K + N exec: Carrier alliances not to blame for container shipping’s systemic ills

Industry veteran Bill Rooney, vice president of strategic development at Kuehne + Nagel, and others tell New England trade leaders that alliances broaden carrier networks and are a symptom, not the cause, of the recent downturn in container shipping.    There will seemingly forever be debate about the merits of liner carrier industry consolidation and alliance formation, but one industry veteran who’s now on the buying side of the equation says alliances are good for shippers on the whole.
   “Alliances are good for cost and good for service,” Bill Rooney, vice president of strategic development at Kuehne + Nagel, said at the Coalition for the New England Companies for Trade’s (CONECT) Northeast Cargo Symposium in early November. “Much more important is to get the right services and the right string of ships, rather than fixating on alliances.”
   Rooney, a veteran of the now defunct Hanjin Shipping, said alliances are the only feasible way for carriers to manage consistently low operating margins as they navigate a period of low trade growth.
   “The multiple of trade growth to GDP growth has stayed at about one, whereas it used to be three,” he said.
   Rooney, speaking on a panel about the impact of alliances, said he suspects the same sort of alliances will become more prevalent among terminal operators and port authorities. He pointed to port terminal consolidation in the Pacific Northwest, spurred by the formation of the Northwest Seaport Alliance between the ports of Tacoma and Seattle, and said it would make sense for the 13 terminals in Southern California to be pared down as well.
   “I’d argue that alliances have allowed carriers to focus on broader port coverage,” said P.J. McGrath, senior vice president at Hapag Lloyd, part of THE Alliance with MOL, NYK Line, “K” Line, and Yang Ming. “If things were more fragmented, they’d all be chasing the trades with the big population masses.”
   McGrath said that capacity is spread “pretty reasonably across the alliances. I’ve not had pushback from customers because we’re not No. 1 in any segment. The 2M (the alliance between Maersk Line and Mediterranean Shipping Co.) would probably say them being No. 3 in the transpacific is not a major hindrance.”
   McGrath added that the barriers to entry in the top five trades have become difficult for smaller lines to surmount.
   “Size and scale has and continues to matter for the carriers,” he said.
   Philip Damas, director of Drewry Supply Chain Advisors, agreed that the biggest benefit of the alliances is wider port coverage and broader service network. But he said they have not brought about better service.
   “Alliances have seen improvement in profits, but not service,” he said. “Alliances now provide a fantastic wide network of ports and services. But the reliability is terrible.”
   Damas noted that the initial weeks of the alliance’s new deployments in spring were understandably fraught.
   “There was a huge amount of operational restructuring and a lot of chaos,” he said. “They recovered quickly, but it’s still not great.”
   Rooney, however, said that service reliability is less about the impact of alliances than it is about the price that shippers and non-vessel-operating common carriers (NVOCCs) are willing to bear.
   “The cost to the carrier to get to a 97 percent on-time level is too expensive and buyers aren’t going to pay for it,” he said. “Buyers are complicit in the poor service levels because we’ve made the decision that we like service but we like low rates better.”