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Shippers Concerned About Ocean Carrier Alliance Changes

Thursday, November 10, 2016
Sandler, Travis & Rosenberg Trade Report

In a Nov. 4 address to the World Shipping Summit in China, Federal Maritime Commission Chairman Mario Cordero said global shippers are “uneasy at best” about the growing number of alliances between ocean carriers. However, he said that both shippers and carriers have responsibilities in stabilizing the current ocean shipping environment.

Cordero said the carrier alliance system has been reordered this year largely due to two factors: the “significant merger, acquisition, and consolidation activity” among carriers, which represents “generational changes that have the potential to significantly change the very structure of the shipping industry,” and a container fleet capacity that far exceeds the needs of a slowing global economy. He opined that this restructuring could be mutually beneficial to carriers and shippers and could also be the vehicle for addressing issues related to congestion, port efficiency, and even supply chain optimization.

However, Cordero added, some shippers are suspicious of carrier motives and distrustful that the new alliances “will be anything other than a framework for limiting service and raising rates.” In part this is because the privileges that lines are seeking in this new generation of partnerships are “markedly different from the past” and include vessel sharing, operations centers, information sharing, and joint procurement. Cordero said the FMC is carefully reviewing the new alliances, particularly with respect to information sharing and joint procurement, in an effort to strike a balance between the concerns of the shipping public and carriers’ need for efficiencies.

More broadly, Cordero concluded, there is a need for better cooperation among shippers, carriers, and regulators to stabilize the shipping industry. Carriers can give shippers confidence that they are doing business with solvent entities and install safeguards to give shippers comfort that things will be handled much more smoothly if there is ever another bankruptcy. Shippers, on the other hand, need to accept that current rates are “unhealthy … unrealistic and unsustainable” and that “not every rate hike is a case of gouging or carriers engaging in price fixing.”

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