The Global Shippers’ Forum (GSF) is the world’s leading shippers’ organisation, representing shippers’ interests in the main UN and international organisations that set the rules and regulations relating to international transport services. These include deep sea shipping and air cargo services.
The history of cartelisation in these industries, particularly of the liner shipping sector, has meant that shippers’ organisations such as the GSF have played a crucial ‘watchdog’ role in ensuring that liner markets are competitive, as well as in tackling competition abuses. The author of this article led a series of successful cartel cases in the container shipping sector in the 1990s and early 2000s, and led the campaign which resulted in the repeal of the historic EU anti-trust exemption for liner conferences in 2008.
While the repeal has introduced a normal competitive market for shippers in trades to and from Europe, it is disappointing that a large part of GSF’s work is still devoted to anti-trust reform, most notably in Australia, New Zealand, Hong Kong, Singapore, and in the US where limited anti-trust exemption remains for carrier discussion agreements on rates. It is doubly disappointing in the present era that container carriers and their representative trade associations are doggedly defending these practices, particularly when most other industries have moved on to a more customer-focused agenda, where the client is at the centre of product design and service requirements.
It is still taking some time to sink in that this mentality is likely to be a major contributory factor to the current financial crisis besetting the container shipping sector. While, like virtually all other industry sectors, the container industry has suffered at the hands of the world’s greatest financial crisis since the 1930s, the container industry’s response appears to have compounded the financial problems confronting the industry, rather than working together to find solutions.
In response to these developments, in November 2016 the GSF published its seminal report on the Implications of Mega-Ships and Alliances for Competition and Total Supply Chain Efficiency: An Economic Perspective.
This GSF report essentially critiqued the mega-ships business model and, through its own independently commissioned economic analysis, validated the criticism of the OECD International Transport Forum’s mega-ships report
, The Impact of Mega-Ships, which questioned the cost saving benefits of mega-ships, particularly for shippers and other supply chain stakeholders, including container terminal operators. The GSF report confirmed two key findings: first, that headlong ‘me too’ investment rush in mega-ships, which may have reduced operational costs, led to massive over-capacity and a collapse in freight rates which exacerbated the financial crisis. Second, the investment in mega-ships and the development of four strategic alliances, later reduced to three, resulted in rapid consolidation of the liner shipping sector.
Aside from the wider competition and regulatory challenges this situation presents, the major impacts were felt by customers. Port terminal operators have struggled to cope with the larger vessels and alliance arrangements, while the investment costs in terminal infrastructure required to accommodate the mega-vessels have been substantial. Shippers have incurred additional supply chain costs through carrying higher inventory, delays, congestion and a lack of reliability and predictability in their supply chains. The resulting decline in service standards reached a nadir in April this year, when the much-vaunted alliance re-organisation resulted in a deterioration of service standards, with many shippers having their space commitments cut and having to pay higher rates to add insult to injury.
During the past year, I have participated in a wide range of conferences and debates around the world to engage in dialogue with the industry. The reactions have been mixed. Some carriers have admitted that the industry has not managed the situation well, but felt they had no choice due to the financial crisis facing the industry, while others have brazenly blamed their customers for the decline in service quality because all they want is cheap rates.
This is getting us nowhere. I have passionately argued for a different approach, one based on co-operation and collaboration, rather than confrontation. A key point made in the IFT/OECD mega-ship report was that the non-alignment of objectives between stakeholders in the maritime container industry was contributing to sub-optimal performance for the maritime and logistics supply chain. The ITF/OECD solution was the establishment of a forum comprising the stakeholders to align objectives and outcomes to enhance the performance of the supply chain.
That approach was echoed by shippers, and was a key recommendation in GSF’s Mega-ships and Alliances report. In July 2015, the GSF convened a roundtable discussion involving leading global brand shippers to seek their views on the future of the container shipping industry, their needs and their attitude to mega-ships and the alliances’ model. Their response was unequivocal: they wanted meaningful industry-based discussions with the liner shipping industry and greater collaboration in organisation and performance of the container supply chain, essentially a better alignment of carrier interests with those of their customers and other stakeholders in the supply chain. This included the enhanced flow of information to enable stakeholders to be able to respond and manage supply chain fluctuations, and the introduction of measures to develop a more in-depth knowledge of the supply chain. This would allow carriers to understand the impact of their decisions on the performance of the supply chain, better organisation of services and in investment decisions.
In June 2017, the ITF/OECD Leipzig Transport Forum provided the backdrop for a roundtable discussion between the main global maritime container stakeholder organisations on the benefits of collaboration organised by ITF/OECD. This included shipping, port authorities and terminals, freight forwarders, international organisations and the GSF. After meeting in open and closed sessions, the stakeholders agreed to set up a Global Maritime Logistics Forum. The forum will be administered by the ITF/OECD and will be part sponsored by the GSF. All parties recognised that a degree of confidence building was necessary between stakeholders.
Initially, the forum will concentrate on the short-term practical solutions that will encourage and enhance collaboration, focusing on data sharing and digitalisation and on the means to improve both the seamless distribution of cargo and the efficiency of the entire supply and logistics chain. Based on similar collaborative approaches adopted in the air cargo sector, I believe this new approach has the potential to radically transform relationships in the maritime and logistics chain and will provide the opportunity to greatly enhance the performance of the maritime and logistics supply chain.
Posted on: October 12th 2017