 12.4 for The Alliance), it has to go faster to offer comparable transit times.”

Drewry concluded: “The new alliance structure is skewed in favour of the main corridors in the Asia to North Europe trade, which makes perfect sense for carriers seeking the big volume business. Shippers along these routes will get the best transit times, most competition and cheapest rates. The reverse will be true for niche shippers.”