Ocean Shipping Alliances: The Wave of the Future?
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Ocean Shipping Alliances: The Wave of the Future? EDWARD J. SHEPPARD1 & DAVID SEIDMAN2 1
Partner, Thompson Coburn, Washington, DC, USA; Thompson Coburn, Washington, DC, USA
2
Associate,
Over the last decade, carriers have entered into operational relationships known as alliances to increase their product offerings and to reduce their costs. Carriers have been able to do so because alliances enable partners to rely on and to combine other carriers' operations in addition to their own. Although alliances have drastically improved operational efficiency, larger carriers will not take the logical next step and merge for a variety of reasons. Ironically, regulation through the Federal Maritime Commission is not one of the factors dissuading carriers from consolidating. This paper explains, from the carriers' point of view, the advantages and disadvantages of entering into alliances and explores the history of the US regulatory regime of cooperative agreements, including alliances. Thereafter, this paper analyses the factors that potentially will influence the future of alliances and predicts the effect of each of these factors. Overall, this paper concludes that carriers would prefer to enjoy the benefits of alliances without having to ally or to merge with another carrier; therefore, the real long-term goal of large carriers is the improvement of their services without the aid of another large carrier, regardless of whether the improvement is through an alliance or a merger. International Journal of Maritime Economics (2001) 3, 351-367.
Keywords: Alliances; mergers and acquisitions; consolidation; Federal Maritime Commission (FMC).
INT RODUCT ION Carriers created alliances in reaction to the demands of the global economy. Only global economies of scale will meet the ever-present demand to move goods at the
E. J. Sheppard & D. Seidman Ocean Shipping Alliances
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lowest possible prices, and instant global communications necessitate global networks. Therefore, the ocean shipping industry has evolved to provide the wide range of services that today's global shippers demand. To do so, carriers have entered into constructive agreements commonly referred to as alliances. However, alliances are not a new phenomenon and were used to a lesser extent before economic globalisation. They are hybrid relationships that allow for the benefits generated by limited forms of cooperation without requiring a total integration of operations. As the latest type of cooperative agreement, alliances serve as a middle ground, enabling carriers to expand service offerings and to cut costs. This article analyses the alliance system within two contexts. First, this article examines alliances within the ocean shipping industry and explains why they currently are the predominant form of cooperative agreement. Alliances derive substantial economic benefits for carriers, such as aggregation of cargo volumes and more efficient asset utilisation, without the sharing of key information. In addition, to provide a complete picture of alliances, t
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