August 5 - Drewry Maritime Research believes that the balance between supply and demand in the headhaul direction of East-West trades should be better managed by carriers next year due to the introduction of bigger alliances and consortia.

Bigger consortia and alliances enable ocean carriers to sweat their assets more efficiently, but there is also an opportunity to better fine tune vessel capacity to seasonal cargo demands, which will probably be seized, said Drewry.

Although the main benefit of mega-alliances is to reduce operating costs, those currently in the making also provide ocean carriers with an opportunity to better match supply and demand, which they are likely to seize.
Drewry suggested that just four carrier groupings could control 98.5 percent of all effective vessel capacity from Asia to Europe by the beginning of next year, for example, making it easier to fine tune vessel capacity, suggested the maritime research body.

A drawback of vessels getting bigger is that withdrawing whole services during the winter season has become too 'chunky', says the maritime research provider, particularly between Asia and Europe - hence the trend of cancelling sailings instead.

The bigger an alliance or consortium, the smoother the schedule disruption caused by an omission, and the more alternative sailings there are to cater for roll-overs. Moreover, port calls of other services can also be rationalised to help out.

But even this is a messy business, says Drewry. Most exporters want a steady supply of vessel capacity, and cannot easily adjust production just to meet ocean carriers' requirements, so may not always wait a week for the next sailing. The problem is that if the next carrier in line has also cancelled a sailing, panic could set in.

Capacity management between alliances and consortia to avoid this is illegal, but it does not prevent members from looking over each other's shoulder to see when sailings cancellations are announced, or capacity added through vessel upgrading, in order to avoid duplication.

Ocean carriers have already become better at fine tuning capacity this year, and the process could become even easier in future due to a reduction in the number of players involved, reports Drewry.

There is still much stabilisation required, as indicated in the continuing volatility of the spot freight rate market. Spot freight rates are, of course, not only determined by the balance between supply and demand, but it is an important ingredient, making the way prices change a useful indicator of imbalances.

In theory, if alliances get better at matching supply and demand, this means that freight rates should become more stable too. But carriers' tendencies to reduce rates to fill ships, and the fragmentation of the market between many competitors, run counter to price stability, advises Drewry.