Mark J. Fink, Member, Cozen O'Connor

https://www.cozen.com
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Mark J. Fink

Will alliances move to the next stage? In recent years, the container shipping industry has seen the formation and growth of alliances as an operating model. Today there are four major alliances, comprising 16 carriers, that operate in the major trade lanes. (These alliances are referred to as G6, Ocean Three, 2M and CKYHE.) In the current alliance model, members, for the most part, agree on the type and size of vessels to be operated in a particular trade and how the slots on those vessels will be allocated among them.

While some efficiencies have been realized, the supply of vessels still exceeds demand, and profit margins for most carriers are negative or far from adequate. To realize further efficiency and cost savings, it has been suggested that alliances need to expand the scope of cooperation beyond the sharing of vessels. Both McKinsey & Co. and the Boston Consulting Group have recently issued papers calling for a broader scope of cooperation among alliances as one way to achieve lower operating costs. Such cooperation could include, among other things, joint procurement, equipment pooling and collaboration on landside operations.

Absent more mergers and acquisitions, an expanded alliance structure may be the best option available for carriers to address the operational and profitability challenges facing liner operators. However, carriers should keep in mind that various legal issues and obstacles will need to be addressed to move existing or new alliances to the next level. Antitrust/competition issues will need to be evaluated. The carriers are regulated entities in the U.S. and other jurisdictions. Accordingly, regulatory compliance will have to be considered before any enhanced alliance operations can be implemented.