Up the Pearl River from Hong Kong, there's a section of riverfront in a special economic zone that five years ago was designed to become a large containerport serving many of the 60,000 foreign ventures that flourish around Guangzhou, China. Today, the wind blowing off the river ripples through undeveloped grassland where the port was supposed to rise.
An alliance of shipping lines that once proposed to build and operate the port broke up before the first container crane ever rose along the waterfront, according to zone officials. Hundreds of trucks hauling 40-foot containers still bump their way over roads leading from the zone, but they are headed toward the big container terminals in Hong Kong.
It is a cautionary tale for executives trying to make the best possible choices when setting up foreign manufacturing plants, and one of the reasons why so many people in global business are intensely interested in the major shakeup of ocean shipping alliances that took place earlier this year. Global enterprises, of course, are concerned over the long-term impact such alliances might have on rates and international logistics. But as the Guangzhou scenario illustrates, they are equally interested in seeing alliances survive to deliver on their promises and projects.
"The whole idea behind alliances is to meet the shipper's demand for service," said Gil Roeder, a spokesman for American President Lines in Oakland, Calif. APL and its parent company, Neptune Orient Line of Singapore, are part of the New World Alliance with Mitsui O.S.K. Line of Japan and Korea's Hyundai Merchant Marine.
Improved customer service is certainly one driver of alliances - they provide shippers with more frequent sailings, broader reach and perhaps the ability to make their container volumes count for more when negotiating rate contracts.
Equally compelling, however, are the potential benefits to carriers from better asset utilization. When participating in alliances, shipping lines are able to use the economies of scale of bigger ships and terminals to reduce costs and put off construction of new vessels.
"In the prevailing distressed economic environment of global shipping, alliances are a way for carriers to [meet service demands] without facing the intense fixed-cost investments that have been typical in the past," said Roeder.
At the same time, however, regulators and some logistics managers say it's possible that having a small number of very large players could make it easier for ocean carriers to increase freight rates or limit capacity. Either would be bad news for global companies that rely on containers to move produces from overseas factories.
How Alliances Started
It's hard to get a solid grasp on worldwide shipping alliances without at least some background on what the alliances are, how they developed and how some changed partners earlier this year.
|"We wanted to see if we couldn't share assets and provide more frequent service without making huge investments." |
- Gary Wollenhaupt of Sea-Land
|Without such cooperation between shipping lines, it would have been prohibitively expensive for APL to try to field enough ships to make Atlantic runs.|
|"The big risk today is of a bankrupt intermodal industry, not one basking in monopoly power." |
- Michael Graham,
a container shipping consultant
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