Drewry: Carriers not part of 2M, proposed OCEAN Alliance will need to cooperate in order to compete

Meanwhile, the European Commission Competition Directorate has set a “provisional deadline” for a decision on CMA CGM’s purchase of APL parent Neptune Orient Lines for this Friday, April 29.    The OCEAN Alliance announced last week by CMA CGM, which is in the process of acquiring APL parent Neptune Orient Line, COSCO China Shipping, OOCL, and Evergreen will allow its members to “go toe-to-toe with 2M in the major east-west trades” when it starts operations in April 2007, said according to the latest edition of Drewry’s Container Insight Weekly.
   The remaining eight carriers from the Ocean3 (UASC), G6 (Hapag-Lloyd, Hyundai, MOL, and NYK) and CKYHE (“K” Line, Yang Ming, Hanjin) alliances — what Drewry has termed “orphaned carriers” — however, will “need to move quickly to find new partners or risk becoming uncompetitive also-rans,” the London-based consultant said.
   While Hapag-Lloyd and UASC announced last week they are discussing “forms of cooperation including a potential combination of their mutual container shipping operations,” Drewry said to compete with 2M and OCEAN in the transpacific and Asia-Europe trade, “they would need to bring in other carriers.” It also notes that UASC will be “keen to find a replacement partner to CMA CGM to help it fill its 13,000-TEU units in the Asia-Middle East route.”
   In addition to the transpacific, transatlantic, and Asia-Europe trades, the new OCEAN Alliance has explicitly said it will include the trades between the Far East and Red Sea and Middle East as a part of its vessel sharing agreement, something large-scale ocean carrier alliances have not done in the past.
   Meanwhile, the European Commission Competition Directorate has set a “provisional deadline” for a decision on CMA CGM’s takeover of NOL-APL for this Friday, April 29.
   A report in the Wall Street Journal quoted an unnamed source as saying, “The watchdog will give the green light for the takeover, after CMA CGM’s assurance that NOL will be pulled out of a competing shipping alliance.” CMA CGM has indicated throughout the acquisition process that it intends to remove APL from the G6 Alliance upon completion of the deal.
   Drewry noted “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,” it added. “Alliances have thus far have failed to solve the most elusive conundrum of stabilizing freight rates, and we do not expect this to change.”
    Industry analyst Michael Webber of Wells Fargo said in a recent research note, “Tepid demand remains our biggest overarching concern across the container space (in addition to perpetual supply growth, tighter margins, and questionable access to capital) as weakness in European and U.S. long-haul demand centers continue to weigh on the space and act as long-term question marks, which has been compounded by broader deflationary pressure on ships, boxes, and rates.”
   “While we believe we’ll need to see an improvement in a number of those factors for equities to sustainably rebound,” he added.
   Webber said oversupply in the number of containerships “should persist through 2016, with estimated net supply growth (6%) likely outstripping demand growth (~3%), as containerized trade continues to approach 2009 trough levels.”
   In addition, he says Hyundai Merchant Marine has “renegotiated 60 percent of its charters,” though the company has not disclosed which agreements were altered, and that Hanjin is also “looking to renegotiate time charter agreements.”
   “This could have a significant impact on the chartering market,” said Webber.
   Citing data from both Wells Fargo and Clarksons, he said charter rates for a 9,000-TEU ship has fallen to $26,000 last month from $39,500 in March 2015; for a 6,800-TEU ship to $13,500 last month from $26,500 in March 2015; for a 4,400-TEU ship to $9,500 last month from $13,000 in March 2015.
   Webber also noted the percentage of the global containership fleet currently idled hit a five-year high of 8.1 percent in March.