Experts: April 1 alliances rollout will disrupt US ports

An aerial view of the many containers in stacks that can be seen on any day at the Port of Long Beach.
Photo credit: trekandshoot/Shutterstock

Concern is growing that major US gateways won’t be able to handle the overnight changes that will occur at marine terminals when new ocean carrier alliances take effect on April 1. A new bout of congestion is potentially just weeks away.

Experts say they can see it coming a mile away; problems are inevitable any time the normal routine is disrupted at a marine terminal. It could be that larger ships begin to call on different days of the week, or volumes suddenly spike, or, simply, organizations begin to interact with those they had never worked with before.

That’s the scenario beneficial cargo owners will face in a little more than a month, particularly at ports with multiple terminals, such as Los Angeles and Long Beach. A variety of changes to the normal routine will occur virtually overnight. Recent port data suggests that at least some BCOs who anticipate problems are diverting cargo to ports that are unlikely to experience disruption.

“What we’re going to see in April is unprecedented,” David Arsenault, the former CEO of Hyundai Merchant Marine in the United States and now an independent consultant, said during a Georgia Foreign Trade Conference panel this month at Sea Island, Georgia. “We’ve seen alliances get reshuffled in the past, but never have we seen all of those alliances kick off with a shotgun start at one time.

“I think it is going to be a huge test, and brings in a level of uncertainty among BCOs right now,” he said. “There are BCOs who are absolutely looking at how to mitigate risk from the reshuffling of these alliances. They need the reliability of gateways that they feel might be better able to sustain their volumes with minimal disruption.”

Others agree. “On the trans-Pacific, there will be significant disruption come April when the new services are introduced,” Tan Hua Joo, executive consultant with Alphaliner, said on the same conference panel.

The alliance reshuffling was triggered by last year’s carrier consolidation, creating three east-west alliances out of the four that currently exist. This includes the creation of the Ocean and THE alliances as well as the 2M Alliance teaming up with Hyundai Merchant Marine and Maersk’s slot-charter with Hamburg Süd on east-west routes. The 2M-HMM tie-up, although short of a formal alliance, still shows that no alliance will be untouched by changes this spring.

The result is a number of new or vastly expanded relationships among carriers and between carriers and terminals, often among those who are new to working closely with each other.

Arsenault said that, at least initially, until new routines, relationships, electronic data interchange connections, and processes are created, there could be trouble through a transitionary period. Such a period could last weeks or up to a few months, but likely would be over by the time the 2017 peak season gets under way in the summer.

Areas where disruption could emerge, Arsenault said, would be in the coordination of stowage planning and specifically how intermodal cargo is handled, given that some 40 percent of import containers arriving at Los Angeles-Long Beach leave the harbor area by rail, according to the Alameda Corridor Transportation Authority. Different carriers are contracted to different railroads, resulting in multiple combinations of rail stowage, such as BNSF handing off to CSX, or Union Pacific handing off to Norfolk Southern. Other issues could be chassis dislocations, lengthy wait times for truckers, and more disputes over detention and demurrage charges if containers get stalled for days or weeks inside terminals.

“There is a clear risk of operational mess-ups during the transition, which we saw previously when the Grand Alliance and the Global Alliance were phased out,” said Philip Damas, director of Drewry Supply Chain Advisors. “It is likely that, for a couple of weeks, it will create port delays until things settle down.”

Savannah’s strong growth toward the end of 2016 in part reflects diversions by BCOs anticipating issues on the West Coast, Arsenault said. The Georgia Ports Authority reported a 12.3 percent increase in total volume and nearly a 20 percent increase in loaded imports in December 2016 versus December 2015. Overall, in November and December, East Coast imports from Asia grew 12 percent versus 9 percent on the West Coast, according to PIERS, a sister product of JOC.com within IHS Markit.

“I feel that is partly what is contributing right now to the increase in throughout that we’re seeing here in Savannah,” Arsenault said during a panel at the GFTC. “Many BCOs are keenly aware that there is likely to be some disruption, and, usually, ground zero for that is on the West Coast, so they are exploring alternative gateways,” with the idea that “until these new services and the terminals that are serving them work through the growing pains,” there will likely be issues.

Contact Peter Tirschwell at peter.tirschwell@ihsmarkit.com and follow him on Twitter: @petertirschwell.