Shipping Alliances and Benefits for Carriers and Forwarders
February 14, 2023
Carriers often choose to form shipping alliances to benefit from competitive prices and wider service coverage. Such alliances are cooperative agreements that seek to utilize fleet space in the most efficient way rather than operate their own fleets separately.
How do Alliances work?
The main areas of cooperation are problem-solving, scheduling, vessel assignment, and stowage planning. Partners also discuss things like operational efficiencies, capacity, types of fuel used, and environmental issues. At the same time, agreements do not cover joint asset ownership, pricing, marketing, or sales.
Other Forms of Collaboration
The two other forms of collaboration between carriers are vessel sharing and slot charter agreements. Vessel-sharing agreements are typically concluded by members of an alliance for a specific lane. The goal is to meet demand by sharing the space that each party has available. A slot charter agreement, on the other hand, is a contract between operators that sell or buy slots within a certain timeframe.
Benefits of Shipping Alliances
Both big operators and smaller shipping lines benefit from pooling or sharing space. Each carrier has its own pool of customers in different countries and locations and each has is own shipping routes. Pooling enables all parties to cover more trade routes which means a broader service coverage.
Second, operators benefit from lower costs as they no longer operate their fleets separately. Reduced operational costs allow carriers to offer competitive freight rates to their customers. When operating separately, carriers are sometimes forced to compete with other lines for cargo in order to fill their ships. They have to offer lower rates to attract cargo which means lower profit margins.
Generally, sharing port facilities and vessel space and networking along certain routes enables operators to reduce costs such as port charges and bunker costs, including fuel and crew costs like social dues, medical tests, union fees, training, wages, etc.
Benefits for Forwarders and End Customers
As shipping alliances help reduce freight rates and enable broader coverage, freight forwarders also benefit from lower rates and better services. For instance, if two operators offer about the same freight rates but one is a partner of a shipping alliance, you may choose the second carrier because of the level of security that such agreements offer. Alliances typically have contingency plans to safeguard partners if one of their members is faced with financial troubles. Contingency planning also enables partners to prepare for negative events like natural disasters, economic recessions, pandemics, etc.
Likewise, if you are considering operators that are members of the same alliance, their levels of predictability and performance are likely to be quite similar. Then, you may choose an operator based on free time which is a period over which containers remain at the port and no detention or demurrage charges apply.
Ultimately, the fact that alliance members offer lower costs and more choices translates into reduced costs for international freight services for individual customers.
