Betting on the troubled container shipping industry probably makes more sense than investing in it, and a bookmaker would be salivating at the permutations available to the eight shipping lines “orphaned” by the newly formed Ocean Alliance.
CMA CGM, China Cosco Shipping, Evergreen Line and OOCL plan to have their alliance operational in April next year, subject to the relevant regulatory approvals. But in coming together, Drewry said in its Container Insight Weeklythat they have created myriad possibilities in terms of what the partner lines left behind by the four Ocean Alliance carriers will do in response.
Only the 2M Alliance of Maersk Line and Mediterranean Shipping Co. remains untouched. The Ocean Three will lose CMA CGM and China Shipping Container Lines, G6 will lose APL and OOCL, and the CKYHE will lose Cosco and Evergreen.
Looking for a seat when the alliance music stops are Hapag-Lloyd and United Arab Shipping Company (reportedly discussing a merger), Korean lines Hanjin Shipping and Hyundai Merchant Marine, Yang Ming Line and the three Japanese carriers, NYK Line, Mitsui O.S.K Lines and “K” Line.
Drewry looked at what the start of the new alliance would mean for the key Asia export trades to North Europe and North America based on the division of market share on those routes. The maritime analyst said as of March 2016, the 2M carriers dominated the Asia-North Europe market with a nominal capacity share of about 36 percent, followed by the CKYHE Alliance at 25 percent and Ocean Three and G6 at 19 percent.
The four alliances were more closely matched in the Asia-North America trade that, unlike Asia-Europe, retained a small non-alliance capacity, with CKYHE coming out on top with a 30 percent share, followed closely by the G6 (26 percent) and 2M (23 percent), while the Ocean Three had 15 percent.
Based on current capacity shares, the Ocean Alliance will take over as the largest vessel-sharing agreement on the trans-Pacific with a share of just under 36 percent, while in Asia-North Europe it will be within 5 percentage points of the 2M with a nominal capacity share of 31 percent.
Drewry pondered whether the alliance orphans would join together to take on the 2M and Ocean alliances, or form smaller cliques to maintain the four-alliance structure.
“A combined Hapag-Lloyd-UASC would give it a 7.6 percent share of the Asia-North Europe market and 6.5 percent of the trans-Pacific, based on current nominal capacity,” Drewry said. “To compete with 2M and Ocean in those routes they would need to bring in other carriers. Outside of those trades, UASC will be very keen to find a replacement partner to CMA CGM to help it fill its 13,000 TEU units on the Asia-Middle East route.”
At the beginning of 2016, there were four global alliances comprising 16 different carriers. By mid-2017, Drewry expects there to be only three main global alliances comprising at the most 13 carriers (following one or more mergers, one or more takeovers and a possible carrier failure, the analyst said).
“In other words, the structural industry change is about fewer, larger alliances comprising fewer, generally larger carriers than ever before.”
Were all eight of the orphan lines to join together into a third alliance, they would be a match for 2M and Ocean in Asia-North Europe and the trans-Pacific. “However, we think it unlikely that all eight will agree to a new integrated alliance, because they have very varied interests and HMM in particular has serious financial problems,” Drewry said.
The analyst also pointed out that there has always been a reluctance for the three Japanese lines to work together and if they did somehow find themselves in the same club it would add further pressure on them to merge their respective liner divisions. It is more likely that some could form a looser, smaller alliance while others will switch to service-by-service VSAs with the two main alliances, Drewry said.
So what do carriers hope to get out of this alliance merry-go round, Drewry asked. “It has created a clear divide between those carriers that are safely ensconced in a club and those that are not and are waiting nervously for an invitation,” the analyst said.
“The lines with their futures sorted may temporarily benefit from any customer apprehension over those in limbo, but if this does occur it will only be a brief side-benefit. Ultimately, carriers’ end game will be to optimize their fleets and minimize costs. Alliances have thus far have failed to solve the most elusive conundrum of stabilizing freight rates, and we do not expect this to change.”
Contact Greg Knowler at greg.knowler@ihs.com and follow him on Twitter: @greg_knowler.
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