Hapag-Lloyd and Maersk had set out to substantially improve vessel schedule reliability with the new Gemini Cooperation network, which started in February. Six months on, are shippers benefiting from the punctuality improvements they were promised?

When Maersk and Hapag-Lloyd announced the Gemini Cooperation back in September last year, they promised big changes.

“We believe our collaboration will raise the bar for reliability to the benefit of our customers and set a new and very high standard in the industry,” said Vincent Clerc, CEO of Maersk. The carriers also said that their ambition is to “deliver a flexible and interconnected ocean network with industry-leading schedule reliability above 90% once fully phased in.”

In an industry where service levels are highly variable and not guaranteed – in which 50% on-time arrivals is considered normal, it is not often that ocean carriers promise big improvements in the reliability of their service to shippers.

The Gemini Cooperation agreement filed with the Federal Maritime Commission states that the goals are “(i) maximizing the efficiency and utilisation of their respective vessels; (ii) providing a quality product with a high degree of schedule reliability and environmental friendliness; and (iii) meeting the needs of their respective customers in a manner that provides value and choice to the customers.”

Six months into the Gemini Cooperation, Drewry believes it is now possible to evaluate its success, in part through Drewry’s independent analyses of carrier performance.

On-time arrivals have risen

After starting with schedule reliability of about 60% in February (the first month of Gemini operations), on-time arrival performance has steadily improved to just below 90% in June, according to analysis from Drewry’s Container Capacity Insight.

Ninety percent still leaves 10% of ships arriving more than 24 hours late, but it is much better than the usual schedule reliability levels in container shipping. Note that the statistics are for mainline services only – and do not look at the reliability of transhipment services.

Their vessels’ average on-time arrival performance was at least twice as good as the average performance of the Ocean Alliance vessels and the Premier Alliance vessels, on the key transpacific and Asia-Europe routes in June

In Drewry’s opinion, the reliability of transpacific and Asia-Europe services of all 3 alliances (including Gemini) would have been higher in June if there had not been persistent port congestion at European and Asian ports.

So, the Gemini Cooperation carriers had a good start, despite port congestion.

Schedule reliability falls when ports are congested

This prompted us to dive deeper and compare schedule reliability between vessels arriving at congested ports and vessels arriving at less congested ports. A high level of schedule reliability is particularly important for transhipment ports and even more important at transhipment ports used by Gemini, because of this alliance’s well-known reliance on an extensive hub-and-spoke network with fewer mainline ports.

For example, we found that high port congestion at a transhipment port like Antwerp reduced schedule reliability by about 20%.

If you are an Antwerp-based importer, 90% schedule reliability is still not available.

Fortunately for Gemini, this alliance does not use Antwerp as a transhipment hub! Instead, it uses less congested transhipment hubs such as Rotterdam, Bremerhaven and Tanger Med.

The reliability of container shipping services depends on how carriers manage their ships and on how ports manage their traffic and berthing slots. In the case of Gemini, as both Maersk and Hapag-Lloyd operate container terminals, they have the advantage of controlling both the ships and some of the key terminals and can optimise the overall coordination between both.

When a port becomes severely congested, however, we would argue that optimisation is not enough and schedule reliability will suffer.

This also raise the question of how low schedule reliability will fall if a carrier uses a highly congested port as a transhipment hub.

The ‘cost test’ of the Gemini hub-and-spoke concept

For the Gemini concept to be considered successful, Hapag-Lloyd and Maersk will need to report either the same unit operating cost per TEU shipped, or a minor increase, in Drewry’s opinion. This is because container shipping is a highly cost-driven industry – there is a “cost test” for any major innovation.

The first-quarter results announced in May by Hapag-Lloyd covered only one month of Gemini operations and provided no conclusive evidence on the cost test of the Gemini hub-and-spoke concept.

Hapag-Lloyd will announce its second-quarter financial results on 14 August.

Drewry and many industry stakeholders will be watching how cost competitive its new Gemini operation was in the second-quarter.
Source: Drewry