Tuesday, 31st May 2016
31st May 2016

P3 Alliance: the best and worst of carrier reliability

Charlie Bartlett
By from London


World infrastructure is often measured by whether the trains run on time, but is there anyone who can make boxships run on time?

Two separate reports from analysts at Drewry Maritime Research and SeaIntel have recorded discouragingly low reliability figures for container trades recently, with industry average on-time delivery percentages dropping throughout every consecutive quarter of 2013. As of Q4, average reliability was at 63.8% - the lowest it has been since 2011.

Why are liner services getting it wrong? SeaIntel coo Alan Murphy blames consolidation. “A large part of the explanation can be found in the increased cooperation between carriers, either through carrier alliances such as P3 and G6, or through Vessel Sharing Agreements or Slot Purchases and Swaps,” says Murphy.
Both analysts found that Maersk Line was the most reliable carrier of 2013: Drewry gave an on-time score 80.1%. Meanwhile Evergreen Line made an impressive rise from 11th to second place with a 74% on-time result, and Yang Ming ranked third, at 73%.
However, Mediterranean Shipping Co (MSC), Maersk’s partner in the upcoming P3 alliance, was at the bottom of the table, with an on-time delivery percentage of 48% in the last quarter. Co-operation between the two lines, then, poses an interesting question: can Maersk put MSC right or will the Geneva-headquartered line give the Danish line the blues?
“It is clear that one of the major challenges for P3, or for that matter any other alliance, is how to manage the often very large differences in performance, especially with regards to on-time performance,” says Murphy. “This is especially clear for P3, where you have two partners at either end of the spectrum, as well as CMA CGM who have historically performed in line with the average market performance.

"So when the P3 alliance comes into effect, all P3 partners will get the same score on the east-west services they co-operate on, which would mean that if the operational performance of the three carriers remains unchanged, then Maersk Line will see a significant drop in performance, and MSC will see a likewise significant improvement of performance, while CMA CGM will probably not be heavily affected, as their current performance is close to the industry average.

"It is very important to note that there are no indications that performance will not change, and the setup of an independent operations centre does indicate that operations performance has been central in the design of P3. It is our perception that Maersk Line will continue to have a very strong focus on on-time performance going forward, and that the other P3 partners see a benefit from improving performance through P3."

Drewry supply chain research senior manager, Simon Heaney, thinks Maersk can have positive influence on its potential partners. “Assuming it goes ahead, the P3 will be run by an independent operating centre in London, which crucially will be headed by a former Maersk trade manager,” he says. “This suggests that the P3 will be run according to Maersk standards so I would expect the other carriers will see a significant increase in reliability.”
The surprising point is that being more reliable could also save money so P3's overall standards might be better than the expected averages.

While conventional wisdom would hold that lines become more reliable as they are trying to improve their service levels SeaIntel's Murphy believes that cost-cutting is actually a major factor in improving reliability. “We believe that much of this increased focus on performance can be explained less by improving services to shippers, but rather from an increased focus on cost cutting, as our previous research has shown that significant cost savings can be achieved by being on-time, as less fuel is being consumed trying to catch up to the proforma,” he explains.
But shippers know that lines are cutting costs, says Heaney. “With the prospects of further cost savings for carriers, shippers want to see some of that benefit passed on and are therefore reluctant to accept higher rates, as we've already seen in contract rates on Asia-Europe. Better reliability would at least mean shippers get something extra for paying more, which would make any increase slightly more palatable. Basically, carriers will struggle to push rates up in all cases, but they stand a slightly better chance if they can offer something in return.”
However, Murphy argues that it is not the time for pointing fingers. “The blame for the lowered service levels resulting from these cost-cutting initiatives cannot be placed solely on carriers, as the business of container carriers is currently not about making money, but rather ‘bleeding slowest’."

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