Digital Platforms as an Alternative to Box Carrier Alliances
17 Jul 2019 - Matthew Kenney
Over much of the last 30 years, container carriers have been on a mission to pursue profitability, enhance their customer value proposition, and manage swelling overheads by forming alliances and signing slot-sharing agreements with other carriers. Indeed a classic strength-in-numbers strategy, but in the age of big data, social entrepreneurship and cloud computing, there could be another way - the ocean network platform. Here we take a look at the top 6 and ask - are we seeing a shift from traditional slot sharing alliances to digital partnerships?
The global ocean transport network is no longer a marketplace of competitor ships vying for the chance to carry goods from one place to the next. In fact, this has been the case for some time. The web of ocean freight transport has been growing ever more interconnected as our globalised economy matures, and there is an almost universal acknowledgement from the industry that some level of cooperation is key to achieving the required economies of scale to make ship operating viable into the future.
Shipping is a costly business and carriers realised long ago that, in the pursuit of profit, managing the exorbitant cost base was vital. In the mid-1990s, alliances emerged between smaller carriers to help them stave off ruthless competition from above, but today, three major alliances between the world’s most capacitive and influential carriers convey over 80% of global box trade and 95% on the east-west trading routes dominated by containerised cargoes. The big carriers saw the benefits and wanted in.
The advantages are clear: by sharing slots, carriers can optimise fleet deployment and increase capacity on quieter or more competitive routes, as well as offering shippers enhanced value proposition in the form of quicker shipments and more choice. By sharing terminal infrastructure and services, operations can be tightened up and made cheaper through economies of scale. For the carriers, shippers, and ocean freight services industry, these advantages are welcomed in today’s uncertain global economic environment.
But as is so often the case, this strategy isn’t without its detractors. The manufacturing and consumer industries, in particular, have vocalised their suspicions over an evermore consolidated carrier market. Some see this cooperation as nothing more than collusion and a pernicious attempt to de-democratise container shipping in favour of strong freight rates and greater market control. Others, while appreciating the need for such alliances, decry the carriers for their apparent unwillingness to pass any savings on to shippers in the form of discounted freight rates or reduced bunker adjustment factors.
The platform approach
With the emergence of vastly more powerful data and communications technologies, there are new ways of achieving these economies of scale without further consolidation of shipping companies or raising further suspicion from shippers. Consortium services like INTRAA, Tradelens, and CargoSmart’s Global Shipping Business Network (GSBN) bring a new kind of proposition by enhancing available services accessed through a shared, neutral platform, or as I like to put it - ‘Network Enhancement as a Service’.
Founded in 2001, the INTRAA platform has evolved from a simple container booking system to one providing a full suite of software and services to carriers and shippers.
The platform claims to be the largest neutral digital network and information provider in ocean carriage, connecting more than 35,000 shippers to 60 carriers and NVOCCs and hosting more than 850,000 container orders per week. That is over 25% of global container trade.
Participating carriers include some big names like APL, CMA CGM, Cosco, Hapag Lloyd and Arkas, all of whom benefit from electronic booking, electronic Verified Gross Mass (eVGM) processing, container track and trace, container reuse, and demand uptake analytics.
The system can be used to exchange EDI format documentation and includes document conversion software to exchange hard copy documents like physical bills of lading. An Application Platform Interface or API is provided to integrate their services with participant’s existing IT systems.
Tradelens describe their ecosystem succinctly as ‘every organization in the end-to-end journey of a cargo shipment, coalescing around a secure and versatile platform.’
Tradelens consists of more than 100 organisations involved in end to end ocean freight transport, sharing data with each other through publication and subscription under a ‘digital permissioning model’. Simply put, participants can access permitted data to help them improve planning, efficiency and equipment utilisation in exchange for providing pertinent data to help other supply chain participants do the same - quid pro quo.
Again, Tradelens purports to be a ‘truly neutral platform’, but has had to work hard to convince our industry that this the case since its launch in August 2018. Tradelens was developed through a partnership between IBM and Maersk and continues to be run by senior Maersk figures. In an attempt to render an image of neutrality, Tradelens is putting together a pan-market advisory board in the hope that this will encourage Maersk’s competitors to join the party. This approach appears to be working, with Hapag-Lloyd and Ocean Network Express joining the platform recently.
Global Shipping Business Network (GSBN)
Launched just months after Tradelens in November 2018, the GSBN is another digital shipping platform that aims to connect carriers, terminal operators, customs agencies, shippers, and logistics service providers to ‘enable collaborative innovation and digital transformation in the supply chain’.
Using technology from Hong Kong-based software and blockchain developers CargoSmart, GSBN is backed by nine founding businesses comprising; ocean carriers CMA CGM, COSCO Shipping Lines, Evergreen Marine, OOCL, and Yang Ming, and terminal operators DP World, Hutchison Ports, PSA International Pte Ltd, and Shanghai International Port.
In July 2019, it was announced that service agreements had been secured as instruments for the continued development of the GSBN among the founding members, however, since inception most have also joined Tradelens, raising questions over the future of the platform.
Zaitoun International Maritime Consortium
Led by Dubai-based Zaitoun Green Shipping, the International Maritime Consortium seeks to collaborate on ‘radically improving the performance of container ships and forming a new business model for the box shipping sector’. The consortium consists of a number of industry players such as MacGregor, Mitsubishi Heavy Industries Marine Machinery & Equipment, Wärtsilä, Winterthur Gas & Diesel Ltd, Gaztransport & Technigaz, WIN GD, CargoTech and Carinafour and in January 2019, the consortium announced an academic partnership with the University of Turku in Finland.
With a focus on economic modelling and ecological efficiency, the Turku School of Economics will provide research aimed at finding new ways of realising profitability in the container sector.
Sharing the limelight with Tradelens by launching in August 2018, the consortium is open to the whole industry to get involved, but there is yet to be any significant outputs announced.
Digital Container Shipping Association
Arguably, more traction has been demonstrated by the creation of the Digital Container Shipping Association which, since formation in April 2019 by Maersk, MSC, Hapag-Lloyd and Ocean Network Express (ONE), has added a further four major carriers - Evergreen Line, Yang Ming, Hyundai Merchant Marine (HMM) and ZIM - in quick succession.
With a focus on setting a common framework for digitalisation in container shipping and the standardisation of formats for the benefit of the whole industry, the DCSA aims to set the pace and direction of digital change in the box sector.
Whilst initially meeting with some suspicion from shippers, concerns have since been largely dispelled, owing to the DCSA’s commitment to making all of their work on everything from data interfacing standards to process blueprinting available free of charge to any interested party.
Smart Maritime Network (SMN)
Distinct from the other platform initiatives described here as the only one not operating on a non-profit basis and not exclusively for containerships, the Smart Maritime Network is nonetheless worth a mention because, in the months since it’s February 2019 launch, it has attracted an impressive membership including MSC, Wallem, V Group, Kongsberg and Dell Technologies.
The SMN aims to facilitate the development of digital technologies by providing a forum for discussion, cooperation and information sharing among its members. By generating media content, organising events and the creation of the ‘Smart Maritime Council’, SMN hope to become an instrumental part of coherent digitalisation in the shipping industry of tomorrow.
It is too early to tell what impact these platforms will have on the shape of the box shipping sector in the coming years. So far, none of the three major alliances has announced any resignations among their constituents in response to the rise in platform membership and there is clear evidence to suggest many of the largest carriers will be content to hedge their bets and put a finger in every pie.
One can’t help wondering though, given the obligations placed on alliance members, whether these platforms might end up offering a solution robust enough to trigger the dissolution of the alliances. Ultimately, only time and tide will tell.