Fierce Criticism of ITF to Porta-container Shipping Alliances
Unfortunately our pessimistic predictions of the past years more and more come to reality and so as, according to the study by ITF to which we will refer below, "the three major alliances, which currently control more than 90 percent of the container market"; the worse, "the buying power of the alliance carriers can create destructive competition between terminal operators" for which reason " it is essential that these public expenditures be based on sound economic assessments and that risk-minimisation strategies are in place" and that " Governments should define clearly which ports are expected to service mega-ships and which ports have different roles". Otherwise we are doomed to failure.
By Tomas Kristiansen, ShippingWatch Editor
In a comprehensive report, the International Transport Forum, under OECD, voices fierce criticism of the three mega-alliances. The negative consequences far surpass the benefits.
More surprising perhaps is the fact that the criticism of the alliances’ power and their impact on the overall supply chain is as unambiguous as it is.
The content and conclusions are unmistakable. The ITF, one of OECD’s partner institutions, says that the three major alliances, which currently control more than 90 percent of the container market, have negative consequences for customers, ports and, ultimately, consumers.
Overcapacity and distorted competition
In short, the International Transport Forum lists the following effects of the alliances, of which 2M (Maersk Line and MSC) is the biggest.
- Alliances have allowed carriers to acquire and operate mega-ships, reducing unit costs. Without alliances certain carriers would not have been able to acquire mega-ships. As it is the ordering of mega-ships that has fuelled overcapacity, there is a link between alliances and overcapacity. Alliances have also made the maritime transport offer more uniform and limited the possibilities of carriers to differentiate themselves. Alliances have contributed to lower service frequencies, fewer direct port-to-port connections, declining schedule reliability and longer waiting times. This has increased total transport times and delivery uncertainty for various shippers, leading to higher inventory and buffer costs. Moreover, alliances have proved to be inherently instable: considering that all major carriers are in alliances, changes in one alliance can have an impact on the whole sector.
- Several impacts of alliances on the transport system as a whole can be identified. They contribute to concentration on port networks and bigger cargo shifts from one port to another when alliances change port networks. Within ports, the buying power of the alliance carriers can create destructive competition between terminal operators and between other port services such as towage companies. This can lower the rates of return on investment for the port industry, results in the decline of smaller container ports and the disappearence of smaller independent terminal operators, as well as towage comanies. A particular concern is that alliances and alliance carriers frequently exert strong pressure for publicy funded infrastructure upgrades to be undertaken to support the use of megaships, while these expeditures often prove to be uneconomic, rither due to shifting demand for port services or the monopsony power excercised by the alliances.
- Although overcapacity in the liner sector has lowered freight rates, these cost savings are partly offset by a number of additional costs for shippers. Moreover, by limiting shipping options, alliances have frustrated the risk diversification strategies of shippers and freight forwarders.
- Alliances could raise competition concerns in what has become a concentrated market. The top four carriers accounted for 60% of the global container shipping market in 2018. The market share of the biggest carrier (19 percent) is larger than the market share of any global liner alliance before 2012, which signifies the different character of current alliances. Global alliances give more market power to carriers and have several implications. First, they represent barriers to entry on East-West trades.”
The ITF has three recommendations, aimed primarily at politicians:
- In light of the longer-term trend toward the removal of block exemptions in the shipping industry, the European Commission should carefully consider allowing the EU Consortia Block Exemption Regulation to expire in April 2020, as currently scheduled, rather than extending it.
- Much of the investment required to upgrade ports to handle mega-ships is publicly funded, either directly or indirectly. It is essential that these public expenditures be based on sound economic assessments and that risk-minimisation strategies are in place.
- Governments should define clearly which ports are expected to service mega-ships and which ports have different roles. A reduction in the number of EU “core ports” in the Trans-European Network as part of the elaboration of a clearer and more detailed port strategy would also reduce overcapacity risks in respect of container ports for mega-ships.