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May16, 2016

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14 THE JOURNAL OF COMMERCE www.joc.com MAY 16.2016 COVER STORY 11, and "K" Line and NYK each have 10. The remaining carriers don't appear to have any ships of that class on order, Alphaliner said. "The eight carriers could team up under a single arrangement that would represent a serious counterweight to the 2M and Ocean Alliance on the east-west corridors," Alphaliner said, adding that the potential new alliance could be announced as soon as May. Container lines not in the 2M or Ocean Alliance must band together, merge with other lines or transform from global opera- tors to regional players, Jensen said. The number of carriers that would be left out of the three main alliances depends on the ranks of a yet-to-be-formed third alliance and the pace of consolidation over the next year, he said, adding that the third alliance would likely have a shelf life of about five years. The 2M runs for eight more years, and the Ocean Alliance would last for five years as long as it gets regulators' blessing. "There is only one seemingly important alliance being formed now, the Ocean Alli- ance, and then the rest of the market that is being led out of the two leading alliances will have to find out for themselves what to do. Either they will have to consolidate in an alliance or they will have to concentrate on very few long-haul routes or on regional activity," Maersk Group CEO Nils Andersen said. Ultimately, the alliances and even merg- ers won't reduce the container shipping industry's fundamental problem — over- capacity. At least 12 percent of the capacity needs to be taken out, Jensen estimates, but even the initial removal would only offer temporary relief. Once container lines see strengthening rates, many likely w o u l d b r i n g b a c k i d l e d c a p a c i t y, plunging the industry back into overcapac- ity, he said. With Hyundai and Hanjin teetering, and with speculation that Tokyo will force some or all of the three ailing Japanese car- riers to merge, shippers are looking for any sign of who will stay afloat and who won't. April brought a shower of major develop- ments — the Ocean Alliance, and UASC and Hapag-Lloyd confirming merger dis- cussions. Shippers can only hope May brings new budding alliance flowers. JOC Contact Mark Szakonyi at mark.szakonyi@ihs.com and follow him on Twitter: @szakonyi_joc. THE FLUIDITY AROUND ocean carrier alliances is making the inter- modal exchange of containers at marine terminals more complex, challenging the logistics skills of terminal operators at their on-dock railyards and at inland rail hubs. Recent developments involving the creation of the Ocean Alliance and the likelihood of other alliances forming in response, will chal- lenge the operational side of the business even more, although terminal operators should be up to the task, said Ed Zaninelli, a veteran shipping industry executive and president of Griffin Creek Consulting. "It's a logistical challenge, not a nightmare," he said. The changes terminal operators are experiencing begin waterside, with terminals forced to raise the height of their ship-to-shore cranes so they can load and discharge containers stacked 10-high on deck. The randomness of intermodal hand-offs increases as alliances discharge containers owned by a half-dozen lines, or more, from the same vessel onto a terminal. Additional complexity, and cost, occur at inland destinations because rail ramps and receivers' warehouses are spread across a wider radius, Zaninelli said. Terminal operators, especially those on the West Coast, are an integral link in the supply chain from Asia to inland U.S. destinations. By construct- ing rail transfer facilities dockside, the terminal operators expedite the positioning of containers from Asia directly onto intermodal trains for rapid transit to population centers in the eastern half of the country. Serving those destinations via intermodal rail from West Coast ports can save shippers 10 days to more than two weeks in transit time compared to shipping the con- tainers on all-water services to East Coast ports. Before the emergence of vessel-sharing agreements, the intermodal supply chain was a homogeneous link from the vessel to the inland destination. A vessel operated by a shipping line carried only containers controlled by that line. In Los Angeles-Long Beach, each line often had a financial interest in one of the 13 container terminals. That created a critical mass, with each vessel discharging enough containers to fill one or more unit trains to major inland destinations such as Chicago, Dallas, Atlanta and the Ohio River Valley. Containers moving to secondary destinations such as Memphis and Kansas City were trucked to off-dock yards where containers were aggregated and the unit trains were built. Over the past several years, carriers have concentrated their ves- sels in alliance arrangements, primarily to reduce costs. Alliances have allowed each line to serve as many, or more, port pairs as it served as an individual operator, while contributing a reduced number of costly vessels to the alliance. This arrangement is good for the carriers, but makes terminal operations more complex because the containers of each line must be placed on the terminal in a separate pile. Handling containerized imports is already the most complex operation at a marine terminal, said Ed DeNike, chief operating officer at SSA Marine. Having to segre- gate containers in piles according to shipping line ownership makes the difficulty of handling import loads even greater, he said. Shipping lines also sign individual intermodal contracts with the west- ern Class I railroads, and with containers from multiple lines now being handled at a single terminal, the shipments are moving under a variety of contracts, complicating the business arrangement, DeNike said. Because some lines still have a financial interest in marine termi- nals, the alliance members may work out arrangements where vessels operated by those lines call at their sister terminals, but vessels contrib- uted by other lines in the same service string call at terminals affiliated with those alliance partners. This results in intermodal containers being discharged at different terminals each week, sometimes in Long Beach and other weeks in Los Angeles. The situation also can be confusing on the receiving end, depending on where the inland rail ramps are located. Dallas-Fort Worth is a com- plex intermodal destination to serve because the Union Pacific Railroad and BNSF Railway ramps are located about 65 miles from each other, Zaninelli noted. Because shippers often locate their distribution centers close to the rail ramp operated by the railroad that the shipping line has specified in the service contract, he said, the alliance arrangements have resulted in longer drayage hauls to and from the rail ramps. — Bill Mongelluzzo PORT PRODUCTIVITY FACES NEW CHALLENGES

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