In the name of operational efficiency and improved service, COSCO, CMA CGM, China Shipping, Evergreen and OOCL agreed this spring to enter into a consortium they would simply call “the Ocean Alliance”. Rivaling the 2M (Maersk and MSC) in scope and number of vessels, the combined fleet of the Ocean Alliance would offer over 40 services worldwide controlling 23.5% of the world’s tonnage.
Together the 2M and the Ocean Alliance would effectively control 51.2% of global ship capacity. Within the Asia – U.S. trade the alliance would cover over 20 routes with an extensive network of origin and destination ports. This would give cargo owners a wide range of choices in a highly competitive trade lane. Operating over 350 container ships, the Ocean Alliance could consolidate chassis, handling equipment and operations effectively increasing their ability to negotiate underlying services from tugs to terminal operators.
This struck a chord at the Federal Maritime Commission (FMC: Five of the world’s largest carriers controlling immense buying power when contracting for underlying services. The Commission was concerned about the effect this would have on the vendors. Would the alliance treat this sector fairly and with transparency once it was established? FMC Commissioner Doyle felt it was their obligation to request answers to questions regarding the potential relationship between the Ocean Alliance and its suppliers.
In a formal “Request for Additional Information” (RFAI) the FMC presented the alliance with the task of addressing the issue of fair practice before they would approve their filing. Originally submitted in July the Ocean Alliance’s petition for FMC approval would have become effective at the end of August. The RFAI stopped the clock. Once all questions have been sufficiently answered a new 45-day waiting period will commence. The alliance planned to begin operation in April of 2017 so this delay would really have little effect on the original outcome. Providing the FMC found no further issues with the consortium.
Just when you thought all was quiet on the waterfront, a new twist has emerged in the realm of ocean alliances. Hanjin’s bankruptcy shocked the shipping world and created havoc for everyone involved in ocean transportation. Hanjin vessels are stuck at anchor while ocean terminals await assurance that they will be paid for handling. Cargo owners are unable to pick up containers until all charges ordinarily borne by the carrier are paid, and truckers are refusing to dray Hanjin boxes for fear of being turned away from return depots. It’s a mess out there folks! The remaining members of the CKYE (Cosco, K-Line, Yang Ming and Evergreen) are also unwilling participants. You see their containers are aboard those embargoed Hanjin vessels and they have Hanjin containers on their ships. A stalemate if ever there was one!
The FMC takes steps to address Hanjin’s receivership and its impact on the shipping community. In a series of statements last week the FMC recognized Hanjin’s effect on the American shipping public but could take no action unless it involved improper behavior by other carriers or regulated parties under the 1984 Shipping Act. It further voiced concern about the operational and competitive impact of this bankruptcy on current and future shipping markets. They established a protocol for addressing violations to the Shipping Act and requests for assistance in reviewing fair practice issues involving U.S. underlying services.
The thought must also have crossed the minds of the FMC that two of the most prominent members of the CKY(H)E (COSCO and Evergreen) will soon be members of “the Ocean Alliance”. It certainly has crossed the minds of the shipping public. Many BCOs are unsure when, how, or if they will retrieve their containers from carriers aligned with the CKYHE. It has shaken their faith in the system. Will Hanjin’s case raise concerns regarding ocean alliances in general?
For the FMC, and the American shipping public the question of how “the Ocean Alliance” will deal with U.S. suppliers may be secondary to the larger question regarding the solvency of ocean alliances. With the large percent of world tonnage held within the ocean alliance system, what magnitude of future service disruption could occur from internal disputes among partners or the sudden removal of one it its members?
