As we approach the end of the first month of 2017, supply chain plans for the year should be well underway. However, the consolidation of four global vessel-sharing alliances into three— expected to take effect April 1—has created some uncertainties and potential challenges for shippers and their 2017 plans.

This month, McKinsey & Company released “The Alliance Shuffle and Consolidation: Implications for shippers,” by Steve Saxon. He explains that shippers still express dissatisfaction with their carriers in spite of their larger ships and lower freight rates. “Shippers see a widening gap between the service they’d like to receive from container lines and the service they actually get,” Saxon writes.

Shippers want something increasingly valuable in the supply chain—transparency—but container lines aren’t giving it to them. According to Saxon, shippers seek accurate and timely information about arrival times and availability, foreseeable choice of terminals, reliable transit times, and accurate container status updates.

Meanwhile, the shipping industry faces its own challenges. Its overcapacity is exacerbated by alliances keeping in business smaller shipping lines that might have otherwise ceased operations or consolidated earlier. As a result, shipping lines are offering their services at prices below cost. 

“Arguably, however, the biggest impact has been to commoditize services—bad for both shipping lines and shippers, but an inevitable byproduct of alliances,” Saxon writes. “When shippers don’t know which vessel and operator their boxes will end up on, lines find it very hard to differentiate themselves on service.” 

In a January 7 article, JOC Senior Editor Bill Mongelluzzo points out a few other challenges. He writes that rate volatility could still become a problem for the shipping industry. In addition, as some ports see their volumes increase, others could lose business. Lastly, terminal operators likely will see their costs increase to oblige taller cranes, more yard space, expanded gate capacity, and possibly longer service hours.

“One point for certain, though, is that the major driver of the new alliances is carriers’ desire to cut operating costs rather than improving service,” Mongelluzzo writes. 

Price and availability

Consider the definition of commodity from the APICS Dictionary, 15th edition: “An item that is traded in commerce. The term usually implies an undifferentiated product competing primarily on price and availability.” 

As supply chain professionals work to differentiate their companies’ services and go beyond “price and availability,” they must also require others in their supply chains to pursue the same agenda. As McKinsey’s Saxon suggests in his report, shipping lines and alliances could enhance their service offerings if they also account for greater Customer Relations and transparency. Here’s the challenge: Can supply chain professionals push for that shift in the shipping industry as well as in their own businesses? I’d be interested to hear your thoughts in the comments section below.

Lastly, let me mention APICS’s newest certification, the Certified in Logistics, Transportation and Distribution (CLTD). As supply chain and logistics grows more complex by the day, APICS and its certifications can help you establish and maintain your mastery in the field. Visit apics.org/cltd for more information.