Create Partnership Agreements with Container Shipping Liners – Part 1

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Introduction

SAP Transportation Management, network and operations for container shipping liners provides numerous functionalities dedicated to help ocean liners to run their business better. In this blog series, you will learn how Ocean Liners set up Contracts with the Partners or Feeders in the form of Partnership Agreements to balance the supply and demand on a network more efficiently.

Business Background

Shipping alliances can help carriers facilitate low prices and broad service coverage through economies of scale and scope. A weekly liner service between different ports requires investment in a set of ships. They will sail irrespectively of their utilization rates. Collaboration between carriers, for instance, through a vessel sharing agreement can mitigate this risk and increase utilization rates.

Shipping lines are under high pressure to offer low prices to their customers as container transportation. Shipping alliances are tools used to utilize. As well as to share vessels to guarantee high utilization rates. Substantial cost savings (economies of scale) can only be achieved if partners are willing to collaborate.

Collaboration helps carriers to improve service offerings to their customers through a more comprehensive global shipping network. Research shows that extending coverage and providing more routes is the most important motivation for participating in strategic alliances.

Types of Partnership Agreements

Vessel Sharing Agreement

A Vessel Sharing Agreement is a cooperation between shipping lines to fulfil demand on specific trade lanes through the sharing of vessel space. The parties discuss and agree on operational arrangements relating to the provision of liner shipping services, including the coordination or joint operation of vessel services.

The parties take responsibility for one or more cycles of the same line and offer space on their vessel to the partners. The space for each partner may vary from port to port and depends on the individual input per Slot Provider.

The nature and extent of the cooperation between Partners may vary.  Simple sharing agreements may provide for the transfer or reciprocal exchange of capacity between members.  This will involve a carrier obtaining a predetermined number of container slots on another carrier’s vessel in exchange for payment (in the case of a slot charter arrangement) or slots on its own vessels (a slot exchange arrangement).

 

Slot Exchange Agreement
The carrier offers capacity from one line and exchanges it for capacity from a partner’s line for a predefined period at a pre-defined ratio of exchange thus extending the delivery capability of the network for example increasing frequency of service or inclusion of additional (optional ports) that are not serviced by their line. This type of Agreement is referred as SWAP in Shipping Industry

A shipping line negotiates to provide xx TEU slots on Line X in return to yy TEU slots on another Line Y operated by partner shipping line.

 

Slot Charter Agreement

Slot Charter Agreement or in Shipping Industry terms commonly known as SCA is a contract between two partners/ shipping lines who buy and sell a specified number of slots for a certain period to widen coverage.

The contract between partners is done for defined allocation (space, weight) in general on a "used or unused" basis at an agreed price and for a minimum defined period.

The party taking responsibility for one or more cycles of the same line is a slot provider whereas the party buying the slots is a slot charterer

We will have a look to the above types of Agreements in the following demonstration but before that let’s have a look to the necessary customizing activities.

 

Partnership Agreement Types

Network and operations for container shipping liners provides a highly customizable tool to configure different types of freight agreements as per business requirement.

As a pre-requisite, it is needed to define freight agreement types in IMG under Transportation Management-> Master Data-> Agreements and Service Product-> Define Freight Agreement Types

You define partnership agreement types in IMG under Transportation Management-> Container Shipping Liners-> Network and Operations-> Capacity Management->Define Partnership Agreement Types

Additionally, you can indicate whether the “Slot Providers from Line” functionality should be enabled for the corresponding agreement type. This copies all the applicable slot providers as business partners in the partnership agreement.

 

Partnership Agreement Item Types

In the IMG, you assign a partnership agreement item type (such as slot chartering agreement or vessel sharing agreement) to a standard freight agreement item type.

As a prerequisite, ensure that you have defined freight agreement types in IMG under Transportation Management->Master Data-> Agreements and Service Products-> Define Freight Agreement Types.

You have assigned freight agreement item types to freight agreement types in IMG under Transportation Management-> Master Data-> Agreements and Service Products-> Define Freight Agreement Item Types.

Define partnership agreement item types in IMG under Transportation Management-> Container Shipping Liners-> Network and Operations-> Capacity Management-> Define Partnership Agreement Item Types.

Now let’s have a look to different types of Partnership Agreement in Container Shipping Liner solution

Vessel Sharing Agreement

Example of a VSA between shipping liners which are sharing the vessel space on the same line on multiple voyages.

Partnership Agreement - General Data

 

Agreement: Agreement ID which is either chosen or else taken from the number range upon creation of the agreement.

Line ID: Is defined as a Group under the Planning and Execution organization in the Organization and Staffing (Transaction code PPOME). The Planning and Execution Org is responsible for the setup of various routes in the network. A Line consists of multiple Line studies (Routes).

Agreement Status: Is set to “In Process” by default and once the partnership agreement details are verified can be set to “Released”.

Reference Agreement: Is the source from which the new agreement is copied. The entire data of the reference is copied into the new agreement and it is mandatory to change the validity of the new agreement so that it doesn’t overlap with the reference.

Time Zone: used for commercial purposes and is tied to the Validity dates of the agreement.

Valid-From Date: Start date of the agreement. Should not overlap with an existing agreement between same partners.

Valid-To Date: End date of the agreement. Should not overlap with an existing agreement between same partners.

The list of executable voyages which are eligible during the validity period appears in the popup as soon as the dates are entered. This means, the agreement will be applicable on all these voyages.

Eligible Voyages List

Agreement Type: Is defined in the customizing as Partnership agreement type for container shipping liners solution. Specific fields and functionalities are enabled for the delivered agreement type.

Organizational Unit

The purchase and sales organizations which are involved in the buying and selling of the capacities (vessel space). If the space is sold, a forwarding order is created by the sales org towards the partner.

List of Organizations

If the space is bought, freight booking is created towards the purchasing org of the carrier (slot charterer).

Maintain the Business Partners

By default, the carrier which is responsible for the line is added in the Business Partner list. The carrier is defined as a Business partner in the system with the Business Partner role as “Carrier”. Carrier can play other roles like Bill-to-party, ship-to-party as well.

Alliance Members as Business Partners

The partner(s) with which the agreement is taking place can be maintained either manually or as per the customizing setting “Slot Providers from Line”. If the setting is enabled, all the slot providers (shipping liners) appear in the Business Partner tab.

It is mandatory to create the Shipping Liners as Business Partners in the system.

Voyage Details

The applicable voyage(s) can be seen in the Voyage Details tab with the details like Voyage ID, Departure date, Slot Provider, Voyage status etc.

Eligible Voyages with their status

 

Add Item to the Agreement document

The Agreement Item Type(s) are defined in the customizing as explained above. These item types are assigned to the partnership agreement type and hence can be chosen through the value help on the item type field. The various types provided are –

Partnership Agreement Item Types

At the Item level, it is mandatory to provide the Calculation sheet which contains the rates and other charges for the slots. If the partner occupies more then agreed capacity it will be termed as lost slots and the same will be settled with them based on charges calculated.

Partnership Agreement - Charge details

Once selecting the right item type, Vessel Sharing Agreement tab appears below in which the capacity share between partners should be maintained.

Partnership Agreement - Item details

It must be noted that a Line is a group of Line Studies (a route containing Port Terminals). The Line study acts as a Performa on which Voyages are generated.

Since the partnership agreement is based on a Line, the voyages of multiple line studies become eligible for the agreement.

In the Vessel Sharing Agreement tab, share is to be maintained at the level of Bound (Ports in one direction) which then makes the share applicable to all the ports belonging to that Bound on all the applicable voyages.

If multiple line studies (Route) are eligible they will appear in the tab under the Bound (specific direction).

The partners need to declare the capacity on their vessel as a mutual agreement. For e.g., shipping liner xx is the slot provider on voyage V1 and agrees to share 50% of the vessel’s capacity with partner yy on Westbound ports.

Equal Capacity Share on Westbound Ports

On the other hand, same liner agrees to share 40% of the vessel’s capacity with partner yy on Eastbound ports.

40/60 Capacity Share on Eastbound Ports

Once the share (%) is maintained at the Bound level, the same can be copied to all the eligible voyages of the respective line studies (Route) by applying template option. The capacity sold to the partner appears at the level of Port on all the voyages where carrier xx is slot provider.

Capacity sold applied to eligible voyages via template

Similarly, the capacity bought from the partner yy appears at the level of Port on all the voyages where carrier xx is slot receiver.

Capacity received applied to eligible voyages via template

Once the data is verified, the agreement can be set to “Released” and the status appears in the General data

Conclusion

In this blog post we learnt about the Alliances between Shipping Liners and how Container Shipping Liners solution of SAP helps in setting up such Alliances as Partnership Agreements.

We had a look to one of the Agreement Types i.e. Vessel Sharing Agreement and how capacities are exchanged between the Partners across Voyages. In the next blog post of this series, we will learn the other types of Agreements such as Slot Exchange Agreement and Slot Charter Agreement.

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