Just as we did with the airline industry, we are now seeing new alliances and mergers being formed within the global shipping industry. For shipping carriers there are benefits to partnering up, including the ability to share vessels, networks and ports of call, streamlining their operations and saving millions of dollars. But what does it mean for the U.S. export business as companies merge or form alliances?
A recent article in Global Trade magazine took at look at potential impact of ocean shipping alliances on exporters and the U.S., comparing its future in fact to what happened in the airline industry. When Delta merged with Northwest Airlines, United Airlines purchased Pan Am routes and merged with Continental, and American Airlines purchased TWA and eventually merged with U.S. Airways, the article points out that we saw increased fares, additional charges for everything from extra baggage to changing reservations, requesting pillows and blankets, requesting certain seats, and the reduction of baggage weight allowance. In essence, the airline consolidation brought fewer options for consumers and reduced levels of service. This, according to Global Trade, could also happen to U.S. exporters who will have fewer choices when selecting ocean carriers.
The article concedes that the shipping industry has a different business model from the airline sector. Yet it points out that this hasn’t prevented the Federal Maritime Commission (FMC) from monitoring the restructuring of ocean carrier alliances. “At the end of the day, alliances are supposed to benefit the shipper by providing increased choices, increased competition, and increased efficiencies,” said FMC Chairman Mario Cordero at the 2016 International Trade Symposium. “With the number of ocean carriers decreasing through merger and acquisition activity, and alliances restructuring themselves into larger entities, it is not unreasonable to ask, ‘Is the shipper really going to benefit?’”
Moreover, according to Cordero, while there are commitments from shipping carriers to promise to increase efficiency and reduce congestion, “it is going to take careful, diligent and aggressive oversight to make certain the changes that are taking place among container carriers do not harm the American shipper.”
Cordero also reassured U.S. exporters that the FMC benchmarks for carrier performance would remain a standard by which companies are reviewed, as these alliances move forward. Reliability, shipper satisfaction and the efficient flow of containers from terminal gate to final destination will all be monitored.
“The very last messages I want to hear are from shippers telling me that their choices have been reduced and service diminished as a result of these new alliance structures, or that port congestion is increasing because cargo is now transiting fewer gateways,” Cordero said. “The Federal Maritime Commission will work diligently to protect and enhance the international, intermodal supply chain.”
Many feel that consolidation of the container shipping industry is long overdue, as it has been plagued by overcapacity and ongoing losses, particularly when compared with other transportation sectors as railroads and airlines. According to an article in the JOC, with the severe glut of vessel space and expected new deliveries threatening to undermine freight rates for another three years, mergers could offer carriers another avenue to cutting costs by eliminating redundant overhead. “What we are seeing now is not all that surprising,” said Lars Jensen, CEO of SeaIntel Maritime Analysis in Copenhagen. “I have been saying that by 2020 there will be only eight big carriers, and this is gradually what is beginning to unfold. It will take a long time.”
Roanoke Underwriting will continue to monitor M&A activity and joint alliances in the shipping industry and the impact it will have on exporters and others in the global supply chain. We specialize in helping agents and brokers secure commercial marine insurance solutions for global trade and logistics risks. For more information about our portfolio of products, please contact us at 1.855.213.4545.