News / 'Container lines must extend their ocean alliances to take in landside operations'

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Extending collaboration to the landside is the next frontier for container shipping alliances, according to former NOL chief executive and current World Shipping Council chairman Ron Widdows.

Speaking today at the JOC’s TPM Asia conference in Shenzhen, Mr Widdows said the growth of alliances had created an environment of increased operational complexity which could no longer be solved individually, especially on the landside, where there was little collaboration between carriers.

“The expansion of alliances has created an exponential increase in the level of complexity of how you run the business – how you plan ships, how you flow cargo through the terminals, how you get cargo to the customer – and you end up creating a ‘dog’s breakfast’ of cargo flow, especially in places like Los Angeles-Long Beach.

“How do you deal with a customer potentially going through seven or eight terminals for a single alliance? How do you manage that? Managing chassis just adds to the complexity.”

Mr Widdows said carriers had exhausted what could be done in terms of cutting costs and were still struggling for profits despite benefiting from a reduction in fuel prices. Furthermore, none of these measures are benefiting shippers.

“Unfortunately, all of the inventive approaches, all the things we have done as an industry have translated towards increased complexity for the people we serve.

“There aren’t many industries that, by design, go about doing things on a daily basis that are damaging to their customers. So in trying to reduce costs you do these things; unfortunately these things aren’t helpful to the supply chain.”

Meanwhile, he predicted a bleak freight rate outlook for transpacific carriers, given the significant tonnage yet to be delivered, which will also cause further port and landside operational challenges.

“Transpacific freight rates will go down next year, and probably by a lot. The big ships haven’t happened yet, and so the peaking [cargo surge] effect associated with large ships also hasn’t happened.

“The amount of capacity coming over the next couple of years is enormous. So the pressure these guys will be under from a profitability standpoint is finding ways to operate in a less costly way.”

Citing research from consultant McKinsey, to which he had contributed, Mr Widdows explained that cooperation on the landside is one of the only options left for carriers to further reduce costs.

At present, alliances at sea come to an end once boxes are unloaded, with each carrier having its own terminal agreements, trucking contracts and dispatching arrangements. By extending alliances to the landside, carriers could continue to benefit from economies of scale.

Such structural change will not come easily, however, Mr Widdows said. It will likely be led by the top two global carriers, Maersk Line and MSC, whose continued drive towards cooperation and collaboration will force other lines to follow suit or be priced out of the market.

His comments echoed those of Hapag-Lloyd chief executive Rolf Habben Jansen, who told The Loadstar in May that Hapag and its G6 partners were “beginning to look at what alliance benefits we can get through landside operations”.

Mr Habben Jansen reiterated this view at the JOC’s Container Europe event in Hamburg last month.

However, Mr Widdows argued, although individual carriers had closely guarded service propositions such as efficient intermodal connections or an extensive regional network, most of them were unwilling to include these kinds of services in any alliances, as they see these services as their “secret sauce”.

He added: “It’s not a technology problem, it’s not a regulatory problem; it’s a mindset problem. Unless they begin to share these services and be more open to collaboration then the economics will eat them up.”