The European Shippers’ Council (ESC) this week reported that many shippers who regularly export goods to Asia have recently been facing a large drop of available slots for containers on almost every shipping line. The ESC is an association that represents the logistical interests of European based manufacturers, retailers, and wholesalers, collectively referred to as shippers.  MSC_Ship_2

According to this report, this problem has been attributed by multiple industry watchers to the repositioning of vessels after the celebration of the Chinese New Year in Asia at the end of January and early February. The primary reason provided by ocean container carriers is the repositioning of ships among various new shipping line alliances to start various alliance network services in April.

Within its update related to this European development, American Shipper added more clarity by indicating that The Ocean Alliance, consisting of CMA CGM, COSCO, Evergreen and OOCL, as well as THE Alliance of Hapag-Lloyd, Yang Ming, NYK, MOL and “K” Line will start their new services in April. The ESC members are now indicating that the 2M Alliance of Maersk Line and MSC has stopped accepting freight from competitors’ customers that have turned to 2M because of the capacity shortage among the other competing alliances.

In its statement of the current situation ESC observes:

Shippers are confronted with heavily damaging situations, ranging from breeching of contractual commitments by some liners to impossibility to get boarding slots before May. Either this results in a very fluctuating freight rates situation, with instant hikes up to 45% to firm up a booking. Or this translates into missed sales, stock failure, significant extra costs as some exporters are trying to circumvent these obstacles by using other modes.

ESC has called for carriers to take responsibility to give an accurate display of the current situation, including the causes, while ensuring that some form of scheduling and capacity normalcy is achieved in the coming weeks.

Within its update, American Shipper noted that in November, the ESC joined with the Global Shippers’ Forum (a consortium of various global based shippers) to promote a report that called on regulators to “ensure sufficient independent competition on key trade routes” and repeal existing exemptions from antitrust laws and effective monitoring of alliances.

What This Means

From our Supply Chain Matters lens, what the current situation described amounts to is threefold:

  • Either the new ocean carrier alliances have not done an adequate job of planning or adequately communicating the status or implications of the April transition of alliance schedules and capacity on the Europe to Asia routing, or there may be the possibility that the shifting of capacity towards more higher demand global shipping routes are occurring without communicating the impacts of such shifts to shippers and stakeholders.
  • In this week’s statement, the ESC is sounding a discernable warning of potential supply chain disruptions or significantly higher freight rates for European exporters to Asia.
  • Global regulators are likely beginning to sense a groundswell of shipper and industry stakeholder concerns on the impacts of the new shipping line alliances related to reliability of shipping schedules and non-market-driven rate structures.

Within Prediction Five of our 2017 Predictions for Industry and Global Supply Chains, we questioned how much global maritime regulators would continue to tolerate regarding consolidation of capacity under multi-carrier alliance networks, before the economic and supply chain predictability interests of shippers are considered. We therefore surmise that global regulators are likely beginning to sense such a groundswell of shipper and stakeholder concerns on new ocean shipping alliances impacts to service reliability, predictability, and non-market-driven rate structures.

All of this relates to the ongoing turbulence surrounding a shipping industry that is still attempting to alleviate a self-induced overcapacity situation. The result has been spot market ocean shipping rates in 2016 that were often below operating cost break-even points. The Hanjin Shipping bankruptcy was the most significant indicator to-date to overall industry unsustainability regarding excess capacity chasing more subdued global-wide shipping demand. Reports of subpoenas being served to ocean line CEO’s are other developments surrounding this industry dilemma.

The takeaway for industry supply chain, logistics and transportation procurement teams is to not assume business-as-usual for the coming few months regarding ocean container shipping reliability and non-contract rate structures. There are a lot of forces at-play right now.

Bob Ferrari

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