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Aug.21, 2017

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INTERNATIONAL MARITIME IMPORTING | EXPORTING | PORTS | CARRIERS | BREAKBULK | GLOBAL LOGISTICS 14 THE JOURNAL OF COMMERCE www.joc.com AUGUST 21.2017 By Bill Mongelluzzo OUT OF THE three major vessel-sharing ag reements, Ocean Alliance members have been most successful in increasing their share of Asia imports. However, niche carriers have managed to grow their share as well, thanks to new entrant SM Lines scooping up much of Hanjin Ship- ping's business. In the three months following the April 1 launch of the new alliances, members of the Ocean Alliance increased their market share 5.5 percentage points to 43 percent compared to the same period a year ago, according to an analysis of data from PIERS, a sister product of The Journal of Commerce within IHS Markit. In the same period, members of the THE Alliance increased their total share 1.81 percentage points to 27.4 percent, and the 2M along with part - ner Hyundai Merchant Marine (HMM) increased their share 2.57 percentage points to 22 percent. The five niche container lines mov- ing Asian imports increased their total share 1 percentage point to 6.4 percent in the same April-to-June period. Individu - ally, Zim Integrated Shipping Services lost 0.14 percent percentage points to 2 percent; Pacific International Lines (PIL) increased its share 0.56 percentage points to 1.5 per- cent; Wan Hai Lines' share was nearly flat 1 percent; and Matson increased its share 0.07 percentage points to 0.72 percent. SM Lines, which entered the trade this year, had a 1.09 percent share of US imports from Asia. The dominant presence of the Ocean Alliance in the eastbound Pacific does not surprise David Bennett, president Americas at Globe Express Services. "Look at their sailing schedules from China, their over- all capacity, their service integrity, their transit times," he said. On the other hand, Bennett said the niche carriers contribute to a balanced environment in the Pacific by tailoring their services to their customer base, maintaining good service levels, and pricing competitively. "There's always a place for niche carriers that have quality service," he said. Two significant mergers now under way — consolidation of the three Japanese lines into one and the Cosco Shipping Hold- ings' acquisition of OOCL — will likely have a positive impact on their respective alli- ances when the mergers take full effect next year, said Lars Jensen, CEO and partner in SeaIntel. The consolidation of the Japanese lines means it will require only three lines to agree upon network modifications within the THE Alliance, rather than five now, and three carriers in the Ocean Alliance rather than four today, he said. "This increases the agility in decision- making, not that it will become smooth sailing as the carriers will clearly have different opinions, but the fewer the par- ties who need to agree and compromise, the faster it goes, and the fewer individual 'quirks' will be there to reduce the overall efficiency of the networks," Jensen said. The Korean carriers could be a wildcard in the Pacific in the coming year. HMM attempted to become a full member of the 2M Alliance with Maersk Line and Medi - terranean Shipping Co., but the two large European carriers would agree only to a slot-sharing arrangement. SM Lines did not respond to questions, although the Korean carrier that emerged after the bankruptcy of Hanjin Shipping has not publicly expressed interest in joining an alliance. Jensen noted that compared with the large alliance lines, the Korean carriers "are both small indeed," and as such their potential contribution to an alliance is like- wise small. "They would therefore not have much negotiating leverage in any talks relat- ing to adoption into an alliance as things stand now," he said. Although the niche carriers did not grow as quickly in the second quarter as the alli- ance carriers, some of the independent lines do have plans to increase the size of their vessels in the coming year. The niche carriers say they plan to grow by offering specialized services within their niches, rather than by competing head-on with the alliance carriers on vessel size or number of services. The niche carriers will build upon what they do best, which is to better utilize their equipment, achieve higher slot utiliza- tion, and seek out healthy export rates with a focus on profitability. "We're not driven by market share. We're driven by profitability," said George Goldman, president of Zim USA. While the mega-carriers seek scale and scope glob- ally, Zim develops scale and scope within its existing service areas, Goldman said. By definition, niche carriers are unique, even compared to each other, because each line develops a business plan built around its asset base, the trade lanes in which it operates, and most importantly, the value it provides to its customers in particular niches. Presumably, the value proposition is such that each line's customers are willing to pay a premium rate for a service that fits its needs better than what the larger carriers offer. However, when competing head-on with the large alliance members, the niche carriers sometimes have to price below the market rates to secure business. Jensen said it is all about the service that is provided to beneficial cargo owners (BCOs), but that raises the question of what "service" means to individual customers. LEADER OF THE PACK Ocean Alliance garners the biggest share of US imports from Asia while niche carriers also see gains "We're not driven by market share. We're driven by profitability."

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