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Wednesday, 13 June 2018

Lessons to be Learned from the ScanDutch Alliance

The container shipping alliance Ocean Network Express (ONE) was recently hailed as the first time that three container shipping companies, in this case NYK, MOL and "K" Line, have come together on equal footing to start a new venture. But, back in 1971, three Scandinavian shipping companies established a similar venture.

Det Østasiatiske Kompagni (EAC), Svenska Ostasiatiska Kompaniet, Gothenburg and Wilh. Wilhelmsen in Oslo set up the Scanservice group to offer a Europe Far East container service with 15-day departures from the base port of Gothenburg. They ordered four equivalent large and very fast container ships Selandia and Jutlandia (EAC), Nihon (SEA) and Toyama (Wilhelmsen). Shortly thereafter the Dutch shipping company Nedlloyd joined with two ships called Nedlloyd Delft and Nedlloyd Dejima, whereupon the group was renamed ScanDutch.

In 1973 the French shipping company Messageries Maritime joined ScanDutch and brought their ship Korrigan into the pool, and in 1977, the Malaysian shipping company Malaysian International Shipping Corporation (MISC) joined.

ScanDutch was run as one shipping company with joint marketing and pricing, and it was managed out of a single office in Copenhagen. This worked well, but the venture was doomed when its joint owners started to realize that they were losing their own commercial identity in a trade of ever-growing importance, says Dynamar analyst, Dirk Visser. Ultimately, ScanDutch was broken-up in 1991.

"It was in particular Dutch carrier Nedlloyd, holding a 33 percent share, for whom the relatively obscurity of its brand in what was its most traditional trade had become unacceptable. Moreover and unlike some of the other ScanDutch members, Nedlloyd wanted to invest in new ships and eventually did so. Maersk Line, into which then P&O Nedlloyd was merged in 2006, still operated them on the Mediterranean-Indian Sub Continent route in 2014."

Now, the majority of the Europe-Far East carriers are operating in alliances. These alliances tend to be vessel sharing groups where operations are in varying degrees aligned, but pricing, steering and tracking of containers, as well as inland haulage is kept strictly separate and performed by the individual lines. The carriers aim to strengthening their position against competitors and ultimately improve, at least stabilize, their bottom line. However, they haven't driven away overcapacity, but realigned it for more powerful competition. Currently alliance participants strive to maintain full independence. This contradicts the other aims, says Visser.

"Whichever type of collaboration, be it slot swapping, vessel sharing, consortium building, alliance forming: more carriers than sailings is good for costs but bad for revenue. It is ultimately to the detriment of the bottom line," says Visser. Instead, setting up a joint commercial unit like ScanDutch for new alliances in the Europe-Far East trade would reduce the number of sales entities and would be a great contribution to taking out volatility from the Europe-Far East liner system.

"The carriers involved would be better advised to stay independent, if they choose, but to merge their Europe-Far East operations following the joint marketing concept of once ScanDutch. Four daily operating Europe-Far East consortia each with a single (costs saving) sales organization is the only recipe to get paid what they need to offer their customers a sustainable quality product.

"As such, joint marketing consortia might be a viable alternative for container shipping company consolidation. Nonetheless, they have done it. May 2015 saw the start of a period of unprecedented consolidation which has seen 10 traditional carrier brands, comprising half on the January 2015 Top 20 Container Liner Operators consigned to history. As a result there now are seven container carriers, all of them active on the East-West trades, operating box fleets of more than one million TEU: between 1.1 million and 4.1 million TEU. The fleet of carrier number eight counts just 680,000 TEU," says Visser.

"Yet, the continuing current cost and revenue pressures the merged guys continue facing may serve as warning for second tier carriers considering consolidation too. Carefully check the ScanDutch joint marketing sample at first to prevent a venture with more unwanted ships and staff."

June 12, 2018 by Maritime-Executive

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