Friday 18th Aug 2017 - Logistics & Supply Chain

Challenging times on the high seas

Last week saw the start of operations by the three new container shipping alliances (2M-HMM/HS, Ocean and THE Alliance).

Malory Davies FCILT, Editor.

Malory Davies FCILT, Editor.

They are providing 17 weekly strings between Asia and North Europe – one more than currently offered by the four previous alliances (2M, G6, CKYE and O3).

Research group Alphaliner has calculated that total weekly capacity to North Europe will increase by 9.6 per cent, compared to the services previously offered, and warned of “rate turmoil” as a result of the change.

Drewry reported last month that spot container rates from north Europe to China had increased by 45 per cent reaching a four-year high.

At an emergency meeting last week, the European Shippers’ Council focused on some of the problems now being experienced by exporters in Europe.

“Goods to be exported have been waiting for up to 8 weeks to be loaded on ships. The present capacity is insufficient to take all shipments. In addition, carriers provide no guarantee whatsoever that all goods of a shipment will be loaded. Frequently some goods from a shipment remain in the port. At the same time spot market freight-tariffs are increasing. These developments are forcing many traders to cancel their existing sales contracts and limit further sales. For ESC this is a reason to worry about European exports and the negative consequences for the competitiveness of European economy,” it said in a statement.

ESC members seem unsure about whether this is simply the result of the market adjusting to capacity changes or whether it is “an artificially created scenario by certain shipping lines, to increase their profitability”.

It’s worth remembering that profits have been in short supply for the container lines recently. South Korean line Hanjin was declared bankrupt earlier this year after going into receivership in August 2016. The largest of the container lines, Maersk, produced a net operating loss after tax of $146 million last year – and that followed a $182m loss the year before.

The ESC has now decided to set up a temporary observer group to monitor the situation and it plans to meet the DG Competition at the European Commission in a couple of months to discuss the situation.

Ocean freight is a critical component of many supply chains and reliability is essential. These are still early days for the new alliances – it is to be hoped that the problems identified so far are temporary.

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