Module 2 Evolution of
Shipping Strategic Alliance
Yi-Chih Yang
Professor,
Department of Shipping and
Transportation Management,
National Kaohsiung University of
Science and Technology, Taiwan
Outline1. Definition of Strategic alliance
2. Features of shipping strategic alliance
3. Motivation of shipping strategic alliance
4. Type of Shipping strategic alliance
5. Evolution of Shipping strategic alliance
6. The Impact of Shipping strategic alliance.
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1.Definition of strategic alliance A strategic alliance is an arrangement between two
companies to undertake a mutually beneficial project while each retains its independence. The agreement is less complex and less binding than a joint venture, in which two businesses pool resources to create a separate business entity.
A company may enter into a strategic alliance to expand into a new market, improve its product line, or develop an edge over a competitor. The arrangement allows two businesses to work toward a common goal that will benefit both.
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2. Features of shipping strategic alliance Shipping Alliance (also known as Ocean Alliance) is a
group of ocean carriers joining forces to create a cooperative agreement forming a strategic alliance covering various trade routes through cooperation between its members on a global level.
One of the main aims of shipping lines creating shipping alliances or vessel sharing agreements is to cut these variable costs, and the best way of doing this is through the usage of common resources such as ships, port terminals and networks around particular routes.
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3.The motivation of shipping strategic alliance Economic scale
Market access
Reduce the investment of physical assets
Market coverage
Service frequency
Marketing ability
Cost Control
Vessel space usage availably
Container configuration
Knowing how to operate
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Objectives of liner shipping companies The objectives of modern liner shipping companies
include risk and investment sharing, the reaping of economies of scale, cost-control and a capability to increase service frequencies in a dynamic environment of growing containerized trade.
Alliance membership imposes restrictions on a member’s use of a non-member carrier (Slack et al., 2002). It also applies specific provisions with respect to withdrawal (notice and penalties) and ownership changes during what is normally a five-year agreement.
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Operational costs in shipping account over 67% of the total cost of running a shipping line
operation.
46% relate to Bunker costs
21% relate to port charges, both of which are variable costs (means not fixed costs).
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4.Type of shipping strategic alliance the strategic or global alliances, a relatively new type of
co-operative agreement in ocean shipping (Midoro & Pitto, 2000).
global alliances were formed in the mid-1990s with the aim of establishing co-operation between the members on a global scale. The agreements involve ocean carriers co-operating on certain major global routes.
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Strategic (horizontal) alliances aim at co-operation in the employment and utilization of ships over particular routes including type/size of ship, sailing schedules and itineraries, use of joint terminals and container co-ordination on a global scale.
Strategic alliances in ocean shipping do not cover joint sales, marketing or price fixing, joint ownership of assets, pooling of revenues or the sharing of rofits/losses and joint management and executivefunctions.
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5.Evolution of shipping strategic alliance As of 18 July 2016, the world’s shipping alliances
include the 2M alliance (Maersk and MSC), the Ocean Three alliance (CMA CGM, UASC, COSCO Shipping), the G6 alliance (NYK Line, OOCL, APL, MOL, Hapag-Lloyd* and HMM) and the CKYHE alliance (K Line, COSCO, HANJIN, Evergreen, Yang Ming).
Independent top carriers include PIL, ZIM, Wan HaiLines, X-Press Feeders and KMTC.
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Four alliances including the 2M, the Ocean Alliance, The Alliance and the independent carriers announced reorganizations starting from January next year,
2M: Maersk , MSC
Ocean Alliance: CMA CGM,COSCO, Evergreen, OOCL
The Alliance: Yang Ming, Hapag-Lloyd, NYK, K-Line and MOL
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Container Market Consolidation Consolidation, through
mergers and acquisitions or alliances, persevered in the container industry in response to the negative environment and losses experienced by the industry in recent years.
Their share has increased further with the completion of the operational integration of the new mergers in 2018
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Alliance formation process from 1996-2015
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3 shipping alliances
there are three major alliances approved for operation by the FMC:
The Transport High Efficiency Alliance: K-Line, Hapag-Lloyd, NYK, MOL and Yang Ming
The Ocean Alliance: CGM, CMA, Evergreen, Cosco Shipping and Orient Overseas Container Line
The 2M Alliance: Maersk and Mediterranean Shipping Co.
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Top 3 shipping strategic alliance Alliance Name Alliance number Rank Total vessel
Number
Transport
Capacity
Market
percentage
2M
Maersk 1 621 3,252,733 15.7%
MSC 2 491 2,939,308 14.2%
Hamburg Sud Group 7 115 594,327 2.9%
Hyundai M. M. 13 67 462,233 2.2%
Ocean
Alliance
CMA CGM 3 445 2,153,829 10.4%
COSCO 4 293 1,638,732 7.9%
Evergreen 5 187 989,592 4.8%
OOCL 9 91 555,124 2.7%
THE
Alliance
Hapag-Lloyd 6 169 978,573 4.7%
Yangming 8 100 576,269 2.8%
UASC 10 54 520,254 2.5%
NYK 11 95 504,165 2.4%
MOL 12 79 488,107 2.4%
K Line 14 62 362,708 1.8%182019/12/6 Module 2-Evolution of shipping strategic alliance
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6.The impact of shipping alliances the creation of shipping alliances has brought mega
ships and mega ports into the shipping industry
Port selection factors being judged by cargo source, port operating cost and port handling efficiency.
Shipping alliances allow better allocation of the shipping lines’ resources, which naturally reduces operational costs, allows the expansion of service coverage, optimizes the ports of call and ultimately achieves economies of scale.
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Strong bargain power with terminal operating company based on huge cargo volume
Joint negotiation with port management or port authority on cheaper port charges
Obtaining more incentives and good conditions from port management or port authority.
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Thanks for your attentionWelcome to Kaohsiung harbor city
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