Alliance structure hampers expanding container line offerings

JOC 31 Aug 2020 Share
A carrier alliance can restrict the ability to differentiate on some service elements beyond the ocean, simply because the ocean link is not always under a carrier’s own control.

The past six months have clearly shown the value alliances provide to their member carriers in terms of managing capacity in the face of extreme demand volatility. It would be easy to look at length at how the carriers benefit from this in terms of higher freight rates right now, but in a complex industry there are always multiple simultaneous developments and a one-eyed focus on a single element leads to a risk of being blindsided by another.

If we look slightly further ahead, beyond the pandemic impact, we are still in a market where the networks on the main deep-sea trades are designed by the three major alliances. This also means that the port-to-port shipment between major locations is a pure commodity. It is difficult to upsell a commodity, and hence carriers will be working on other parameters to differentiate their service offerings beyond the pure ocean part.

The problem with an alliance is that it restricts the ability to differentiate on some service elements beyond the ocean simply because the ocean link is not always under a carrier’s own control. It does not prevent a carrier from developing improved solutions, but it limits their ability to do so. This is best illustrated with an example from a bit over a week ago.

CMA CGM announced an expansion of their service offering, and this serves as a good example of both how carriers are approaching the development of improved solutions, but also how the alliance structure in these cases can be seen as a hindrance.

Their new offerings, termed SEAPRIORITY get and SEAPRIORITY reach, promise priority unloading and terminal fast track to allow a quick turn time at the destination port. Furthermore, it has fast inland connections attached to it. In principle, a good approach to provide faster delivery times. Whether this is attractive or not is basically up to the customers to judge based on their needs, but it is yet another indication that carriers are attempting to differentiate — or improve — services on the land-side connections.

Expanded services require strong operational control

However, it also exemplifies how carriers are challenged in such cases by the alliance structures. This new service is only offered on three trans-Pacific services and only into the Fenix terminal in Los Angeles. These three services are operated by CMA CGM and not their ocean alliance partners, and CMA CGM also retained a 10 percent ownership stake in the Fenix terminal following its sale in 2017.

Operationally, handling such priority promises does require a strong operational control. This would imply that CMA CGM does not believe their partners can (or will) execute on the priority operational promises on services not under CMA CGM control. And hence it is a good example that alliances serve the carriers well in terms of cost efficiencies, but becomes a challenge in relation to expanded service offerings.

However, for the shippers this might also lead to a situation where they might want to broaden their portfolio of carriers in the future in order to avail themselves of non-commoditized services offerings beyond the ocean part, and in doing so it would not be sufficient to be “exposed” to only a single carrier in each alliance.

JOC 31 Aug 2020