As Ocean Network Express (ONE) - the merged container business of NYK, MOL and “K” Line - prepares to launch next month, Jeremy Nixon, its chief executive officer, said there may be a period of “settling down” among the three major consortia that dominate the deep sea container trades.
Speaking earlier this month at the TPM conference in Long Beach, Nixon said recent changes by the consortia appear to be “fine tuning,” in contrast to the changes a year ago when the four shipping alliances operating then reformed into three groups: the 2M Alliance of Maersk Line and MSC (which has a vessel sharing agreement with HMM); the Ocean Alliance of CMA CGM, COSCO/OOCL and Evergreen; and THE Alliance of Hapag-Lloyd, ONE, and Yang Ming.
Nixon said that process of reorganizing transoceanic shipping routes like so many strands of spaghetti was a challenging one not only for carriers, but for customers, terminal operators, and railroads.
“You look at some of the schedule reliability data, if you look at some of the challenges we face particularly in April, May and June of last year, I think that was down to teething problems of having to switch all that spaghetti across from four different consortia down to three," Nixon said. "Here we are, almost 10, 11 months later, I think that’s settling down now.”
Nixon said he was unsure if there might be further consolidation among carriers, noting that he used to hear that the three Japanese carriers would never come together into the organization he now heads.
“People tend to go into that consolidation process if profitability is bad in the industry or if their balance sheet is under a lot of distress,” he noted. “Right now, I think we’re moving into a slightly more positive phase of the industry in terms of its profitability and a lot of those balance sheets have gotten tidied up.”
Nixon indicated that at the operational level, the members of THE Alliance “have a good understanding, good consortia ethics” even if “commercially they fight like cats and dogs.”
“A lot of effort has gone in, especially in the last two months, between ONE and Hapag Lloyd and Yang Ming, to ensure that we move the alliance up in terms of shipping reliability when we hit the ground running in April-May," he said.
“I think it would be in the interest of everybody, the customer side, the container side, the rail side to have a period of stability, to really get on with moving the freight cleanly and evenly and not having some big disruption again,” he added.
In the transpacific, Nixon said on the demand side, “We’ve had a very good 2017, and I think we see that continuing into 2018.” He also said there has been strong growth in the intra-Asia trade, which augers well for deep-sea shipping since it is an indication of consumer product production.
Nixon did express some concerns about the ability of infrastructure to keep up with growth if container shipping grows at an annual rate of 4 percent-5 percent, particularly pointing to last mile trucking, rail, and container supply. He said that some companies have held back on container ordering because of a changeover in paint formulas.
Nixon said ONE is trying to work closely with customers to make the changeover to ONE smooth, and noted that the U.S. Federal Maritime Commision allowed the company to “assign the contracts across MOL, NYK and K Line across to ONE so we don’t have to change signature pages and that sort of thing.”
Asked about Maersk’s plan to become an integrated logistics company, Nixon said, “it will be interesting to see how that plays out,” but that ONE is “not looking to expand into the logistics space, particularly into the 3PL area. We’re just going to focus very very clearly on the liner products, you know basic Shipping 101. We want to be a very very good liner company that executes well, good customer service, good schedule reliability. 2018 for us is about doing the basics right, it’s about walking before we run.
“Could we look at some value added options in the future? Yes of course,” he said, saying the company may look at that in the future.