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By Meredith Martino<\/strong><\/p>\n G6. P3.<\/p>\n The shorthand names for some of today\u2019s shipping line industry alliances might sound like Bingo calls or Battleship moves, but vessel sharing agreements are no game for the port industry \u2013 though they may end up setting some ports up for major wins when it comes to vessel calls and business agreements.<\/p>\n Ports throughout the Western hemisphere keep a close eye on the liner industry. As companies blur hard-edged distinctions that once separated them from competitors, their business decisions have ripple effects for ports.<\/p>\n Sharing space on vessels is not a new concept. For about 25 years, some shipping lines have engaged in partnerships that have allowed competitors\u2019 cargo to \u201cride the lines\u201d of another company. As ships have gotten larger, shipping companies have come to grips with the fact they don\u2019t often have enough cargo to fill their own vessels. By partnering with another company, they can maximize the efficiency of the larger vessels and minimize costs.<\/p>\n \u201cHow do you fill a 12,000-13,000 TEU vessel going it alone?\u201d asked Federal Maritime Commission Chairman Mario Cordero, whose agency\u2019s mission is to foster a fair, efficient and reliable international ocean transportation system and to protect the public from unfair and deceptive practices.<\/p>\n Similar to the alliances that have been forged in the commercial airline industry, shipping line alliances are seeking to cut costs for ocean liners. And they have been successful.<\/p>\n \u201cWhen you look at the economics of the per-box cost, that\u2019s been the driver,\u201d said Chris Lytle, executive director of the Port of Oakland. \u201cIn the past 10 years, with the high cost of vessel operations, particularly the high cost of fuel, the economics of large ships dominates.\u201d<\/p>\n Stemming losses has been critical for carriers in the past five or so years. After confronting significant financial challenges, ocean carrier companies had to assess how to move forward. While there have not been any firm moves toward major consolidations or mergers within the industry, the trend toward vessel sharing alliances continues.<\/p>\n On the Horizon<\/strong><\/p>\n Within the shipping line industry, two major alliances exist \u2013 the G6, which has grown out of the Grand Alliance to include APL, Hapag Lloyd, HMM, MOL, NYK and OOCL; and the CKYHE Alliance, in which Evergreen joined Cosco, K Line, Yang Mine and Hanjin Shipipng earlier this year. Maersk and MSC attempted to ally with CMA CGM in the P3 alliance, but Chinese officials rejected the proposal, essentially taking it off the table globally. Maersk and MSC have moved forward with a less formal vessel sharing alliance of their own.\u00a0CMA recently announced the formation of the Ocean Three Alliance with China Shipping Container Lines and United Arab Shipping Co.<\/p>\n \u201cGiven the ongoing issue of rates and profit margins, carriers will continue looking to vessel sharing agreement,\u201d said the FMC\u2019s Cordero.<\/p>\n Lytle agreed: \u201cMore consolidation wouldn\u2019t surprise me. Nobody thought the Grand Alliance would be the G6.\u201d<\/p>\n Who Benefits?<\/strong><\/p>\n As cost savings are being realized by the allied shipping lines, there are questions and concerns about whether those savings are being passed on.<\/p>\n At the AAPA 2014 Spring Conference, port industry executives interested in container issues discussed a range of topics, including the effect of shipping line alliances. Many port leaders questioned who was seeing the benefit of shipping line alliances and increased efficiencies in the liner industry.<\/p>\n Cordero echoed the industry questions: \u201cAfter cost savings, who will benefit? Two parties that come to mind are shippers and consumers.\u201d<\/p>\n But for the port industry, the financial bottom line may be more simple.<\/p>\n \u201cIf the lines become economically viable through alliances, this has a net positive effective on ports,\u201d said Oakland\u2019s Lytle.<\/p>\n In short: It\u2019s in the port industry\u2019s best interests to have a robust, financially viable liner industry that can absorb some of the volatility and instability that has threatened its wellbeing in the past decade.<\/p>\n Opportunities to be Seized<\/strong><\/p>\n But ports need not simply be standing on the sidelines watching changes in the ocean liner industry and waiting to see what the effect of those changes will be. In fact, there are opportunities for those ports that can adapt to the effects of alliances.<\/p>\n The implementation of vessel sharing alliances essentially equates to use of the fleet\u2019s largest ships, and while the size of those ships can pose challenges for ports, it also presents opportunities.<\/p>\n \u201cThere is tremendous upside potential,\u201d said Lytle. As ports strive for more efficiency and create more flexibility to accommodate vessel calls, they can be poised to attract more business. \u201cLarger vessels can have 10,000 vessel moves, and the cargo can\u2019t sit and wait. Not every terminal can do this [volume of movement]well.\u201d<\/p>\n Cordero agreed.<\/p>\n \u201cWhichever terminal that\u2019s the most efficient, that\u2019s the terminal that\u2019s going to benefit,\u201d he said. \u201cPorts have to have active involvement. They can\u2019t hand this off to the terminals.\u201d<\/p>\n Cordero, also a former commissioner at the Port of Long Beach, highlighted four key areas that ports need to be prepared to address to stay nimble and respond to vessel sharing alliances and the changes they are bringing to the shipping industry: 1) having sufficient infrastructure, 2) utilizing technology as it relates to operations, 3) mitigating congestion inside and outside the terminal and 4) pursuing sustainable port development to reduce costs.<\/p>\n \u201cThe issue now is addressing congestion,\u201d he said. \u201cWhat are the reasons? It\u2019s fair to say that factors are common to all ports.\u201d<\/p>\n Lytle emphasized that whereas the push several years ago was to build, there is now overcapacity in some places and the focus has shifted to \u201ctaking the land we have and using it more efficiently. Speed is essential.\u201d<\/p>\n Challenges Exist<\/strong><\/p>\n But for all the benefits that shipping line alliances can provide ports, there are challenges that arise, too. The straight-forwardness of a single company\u2019s more streamlined decision making process is now being replaced with the bureaucracy that comes from multiple companies being required to reach consensus on major business decisions.<\/p>\n The added number of parties and steps for review can complicate or slow down processes that previously had been relatively quick.<\/p>\n \u201cThe planning horizon is extended,\u201d said Lytle. \u201cInstead of reaching one agreement, we essentially have to have more time to reach agreement with multiple parties.\u201d<\/p>\n And the difficulties of adapting to shipping line alliances are not just at the local level \u2013 there are challenges that arise at the national level throughout the western hemisphere.<\/p>\n U.S. port directors gathered at AAPA\u2019s Spring Conference expressed concerns about the ability of the federal government to react to changes in the goods movement system in a timely way, citing the length of time and amount of planning and documentation required to complete dredging and surface transportation projects.<\/p>\n \u201cWe can\u2019t act quick enough,\u201d said one port executive.<\/p>\n FMC Chairman Cordero sees a role for his agency in overcoming obstacles and facilitating a dialogue related to government policy.<\/p>\n \u201cThe issue of congestion is not isolated to a particular coast or port,\u201d Cordero said. \u201cIt\u2019s due to a lot of factors. Ports are looking to be efficient and sustainable.\u201d<\/p>\n He added, \u201cAt the federal level, the crisis has to be one of national interest.\u201d<\/p>\n