Drewry: Future Alliances May Not Exist

In the latest analysis report, after reexamining the container shipping industry and Block Exemption Regulation for liner corporations which was about to be brought onto the agenda, Drewry indicated that the container shipping industry might have a totally different future.

Drewry argued that it was hard to predict whether shipping alliances would exist in the container market in the future, just likened to the current situation that the large liner corporations belonged to three major shipping alliances.

Not long ago, International Transport Forum stringently criticized three major alliances and proposed that Liner Conference Exemption from European Union Competition Law be repealed step by step. Also, the clients of liner corporations condemned the regulation in the same way.

However, according to Drewry, concerns about the some alliances, especially those formed in competition situation, are groundless.

By the end of this December, participants in the industry are permitted to express their views to European Commission on whether to support or oppose to the competition exemption regulation. ITF emphasizes that at present alliances are too strong, making it impossible for the non-member liner corporations to get involved in the trade route connecting the East and the West. On top of that, ITF calls on the exemption regulation to expire in April, 2020 without further extension. However, liner corporations claim that the regulation is quite simple with a flexible framework. Without it, cost and legal uncertainty will increase .

World Shipping Council commented that “If there is no exemption regulations, disputes will emerge in jurisdiction between Europe and other regions in the world, which will put liner corporations of European courses in an unfavorable environment.”

Before that, Rolf Habben Jansen, CEO of Hapag-Lloyd, stated that container shipping industries would face more difficulties if European Commission decided to repeal the special competition regulations on container liner corporations.

Drewry emphasized that alliances may not exist at all in the future. He also indicated that the current alliances were formed to reduce the cost in the industry as severe financial crisis was caused by the bankruptcy of Hanjin Group.

Drewry viewed that market concentration would increase more quickly without ship sharing agreements because it would render a higher threshold for European courses. At least, more liner corporations can become members of super-scale container ship clubs through alliances instead of buying all the ships required in weekly operating services.

However, from another perspective, the demand for alliances will be more urgent if the container ship becomes larger and even exceeds its maximum size.

Drewry believed more ships need to be put into use in order to maintain similar coverage of ports without alliances. "Larger and fewer liner corporations along with the ability to arrange large-sized ships independently will reduce the economic benefits of alliances. For now, there are 15 liner corporations with three to four alliances or VSA on each course. In comparison with the above-mentioned situation, we predict that, for example, there will be four independent large liner corporations on each course without alliances. "

Besides, “there is no need for shippers to be afraid of alliances. Actually, the process of market concentration also helps to push forward the competition. The process is continuing and likely to speed up if there is no Block Exemption Regulation.”

Source: Shipping Industry