P3 Network, other liner groupings have consolidators thinking about transit times, port rotations, capacity, and service clarity.
The sweeping structural changes currently ongoing in the liner carrier industry will have an indelible impact on the entire chain of entities reliant on their services.
That includes everyone from the ultimate buyers of space on containerships – shippers – to carriers in other modes dependent on the arrival of goods from foreign shores. And of course that list unmistakably includes non-vessel-operating common carriers (NVOs), since no other group sits so neatly between the provider of the transportation and the procurer of these services.
In discussions with a handful of NVOs and industry analysts about the impact the looming P3 Network might have on the NVO industry, one thing is certain: not all that much is clear.
To set the table, the three largest liner carriers in the world (Maersk Line, Mediterranean Shipping Co., and CMA CGM) are proposing to operate their services jointly on the world’s three major east-west trades: the transpacific, Asia-Europe, and transatlantic. Meanwhile, another major alliance, the G6 (which includes six predominantly Asia-based lines) is extending its reach from the Asia-Europe trade into the transpacific.
Most NVOs are preparing as best they can for the changes to services, rotations, and relationships that might come from an operational merging of the world’s three biggest carriers. Not to mention the domino effect the P3 might create among the other alliances and independent lines.
But for most NVOs, the details about the alliance are murky at best, so they must concentrate on what they’ve always done: provide more added value to the ocean freight experience than carriers typically do.
“I’m looking at this as a consolidation of our carrier choices,” said Greg Howard, president and chief executive officer at the neutral NVO CaroTrans. “This could give us improved conditions, improved efficiencies in terms of how we manage inbound and outbound equipment. But I can’t accurately determine if it’s a positive or a negative. Talking with the lines, they’re having a hard time crystallizing what it means for them and for us.
“At this point, we’re neutral, and I hate being neutral. It’s like having one foot in hot water and one in cold water and saying it’s warm.”
The NVO community is so deep and diverse, it’s impossible to say how changing carrier alliances will impact each company, or even each tier of NVOs, the same way. There are niche NVOs that focus on one trade, perhaps even a subset of one trade. There are more regional NVOs that touch multiple trades, and then there are the large, multinational NVOs that are essentially divisions of broader third-party logistics conglomerates, with truly global reach.
The question of whether previously independent carriers coagulating into operational partnerships, as well as smaller alliances morphing into larger ones, will impact these tiers of NVOs comes down to a few key service points:
- Will it affect port coverage crucial to an NVO?
- Will it affect transit times crucial to an NVO?
- Will it affect the carrier capacity and diversity within specific lanes?
Again, the problem right now is that so little is known, even among the carriers’ key NVO customers.
“In some ways, perhaps, it’s too soon to know,” said Andreas Krueger, senior vice president and head of ocean freight in the Americas at DHL Global Forwarding. “We’ve had lots of alliances in the past, but this one is different, because they will share an operations center. From that perspective, it’s premature to speculate negatively.
“We would hope it would bring stability, and it should be a benefit to our community and the shipper community. From our perspective, the positives seem to outweigh the negatives,” he said.
Krueger said the idea that the P3 lines have set up a separate operations center in London to manage their network gives him hope that they will all strive to meet a high-performance level.
“They’re going to keep each other in check,” he said. “Hopefully the level of service will perpetuate upwards in terms of port coverage and transit times. The question is how are they going to differentiate each other? You have three brands operating in the same way, and pricing wise, they will be monitored closely.”
Many NVOs see the development of new and larger carrier alliances purely as a way for carriers to deal with their financial realities. Some also view this as a continuation of added levels of complexity with which they and their shipper customers have long dealt.
“Carriers are forming larger vessel-sharing alliances to better manage capacity and help lower costs,” said Keith Andrey, vice president of ocean services at UPS. “The real issue for the industry and for customers is that as ocean carriers adapt their business to return to profitability, customers’ supply chains may be impacted. Transit times have gotten longer. Cancelled sailings can be unpredictable and cause unplanned delays. Costs can be difficult to predict due to frequent rate changes.
“These changes that carriers have made in recent years have added complexity for our customers. Our customers rely on UPS to help them manage their supply chain needs including adapting changing conditions. Let’s hope that analysts are right, that the planned alliances will help bring stability, so that customers can focus more on growing their business,” Andrey said.
Indeed, viewed through the prism of the last five years – a period in which a majority of top carriers have been losing money – there has been relatively little backlash to the news that the top three service providers in the industry are proposing to work together.
But some liner shipping analysts remain skeptical that the benefits of service consolidation will spread to carriers’ customers.
“I think it's a negative in terms of the range of the transit times on offer as the alliances, by nature, will mean they are all offering the same port-to-port product,” said Simon Heaney, senior manager of supply chain research at London-based Drewry. “Whether that means faster or slower speeds is hard to tell at this moment. It could be that cost savings generated by these [vessel-sharing agreements] will ease the pressure to slow ships even further, but we've yet to see that and carriers are definitely still in cost-saving mode.”
Heaney said the Asia-Europe trade will necessarily be the one most heavily affected by the P3, since all three carriers are European-headquartered and have dominant positions in that trade already.
“The homogenization of transits will be most obvious in the Asia-Europe trade as [the transpacific] and [transatlantic] will still have a number of independents offering something different,” he said. “On the positive side, shippers and NVOs will have far greater choice when looking for service providers in specific port-to-port lanes as the coverage of individual carriers will have expanded.”
BlueWater Reporting, a sister company of American Shipper
, in mid-February released a report, P3 Alliance Transit Time Analysis: Winners and Losers for the Proposed Service Network
, detailing the potential transit time impacts of the P3 alliance. The author of the report, BlueWater Reporting research analyst Ben Meyer, said much the same as Heaney in terms of Asia-Europe impacts.
“The introduction of the proposed P3 Alliance service network will have its greatest effect, at least in terms of transit times, in the highly competitive westbound Asia-Europe trade, where P3 member carriers already control more than 44 percent of the estimated market share by allocated capacity (according to the latest quarterly World Liner Supply Report from BlueWater Reporting),” he said. “What will be interesting to see is whether the P3 member carriers begin dissolving their existing slot agreements on competing carrier services such as Green Alliance carriers COSCO, ‘K’ Line, Yang Ming, and Hanjin Shipping, and Evergreen.”
Another wrench in the works comes from Hapag-Lloyd’s mooted merger with CSAV. Hapag-Lloyd is a key and entrenched member of the Grand and G6 alliances, while CSAV partners heavily with the P3 carriers (as does Hapag-Lloyd on non-Grand or G6 trades). BlueWater Reporting has speculated that Hapag-Lloyd could eventually join the P3
, making it an even more powerful P4. That would not only strengthen the hand of the P3 carriers, but also potentially unwind the Grand and G6 alliances.
Meyer said another development worth watching is how the three lines change their use of current hubs in their networks.
“It's already clear, looking at the proposed P3 Alliance service network, that the P3 intends to consolidate the member carriers’ current hub-and-spoke systems by offering new and faster connections to their mega-regional hubs in Tanjung Pelepas, Singapore, Port Kelang, Tangiers and Port Said, as well as forge new geographically convenient hubs in places like Sines, Portugal and Miami,” he said.
In terms of how NVOs should think about the impacts on their transit times, Meyer said they’ll likely think about them the same, “but in slightly different ways.”
“Despite these new services offering shorter transits from region to region (last port in/first port out), they will also introduce larger and larger ships, which will slow turnaround in port and, therefore, transits between ports within a given region,” Meyer said. “This is another reason why the hubs will become increasingly important to the carriers and, as a result, NVOs, since those ports will offer the most advantageous transit times.”
Krueger, of DHL, agreed: “Bigger vessels mean they can only use certain ports that can handle those ships. Does it affect the transit time and what I can offer the customer?”
But another liner shipping analyst said NVOs are likely to be less affected than shippers.
“Overall, I would see this as relatively neutral versus the NVOs,” said Lars Jensen, chief executive officer of SeaIntel. “They may want to change the basket of carriers they use, but the large alliances have an equally large portfolio of services and hence the NVOs can still create the diversity on trade lane coverage they want.”
In fact, Jensen said NVOs could benefit from a pricing perspective with multiple carriers riding on the same services.
“The main impact would be if the carriers in the new alliances were allowed to coordinate pricing, which they most certainly are not allowed to do,” he said. “If anything, it strengthens them slightly as the NVO can now go to every carrier in an alliance and play them against each other on pricing as they offer the exact same physical product.”
Krueger said it is up to DHL as an NVO to incorporate the changes it faces from new and larger alliances into the same service offerings to its shipper customers.
“As an NVO brand, it’ll allow us to position ourselves in a positive way, as we act as the neutral customer, so that shippers don’t have to face these giants,” he said. “We can offer multiple sailings, and the flexibility that shippers need. Some customers push to move with one line, but primarily, we make sure to identify the brand Danmar Lines (DHL’s in-house NVO brand). Four departures any given week, at the same price, from door-to-door. Here’s the transit time, here’s what you can expect. What happens behind the scenes is for me to manage.”
Krueger said the technology that NVOs can offer also plays a part in his optimistic outlook.
“I see a need for technology, but I primarily see that as a forwarder/NVO differentiation,” he said. “In theory, [the carriers] could come up with technology. But from my point of view, it’s very sluggish – think how long it took to get to e-bookings. They have to be quick to catch up with us, to get something that is mature in terms of depths and breadth. That’s why I believe an NVO has all the reasons to become stronger in the market, to take advantage of these situations, especially for small and medium-sized shippers.”
Howard, of CaroTrans, said the lack of clarity on the P3 and other shifting alliance structures causes him unease.
“As NVOs, one of the benefits we offer clients is flexibility in choice, and improved customer service,” he said. “We have various carrier choices and options. Right now, those remain intact, but the relationships we have with carriers on the P3 could shift amongst them depending on what advantages we gain from one of the others that we don’t have a relationship with. We have to keep all options open.
“We don’t want to limit flexibility and choice, but we want to be sure we can consolidate volume, potentially with fewer carriers, if it means we get better conditions regarding equipment and space allocation,” he added.
Another dynamic to consider, Howard said, is how carriers see their own mix of customers.
“If you look at volume tendered to carriers from [ocean transportation intermediaries], it has had been growing,” he said. “Is this something designed to enhance the portfolio mix with OTIs, or something different? It’s clear, we don’t know. So we’re making sure our relationships with our current carriers are strong, and improving relationships with carriers that we didn’t do much business with before that could emerge as better service partners for CaroTrans and our clients.
“I don’t want to see this diminish the strength of relationships that have developed over the years, but it will redefine the carrier-NVO relationship, either in a consolidation of relationships, or an expansion of relationships,” he said.
The flipside of that is, of course, the basket of carriers an NVO uses on a particular trade might be impacted if several of those carriers begin offering the same product.
Krueger said DHL has “strong relations with multitude carriers,” adding that any impacts from the P3 on DHL’s NVO business would likely come in 2015, not this year.
“We define them as strategic or preferred based on the volume tendered, and those are set for the year,” he said. “We know where we’re playing; we’re set for the year, so we’re not worried about any eventualities.”
Andrey said UPS’ footprint and end-to-end service capabilities mean alliance changes shouldn’t impact its ability to serve customers.
“We don’t expect the new alliances to impact the service network available to NVOs,” he said. “UPS has contracts and relationships with multiple carriers to support our customers’ needs, and therefore we do not anticipate any impact to the services we provide our customers.
“The NVO market is very fragmented, with thousands of providers. Smaller providers with limited carrier contacts may be able to access a larger alliance network but will still need to solve for the other components required to manage a customers’ end-to-end needs,” Andrey explained.
But Howard again said the lack of clarity makes it difficult to determine how its portfolio of carriers might be affected.
“It’s too early to determine the impact, but for certain, it will change the way we engage with the carriers,” he said. “It will change our carrier selection process. Do you still need to have the regional niche carriers? How do we deal with space allocation? All these questions, none of the carriers have been able to answer for us yet.”
(In a previous version of this article, Andreas Krueger's name was mispelled.)
- NVOs will have to account for changing service rotations and transit times, but shippers using NVOs should not have to worry about these behind-the-scenes changes affecting their service.
- Large NVOs will likely have locked in arrangements for much of their capacity this year, rendering any impacts from the P3 or other alliance changes moot until next year.
- The IT power of NVOs should help differentiate themselves further from lines as actual strings offered on the three key east-west trades potentially shrink as a result of broader alliances.