Will the Large Shipping Alliances Work? The Evidence So Far

Ashley Boroski MendozaFreight Forwarding, General, Ocean FreightLeave a Comment

While April 1st is a day of practical jokes and enjoying spring weather for most Americans, the world of global trade was making some major changes to the shipping industry that affected ocean carriers in the wake of the Hanjin bankruptcy in the fall of 2016. A new set of alliances evolved to combat the decline of global trade activity that was causing carriers to ship with vessels less than full. Two new networks—Ocean Alliance and THE Alliance—were formed.

Profits are on the Rise for Carriers

Profits are on the rise for carriers as they are expected to rebound from the 2016 and Q1 2017 losses that stemmed from the bankruptcy and alliances reformation. There is a strong demand in Q1 2017 for higher annual contracts and for old contracts to expire with rates that will drive profits for carriers. For 2017, the year is set to close with an operating profit of over $1 billion even with only five of the 13 carriers that published first-quarter results seeing a profit. This is not to say the new alliances are not facing challenges in the upcoming months.

Port Congestion is Trending

One major challenge that the shipping industry is facing is the increase in port congestion. New shipping alliances and an increase in fog at the Yangshan Port in Shanghai, China has caused shipping delays and congestion that has trickled over into other ports worldwide. This ripple effect caused by new alliances has led to confusion over line mergers, shipments being stranded at ports along the Asia-Europe trade lanes, and route changes for up to hundreds of carrier ships.

Not only does congestion of carrier ships pose a problem but new, oversized shipping containers are posing an issue for ports that have never received them and may not be well-equipped to do so. Capacity is at a maximum at these ports and increasing the workload for dock employees. Luckily, the congestion in Shanghai will be decreasing as ships leave to venture west with their shipments, but this will only pose the same problems to the ports on the East Coast, further delaying shipments of goods.

How to Minimize the Effects of Disruption in Your Business

While there is no end in sight for the side effects, there are ways to prepare your business against these adverse market forces. Here are some tips that business owners and entrepreneurs should employ to prepare for the unknown and the inevitable.

  1. Review Carriers – Just because the new alliance doesn’t force you to change carriers does not mean that you won’t be affected by the disruption in the shipping industry. Your carrier may have to dock somewhere else and experience shipment processing delays, or your shipment may become a transshipment instead of traveling directly, which adds to the transit time. This is an opportunity to review your carrier options and avoid additional transit costs and time.
  2. Set Expectations – Keep open communication channels with your carriers, distributors, vendors, and suppliers. All the partners in your supply chain need to be on the same page and know if they should expect delays or disruptions in the process. Your partners need to be able to put their own contingency plans into action quickly to minimize the impact if there is a large effect on shipping your product or materials.
  3. Evaluate the Cost Impact – With the new alliance may come new or different fees associated with ports, docks, and the processing of shipments. These will come to your shippers through transport fees, but the impact won’t stop there. Goods processed at sea ports usually have final destinations inland, and new ports could shift your carriers further away from their end goal, which will increase the cost of ground transportation and add to the processing time for ground carriers.
  4. Avoid Single Carrier Use – Although you may be comfortable with the carrier you’ve been using for years, now is the time to be flexible and consult with trade advisory partners. Change may be the best solution, even in the short term, with the new alliance structure. Being proactive in researching your options will mean staying ahead of delays and disruptions and avoiding the headaches of international ports and the risk of tarnishing your partnerships and reputation with consumers.

Benefits of Using a Freight Forwarder

A freight forwarder is a great option for business owners who ship internationally to avoid the headaches of having to deal with the new alliances because they act as the intermediary between your business and the carriers, handling the administrative side and logistics of your shipments for you. They prepare documentation, track your cargo, and can even file your insurance claims for you. While all freight forwarding firms offer different services, there are a few benefits that you simply cannot overlook that apply to all of them.

  1. Negotiate Better Deals – These organizations are trained in the art of negotiation. They can cultivate relationships with carriers and port officials all over the world, employ people that speak multiple languages, and spend a lot of time networking, which saves you time. They represent your business and can negotiate deals that can save you money in the long and short term.
  2. Manageability – Freight forwarders have a network that can enact immediate solutions to shipment crises such as missing or damaged shipments. Their networks offer transparency and a personal touch that a logistic company cannot compete with. They are also so used to dealing with just about any problem that could occur that they are able to quickly address and find solutions to problems through resources that are available to them that may not be immediately available or thought of by business owners, relieving a ton of stress from your shoulders.
  3. Freedom from Contracts – Freight forwarders do not try to tie you down or bind you into contracts that could hurt your business in the future. They understand that the shipping industry is always changing and evolving and that entrepreneurs and business owners need to always have the freedom to do what is best for their operation. Freight forwarders allow you to switch companies at any time without penalty.

More Consolidation is on the Horizon

More consolidation is on the horizon with COSCO Group, a Chinese conglomerate that is currently deciding whether to acquire a smaller contender, Orient Overseas Container Line Co., in a $4 billion deal that is expected to finalize in July. The best way to prevent yourself from experiencing the negative side effects of the alliance is to diversify your risk, constantly audit your business operations, and watch the market (and your business) closely for any unexpected changes. Adequate planning and preparation is the best defense. A freight forwarder can help you with these tasks and keep you on the right track to managing the logistics of your shipments and keeping you organized and stress-free while also saving you money and headaches!

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Ashley Boroski Mendoza
Ashley has worked in the George W. Bush Presidential Administration in both the White House and DHS. She later worked as a policy advisor in the Senate and representing top retailers to the federal government at the premier retail trade association. Currently, she is the Head of Business Development at ShipLilly ensuring exceeded growth annually.

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