Maritime & Trade Blog

Consolidation of transhipment hubs within new alliances likely, says liner network specialist




This story originally published on Fairplay.IHS.com.

Increased terminal consolidation within the alliances should be expected as lines make a greater effort to optimise networks and further minimise costs, according to LinerGrid, the Denmark-based company that uses mathematical simulations to optimise shipping networks.

“We should expect a general development wherein networks will gradually migrate towards designs with fewer but larger hubs,” the company said after carrying out a set of simulations that show substantial financial benefits for lines that design networks around fewer transhipment hubs.

The new alliance networks, which are scheduled to begin operating in a few days, indicate that centralisation of terminal operations has already started. The networks show a large reduction in the number of port-to-port combinations on the key Asia-Europe and Transpacific trades.

The LinerGrid analysis plotted and compared costs in a series of network scenarios with variables such as balanced and lopsided cargo flows and different vessel sizes. 

The study found that in the case of extended regions such as Asia, the Mediterranean, and the Caribbean, cost savings of up to 5.4% can be realised when the number of transhipment hubs is reduced from three or two to one.

“[The analysis] indicates that once the dust settles over the new alliance networks the next phase for the carriers will be one of optimising these networks with an eye to minimising the large costs involved in the combination of vessels costs, fuel costs, terminal costs, transhipment costs and equipment repositioning costs,” the study said.

Cost savings were made in all cases where the number of hubs was reduced from three to one, and to a lesser extent when the number of hubs was reduced from three to two.

“It is clear that the savings potential has a marked dependency on the fuel costs. The higher the fuel costs, the more benefits will be obtained by switching to a centralised network design,” LinerGrid said.

Fewer hubs also creates the potential for better yield management with the possibility of ‘evening-out’ volatile cargo flows from the regional ports by gathering cargo at a centralised exit point. This, in turn, secures more consistent high vessel utilisation for the deepsea trades beyond the region.

For ports and terminals, centralising networks on the part of lines offers the potential to boost volumes if a facility is well located and selected as a key hub, while those not chosen will lose out on volumes.

The prospect of the three alliances ultimately choosing three primary transhipment hubs could mean significant upheaval to the port landscape in a region such as Asia where currently at least seven or eight ports rely heavily on heavy alliance transhipment traffic.

Some hubs, such as Malaysia’s Port Klang, are already starting to lose out, according to industry analyst SeaIntel.

“In fact, given the large consensus among the new alliances to rely on either Singapore as Southeast Asia hub, as is the case for Ocean and THE alliances, or Tanjung Pelepas, as is the case for 2M, Port Klang will be offered significantly less on this trade.”

“For the ports and terminals this shows both a clear opportunity and a clear commercial threat … some terminals will see significant increases in transhipment volumes, whereas others might see a high degree of elimination of transhipment volumes,” the LinerGrid study said.

For carriers, concerns over using a smaller number of hubs include the potential for greater network disruption in the event of operational problems as well as a potentially weaker negotiating position with a reduced number of terminals.