Analysis: Asia-Europe scramble

   In what feels like a continuing saga that’s sure to dominate the next year, the Asia-Europe “war” continues to evolve. 
   At the very end of 2011, the latest shoes dropped, with the Grand and New World alliances, and Evergreen Line and the CKYH Alliance, forming two more super-groups to go along with the joining of Mediterranean Shipping Co. and CMA CGM on the Asia-Europe lane.
   In case you’re keeping score at home, at the start of November there were eight major service providers on the Asia-Europe trade (Maersk Line, MSC, CMA CGM, Evergreen Line, China Shipping, and the three alliances). Less than two months later, that number was down to five (Maersk, MSC/CMA CGM, Grand/New World, CKYH/Evergreen, and China Shipping).
   A mere day after the CKYH/Evergreen partnership was announced, China Shipping then jumped aboard with a six-service slot swap deal with COSCO, the biggest member of the CKYH Alliance. I know it’s confusing.
   But just keep your focus on this thought: come spring, there will be a drastic reduction in the number of individual service options available to shippers. Instead of eight very different network offerings, there will be five. Say a shipper’s carrier diversification plans on Asia-Europe included booking space with Hapag-Lloyd, APL, CMA CGM, and MSC. From April forward, that diversification will be halved.
   That doesn’t, however, mean there won’t be a lot of sailings. By nearly every projection, the super-alliance formations will increase capacity on the trade, not decrease it.
   Take the CKYH/Evergreen partnership. At the time the deal was announced, the lines operated a collective 87 vessels on the Asia-Europe trade. The carriers said they plan to run 12 loops from April. Even at an extremely conservative eight-vessels-per-loop average, the lines would be increasing the number of ships deployed by 10 percent.
   If the four planned Asia-Med loops are operated with a more realistic nine vessels each, and the eight planned Asia-Northern Europe loops are operated with the now typical 10 vessels, you’re talking about 116 vessels (a 33 percent increase). Even if the CKYH carriers and Evergreen get creative in their capacity allocations, you’re looking at a sizable increase in capacity on a trade that is already suffering from overcapacity.
   And the CKYH/Evergreen nexus will have fewer mega-ships available to them than Maersk, MSC/CMA CGM or Grand/New World. The European lines, in particular, will be shoehorning their big-ship deliveries in 2012 into a suffering trade.
   Some analysts have speculated that Maersk’s plan in introducing its Daily Maersk product on the Asia-Europe lane was to induce consolidation and crowd smaller lines out of the trade. Given the counteracting moves other lines have made since the product was rolled out in October, some of those analysts postulated that the move hasn’t had its desired effect for Maersk.
   But if consolidation was the immediate goal, the move has succeeded. The number of individual service factions on the trade has significantly decreased. And surely, Maersk knew its novel branding of its Asia-Europe network would spur other lines into action.
   Say what you will about the liner industry, they are not a weak-minded lot.
   If the plan was to plunge the industry into a war of attrition (a war that many inside and outside the industry might say is overdue), then it also looks to have succeeded. Given the number of pending vessels that can only be plugged into the Asia-Europe trade, rates will suffer for a long time. Unless, that is, the lines systematically shelve large swathes of capacity as they did in late 2009.
   But, remember, demand had declined before that massive ship-idling spree occurred. There was an economic reason to park vessels beyond the market share-minded heritage of the liner industry. This time, there’s not. Demand growth might be sluggish, but it’s still growth, and the mentality of the top lines is that only the fittest will survive.
   The question is: can major lines succeed without a major presence on Asia-Europe? Would some lines – particularly those who have yet to order large, Europe-only vessels – be better served by pulling out of this self-destructive war?
   Evergreen, for example, has a market-leading share of the intra-Asia trade, and a solid presence on the transpacific. It has also been a source of network innovation through the years. But at the end of 2011, it had 21 ships deployed on Asia-Europe, and no ships of even 10,000 TEUs on order.
   The choice it made was to partner with CKYH Alliance and jointly augment its presence on the trade. It was a sensible way to remain in the trade without committing to the type of major shipbuilding program needed to keep pace with the Maersks and MSCs of the industry.
   But maybe the best choice would have been to just say “no thanks,” and let the other lines fight for the scraps. If this war of attrition does eventually lead to casualties – and the smaller, remaining unaffiliated lines on the trade are the obvious short-term candidates – then Evergreen certainly has enough clout and acumen to jump back in to a healthier trade, whenever that is.
   Francis Phillips, chief analyst of American Shipper liner research affiliate ComPair Data, noted that the new Asia-based alliances could create a sort of decision-making paralysis among the larger groups of members. Maersk and MSC/CMA CGM, on the other hand, would be more nimble and able to “anticipate their every move and react instantly on a global scale.”
   Phillips held up Hamburg Süd, the privately held German line with a large presence in the trades to and from South America and Oceania, as an example.
“Note how much more strongly Hamburg Süd is now placed by virtue of having stayed out of Asia-Europe,” he said.
   It seems more shoes will have to drop on the Asia-Europe trade – maybe not in 2012, but sometime soon. When the public carriers start releasing their financials in the next few weeks, the red ink will be there in black and white, and will be harder to ignore.
   As outgoing Maersk Line Chief Executive Eivind Kolding told American Shipper in March 2010: “There’s nothing better than huge losses to make people act more rationally.”
   The point is, shippers should be wary of an environment where some carriers are angling for a scrap, and others can’t help themselves but engage. — Eric Johnson