FlyingTypers Logo
FlyingTypers Ad
   Vol. 14  No. 12
Saturday February 7, 2015

Blockbuster Ocean Alliances

Dawn Of Ocean Mega Alliances

     In early February two of Europe’s largest container lines announced they would further enhance their cooperation. CMA CGM and Hamburg Süd were already offering joint services from North Europe to South America and the Caribbean, but starting in May there will be further cooperation.
     Subject to FMC approval, this will see the lines start a new pendulum service that will connect Asia, the Caribbean, the United States East Coast, and North Europe. And from July onwards the lines will, together with further partners, revamp their services between Asia and both the East and West Coast of South America.
     The announcement was significant because German line Hamburg Süd was the last major line to commit itself to the mega-alliance model that has carved up global container shipping capacity in less than a year.
     In fact, since Chinese regulators blocked the huge P3 merger—which would have joined CMA CGM, Maersk, and MSC— last summer, lines have simply sought out new arrangements with ever more vigor, rather than discard the strategy.
     CMA CGM, the world’s third largest container carrier with around 9 percent, behind only Maersk (15 percent) and MSC (13 percent), has been among the most eager to move on to fresh pastures after the P3 debacle.

What Is Going On

     Apart from its arrangement with Hamburg Süd, CMA CGM is also now a key member of Ocean Three with China Shipping and United Arab Shipping Co. Ocean Three represents around 21 percent of global container capacity, according to Drewry. This compares with the 2M alliance, which represents 31 percent of the market, and the CKYHE and G6 alliances with 24 percent of the market each.
     In the short period of time since P3 was blocked, therefore, the global container shipping business has, in effect, been split into four major alliances supplemented by a range of slot deals and service arrangements with the few carriers, such as Hamburg Süd, which had previously refused to follow the crowd.

Driving Factors

     The drive behind mega-alliances comes from lines seeking to lower port and shipping costs and reduce the impact of excess supply at a time when they still need to invest in new ultra large container ships which offer reduced fuel usage and greater economies of scale to remain competitive.
     Shippers have generally taken fright at the thought of such consolidation. Although lines are not allowed to jointly set prices, they believe that the ability to manage capacity could effectively stop rates falling freely. They are also concerned that service reliability and port congestion could both deteriorate.
     But so far at least, most of those fears have proved unfounded. Certainly regulators are keeping a close eye on pricing arrangements. Rate peaks and troughs at the start of 2015 on key trades have been marked, but the pattern is not dissimilar to 2014 with lines continually attempting to implement new rate increases or surcharges which are then quickly eroded by the market.

Port Issues

     Of course, the pricing landscape has been clouded in the first quarter due to U.S. West Coast port congestion and union issues, which are taking capacity out of the market and bumping up prices, and preparations for Chinese New Year, which are adding to the rush to load ex-China prior to factory closures. Exactly how rates are being affected by the new mega-alliances will not, therefore, become clearer until later in the year.
     In terms of performance, the mega alliances do not have to reach too high to improve matters this year compared to last. According to SeaIntel Maritime Analysis, 19 of 20 shipping lines recorded a decline in on-time performance during 2014, with CSAV the only exception.

Word Up

     Of the analysts, Drewry has been the early leader in examining exactly how the mega alliances are influencing liner behavior on key routes. In one recent report, the analyst found that on the key Asia-North Europe lane, the four major alliances now control almost all of the services. However, more positively, the number of services and available capacity has barely changed.
     “Many feared that the formation of the mega-alliances would intensify the homogenization of the industry whereby carriers can only compete with one another on price as they all have the same services,” said Drewry. “However, closer inspection of the schedules reveals that the alliances are far from uniform and between them they have created a pretty well-balanced network with wide port coverage at both ends of the trade.”
     Drewry also concluded that for time-sensitive shippers the alliances were providing a wide array of transit times. From Shanghai to Rotterdam transit times range from the quickest time being 28 days to the slowest time being 36 days, for example.
     “With each alliance having a slight geographical bias, often dictated by members’ terminals interests, they all can boast some transit time supremacy somewhere,” said Drewry.
     “Interestingly, the advent of the new alliances looks to have increased the average speeds of ships on the trade, which is probably a consequence of both dramatically lower bunker fuel costs and the desire of carriers to make their new services more attractive to customers.
     “Drewry estimates that average westbound service speeds have sped up to 18.5 knots; versus 17.8kts as measured in December. The 2M again leads the way with an average speed of 19.8kts, while the G6 brings up the rear on 17.5kts.”
     However, Drewry adds the caveat that its analysis was based on scheduled transit times and “shippers will be well aware carriers do not have a great track record of delivering cargo on-time” with Drewry’s Carrier Performance Insight finding that reliability in the Asia-Europe trade was only 64 percent in December.

Looking Ahead

     So while the pricing and service implications of the new liner mega-alliances are still not entirely clear at this early stage, from a shippers’ point of view, their worst fears have so far not materialized.

If You Missed Any Of The Previous 3 Issues Of FlyingTypers
Access complete issue by clicking on issue icon or
Access specific articles by clicking on article title

Vol 14. No. 9
The Blizzard That Wasn't
Ayesha Hassan Doing The Heavylifting
Chuckles For January 29, 2015
CAL & ATC Team Up
Flanagan's Capital Talk
Cargo Awards Leave Some At Loss
Vol 14. No. 10
Hong Kong Tops Again
Wish We Said That—Bill Boesch

Best In Show—FIATA Not Yada Yada
Chuckles For February 2, 2015
Now There Are Three
Best 2015 Super Bowl Ad