BlueWater Reporting has illustrated how ocean carrier alliances have taken over the Asia-Europe and transpacific trades over the years, as independent carriers have all but disappeared from these trades.
Independent carriers have all but disappeared from the two largest container trade lanes in the past few years as the ever-increasing size of containerships on the major east-west trades has perpetuated, possibly even accelerated the consolidation of carriers into larger vessel-sharing agreements and alliances.
As we noted in last month’s column (January 2017 American Shipper, “The ‘alliance effect’ revisited,” page 37), carriers in recent years have taken delivery of several hundred thousand TEUs in containership capacity, causing average vessel size to jump 33 percent in the transpacific and nearly 52 percent since the end of 2011.
This increase in average capacity has had a number of downstream implications. The newer vessels aren’t just bigger, they’re also more efficient, allowing carriers to cut per-container costs significantly, as well as emissions, since they’re often running one ship instead of three or four previously. Some of these savings have been diminished, however, as the cost of fuel – traditionally the biggest contributor to the overall cost of a containership voyage – plummeted in 2015.
The larger vessels have also been blamed for port congestion in the United States as terminals, drayage operators, as well as trucking and rail carriers have in some cases had a difficult time adjusting to receiving more cargo on fewer vessel calls.
And because no one carrier could sell enough slots to fill the so-called ultra-large containerships being deployed in the Asia-Europe and transpacific trades, they began to form larger vessel-sharing agreements.
In late 2011, Hapag-Lloyd, NYK, and OOCL of the Grand Alliance and APL, Hyundai Merchant Marine (HMM), and MOL of the New World Alliance joined forces to become the G6 Alliance. Not long after, the top three container carriers worldwide – Maersk Line, Mediterranean Shipping Co. and CMA CGM – announced plans to cooperate in what would have been called the P3 Alliance had it not been scuttled by regulatory authorities in China, and the CKYH alliance of COSCO, “K” Line, Yang Ming and Hanjin Shipping added Evergreen to their ranks to become the CKYHE. Maersk and MSC quickly moved on to “plan B,” forming the 2M VSA, while CMA CGM began cooperating heavily with China Shipping (CSCL) and United Arab Shipping Co. (UASC) in the Ocean3 Alliance.
As rates fell, carrier profits quickly turned to losses, culminating in the flurry of alliance realignments, merger and acquisition activity, and the largest carrier bankruptcy in history during 2016. Starting in 2017, the G6, CKYHE and Ocean3 carrier groups will disband and reform as the OCEAN and THE alliances, while the 2M will add HMM as a slot taker, concentrating nearly all available east-west capacity into just three entities. It should be noted that carrier alliances are only permitted to coordinate on vessel operations, not rates, but the trend toward fewer, larger alliances means fewer service options for shippers, among other things.
The adjacent chart, built using data from BlueWater Reporting’s Carrier Trade Route Deployment application, compares alliance market share by weekly deployed capacity on direct region-to-region liner services in the transpacific and Asia-Europe trade in 2011 to the projected 2017 market. The Hanjin fleet has been removed from the 2017 data set since much of it has been scrapped or sold following the company’s August bankruptcy and subsequent liquidation.
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At the end of 2011, the CKYH, Grand and New World alliances deployed a combined 98,787 TEUs of weekly capacity in the Asia-Europe trade and 202,319 TEUs in the transpacific, good for 42 percent and 49 percent of those markets, respectively, while independent carriers deployed 139,058 TEUs (58 percent) and 141,190 TEUs (41 percent), respectively, in the two largest global shipping lanes. The three major alliances in 2017 will control all 247,042 weekly deployed TEUs in the Asia-Europe trade and 350,214 TEUs in the transpacific, 94 percent of the total market, compared with just 21,673 TEUs per week for non-alliance affiliated lines.
Recent data from contract rate benchmarking firm Xeneta indicates the events of the past year have begun to positively impact pricing, but as we’ve said here before, significant rate increases are unlikely to stick in the long term if the carriers don’t address the industry’s underlying supply-and-demand imbalance. Shippers should be asking themselves (and their carrier partners) exactly how these changes will affect vessel operations on alliance loops, service options, transit times, ports of call, and most importantly, reliability. Booking space with a carrier involved in an alliance means it won’t always be that particular carrier operating the vessel where your cargo ends up. One wild card to keep an eye on in the transpacific is South Korea’s SM Group, which seems set on building and operating a container fleet following its purchase of a handful of former Hanjin vessels.