From the Peloponnesian League of Ancient Greece to today’s NATO (North Atlantic Treaty Organization), alliances have allowed humanity to achieve great things. In the shipping industry, alliances hold the same power. Shipping alliances or ocean alliances provide a multitude of benefits to large and small shipping lines and their customers — ultimately helping them achieve much more.
The concept of shipping alliances can feel a bit complicated, especially to those who know very little about the industry. In this article, we will discuss what shipping alliances are and the role they play in the shipping industry, the global economy, and society as a whole.
What is a shipping alliance?
A shipping alliance, commonly called an ocean alliance, is a cooperative agreement between multiple shipping lines to establish a strategic union covering various trade routes possible through the contribution of various members on a global scale.
How does a shipping alliance work?
Shipping alliances aren’t exactly the same as each other, but they generally centre around information and resource sharing. Members of a shipping alliance communicate and exchange information with each other about planning stowage, assigning vessels, setting up schedules, and solving problems.
Other matters discussed by alliance members include fuel type regulation, environmental issues, and problems such as engine failure. Moreover, they coordinate capacity planning, member contribution, and compensation. Resource-wise, alliance members may share ports and vessels and establish joint operational centres to enhance coordination.
In a shipping alliance, a member who shares more vessels and trade routes will reap more benefits. Smaller shipping lines primarily join for the extended coverage while larger members participate to rationalize their assets.
The importance of shipping alliances
Why do we need shipping alliances? Shipping alliances are important to the shipping industry and the global economy primarily due to the benefits they provide. It’s been mentioned that shipping alliances help individual carriers do more, but how exactly?
1. Cost-Efficiency
Operational costs take up 67% of the total cost to run a shipping line. That 67% is comprised of variable costs namely bunker costs and port charges. This means more than half of the operational costs aren’t fixed, which may fluctuate all the time.
By joining an ocean alliance, a shipping line can minimize variable costs via the sharing of common resources such as vessels, ports, and networks on trading routes. For larger shipping lines, which typically contribute the most resources, this means rationalizing their assets, ultimately improving revenue.
The mitigation of variable costs leads to lower service costs, which is beneficial both to shipping lines and their customers.
2. Coverage
A relatively small ocean carrier can extend its coverage significantly without having to increase its fleet size by joining a shipping alliance. Larger participants can share their access to shipping routes used for global trade and allow their allies to tap into their network.
For their customers, this means getting better service offers such as lower fees and a wider reach. Overall, members of a shipping alliance get broader access to economies, both in scale and scope.
3. Mega ships and ports
One primary purpose for joining a shipping alliance is the acquisition of bigger ships. An individual carrier might not be able to rationalize having a mega-ship, but a group of carriers can. By co-owning a mega-ship, alliance members can achieve lower costs per transported container, which certainly contributes to reduced operational costs and better optimization overall.
4. Coordination
Communication is at the heart of any shipping alliance. They discuss topics ranging from operational issues to climate change efforts. Together, they can formulate a joint action regarding a concern and by pooling their resources, accomplish something of significance.
On the other hand, what a shipping line can accomplish on its own is limited, and coordinating with others can be too complicated in the absence of an alliance. The coordination between shipping lines that is made possible by shipping alliances allows each member to achieve something they can’t when alone. This is a benefit not only for the shipping industry but also for humanity at large.
The Tripartite – Three Major Alliances
Three shipping alliances dominate the world today. Dubbed the Tripartite, these three are the 2M Alliance, THE Alliance, and the Ocean Alliance. Together, these three control approximately 80% of global container capacity and deploy 3,126 vessels with a total capacity of 20 million TEU.
2M Alliance
With the most ships (1,301) and largest total TEU (over 8 million) as of 2021, the 2M Alliance, composed of Maersk and Mediterranean Shipping Co., is the largest in the tripartite and the world. Together, these two carriers own 35.9% of the total fleet capacity of the world.
THE Alliance
THE (Transport High Efficiency) Alliance is the largest shipping alliance in the tripartite in terms of members, but the smallest in terms of fleet size. It’s comprised of four carriers namely Hapag-Lloyd, ONE (One Network Express), Hyundai Merchant Marine, and Yang Ming Marine Transport Corporation. THE Alliance’s fleet is comprised of 641 vessels with a total TEU of 4.7 million.
Ocean Alliance
With a fleet size of 1,258 and a total TEU of 7.3 million, COSCO Group, CMA CGM Group, and Evergreen Line’s Ocean Alliance are the second largest alliance in the world.
Conclusion
By pooling together their resources and trade routes, members of shipping alliances enhance the capabilities of their individual operations. As alliances and their members continue to report steady figures, more shipping lines are expected to participate in alliances, bringing about significant changes in the industry.
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