Lead-up to east-west trade showdown

   Earlier this year, the ocean liner industry was jolted as the three largest carriers, Maersk Line, Mediterranean Shipping Co., and CMA CGM, announced plans to form the P3 Network. The idea of these giants putting their differences aside and cooperating even shocked industry insiders. However, hindsight revealed this massive cooperation was already in the works long before the announcement was made.
   It all began when Maersk announced a new-build order for 30 18,000-TEU ships specifically intended for the Asia-Europe/Mediterranean trade. Shortly after, former Grand and New World alliance members Hapag-Lloyd, NYK, OOCL, APL, MOL, and Hyundai decided to merge service networks in the three major east-west trades, calling themselves the G6 Alliance. The P3 carriers cited the G6 “super-alliance” to industry regulators as validity for their own alliance plans.
   Following these announcements, CKYH Alliance partners COSCO, “K” Line, Yang Ming, and Hanjin brought Evergreen into the fold, while speculation arose that CSCL and UASC would be next to join.
   The P3 was ultimately stopped by China over antitrust concerns. Yet the fact the three members wasted no time forming new, albeit slightly smaller, vessel-sharing agreements (VSAs) illustrates the inevitability of this consolidation more clearly, as carriers sent the message that cooperation is their goal regardless of what form it takes.
   A few weeks after dissolving the P3, Maersk and MSC released plans to enter a 10-year VSA, called 2M, on the Asia-Europe, transatlantic and transpacific trades, and two months later, CMA CGM signed a combination of vessel-sharing, slot-exchange, and slot-charter agreements covering the three major east-west trades, with CSCL and UASC, dubbed the “Ocean Three.”
   At the time of the announcements, little was known about the actual details of the service offerings of either the 2M or Ocean Three, but since then CMA CGM, Maersk, and MSC have published their 2015 east-west service guides, which include the proposed 2M and Ocean Three offerings. As illustrated in the adjacent chart, the proposed 2M will include 21 services with 185 vessels and an estimated total capacity of 2.1 million TEUs, while the proposed Ocean Three will span 17 services with 159 vessels and an estimated total capacity of 1.5 million TEUs. It should be noted the Ocean Three figures do not include the transatlantic trade as those agreements have yet to be finalized and announced officially.
   Widespread consolidation of the container market into the control of only a few entities may now be all but inevitable. While it is possible individual carriers could swap one alliance or VSA for another, it is unlikely any one of them would be able to capture enough demand to fill the massive vessels soon to be deployed on the major east-west trades.
   An upcoming report from BlueWater Reporting will detail the current service networks of each 2M and Ocean Three member, and compare them to the proposed 2M and Ocean Three VSAs. What will be interesting to see is how many cross-alliance services will remain intact. According to BlueWater’s database, 18 such services currently exist in the three major east-west trades, seven operated by 2M carrier vessels with Ocean Three members taking slots, three operated by CMA CGM ships on which either Maersk or MSC take slots, and eight joint offerings on which members of both VSAs provide vessels. Will these services be merged with new offerings, or outright replaced? Will they continue to operate as is? Will they be restructured to include different slot purchasers? 
   Only time will tell, but for now it seems the 2M and Ocean Three are getting ready for a showdown and although it’s not outside the realm of possibility it appears unlikely that they will cooperate extensively with each another, despite the breadth of current cooperative efforts in the major east-west container trades.
   Meyer is a research analyst with BlueWater Reporting. He can be reached by email.

This column was published in the November 2014 issue of American Shipper.