Maersk, CMA CGM: No plans to expand transpacific partnership, yet

Maersk, CMA CGM: No plans to expand transpacific partnership, yet

Related Stories •   Container heavyweights to cooperate in transpacific

There are no immediate plans to extend the Asia/U.S. West Coast vessel sharing agreement announced on Friday by the world's three largest container-shipping firms, according to senior managers at Maersk Line and CMA CGM.
   Over the next couple of months the Danish and French companies will partner with Swiss carrier Mediterranean Shipping Co. with each line replacing existing transpacific services with new joint operations.
   It will be the first time the European giants have all worked together, although CMA CGM and MSC do operate one joint Asia/U.S. West Coast service called Pearl River Express that uses five ships averaging 8,200 TEUs. MSC and Maersk have just ended a transatlantic agreement and still cooperate in the Asia/Australia and North America/Africa trades.

Saade

   Rodolphe Saade, chief executive vice president of CMA CGM, told Shippers' NewsWire the companies started discussions at the end of last year and were motivated by poor returns in the transpacific market.
   “We feel that the slot cost we are getting is not very competitive in a difficult market. By joining forces and being able to fill up larger ships will allow us to benefit from economies of scale,” Saade said.
   “We are looking to test the relationship between the three parties and then eventually we could be open to do more things together, but what I would say is that now the objective is to make this cooperation work efficiently and ensure a good service to our customers.”
   As a consequence of this new agreement CMA CGM will end its current transpacific arrangement with China Shipping Container Lines. But Saade said his company would continue to work with the Chinese line in the Asia/Europe trade.
   “It is difficult for only two carriers (in the transpacific market) to fill up large vessels of 8,000 TEUs. We needed to be more than just two and we felt that by joining forces with the No. 1 and No. 2 carriers would give a different scope and level to our cooperation. Even though we really like our relationship with China Shipping, the timing was right to do something together with MSC and Maersk,” he said.
   Under the new agreement the Marseilles-based carrier will deploy two of 10 8,000-TEU vessels with Maersk and MSC, instead of two 4,000-TEU ships on a joint operation with China Shipping. However, Saade said CMA CGM would not be adding to its capacity, as it will transfer discretionary cargo from another Pacific Northwest service to the new operation via Los Angeles and Long Beach.
   He added that CMA CGM is examining all of its other transpacific offerings in light of the deal with Maersk and MSC.

Clerc

   Vincent Clerc, vice president of Pacific route management for Maersk Line, said CMA CGM and MSC seemed like natural partners from an early stage in the talks.
   “The first step in our project was to look at what we thought would be the best product if we weren't constrained,” he said. “We changed our starting point a little bit to fit the reality and then started to talk to lines to figure out what is the best way to get it done. A lot of the other lines are already in alliances so we had to look at what else was out there. I think that MSC and CMA CGM were perfect partners for this. If you put our three books of business together you arrive exactly at the kind of sizes we needed.”
   Like Saade at CMA CGM, the Maersk executive said exploring any extension of the agreement's boundaries would have to wait. “For now we have to make this work. This is not like a New World or Grand Alliance. I wouldn't expect this to extend everywhere. Not for the foreseeable future at least,” Clerc said.
   Maersk, CMA CGM and MSC between them control 34.1 percent of the global liner vessel capacity according to the latest AXS-Alphaliner statistics. But Clerc stressed that shippers need not fear a coming together of the industry's biggest hitters. “If you look at the aggregate market share that the three lines have on the Pacific compared to what some of the other alliances have, it is relatively small,” he said.
   “There is absolutely no relationship between our three lines except for operational coordination. So I think shippers should be happy, as it's a much-improved product. It has faster transit times, more closings in Shanghai, extended scope with improved range in North China, Korea and Japan. It's all a plus.
   “By putting almost the same port coverage on three different strings, we steam for fewer miles with fewer port calls so we can actually be faster across the Pacific while having a vessel speed that is a little slower than before. We burn less bunker and we still get there faster. Out of Xingang and Dalian we are one day faster than we are today, and four days faster out of Qingdao.”

Gatti

   When asked for his initial reaction to the VSA, Peter Gatti, executive vice president of the National Industrial Transportation League, which represents U.S. shippers and transportation providers, said: “As a general statement, rationalizing services among carriers has produced efficiencies in the past. A more thorough comparison of the capacity differences between the present and what is planned should be examined against the current demands for space. Using larger ships normally brings its own economies of scale and I believe that the carriers considered this decision carefully before making their announcement.”
   Maersk is basing its planning for the transpacific trade on the dominant scenario of a short recession in the United States followed by moderate growth in the second half.
   “The numbers are still a bit divergent but let's call last year a flat market. We don't expect it be any different this year,” Clerc said. “We will have to see what happens and how strongly that demand growth (in the second half) translates into container volumes. Inventory levels also play into how quickly it really translates into growth in container trade. There are a lot of variables at play so it's a little too early to call whether we will see a real uptake in the second half.”
   Clerc sees this year's big story in the transpacific being on the supply side, which he said has been reduced by about 5 percent for the full year. “The narrowing of supply and demand is proof of market efficiency. The rates are not profitable for anybody right now in the Pacific. The adjustments overall in supply and demand will push rates to a point where the lines can start making money and expand again to support the demand growth that undoubtedly will come when the U.S. economy picks up again.
   “The rates need to go up this contracting season so that the lines can at least start to make a reasonable profit in the transpacific trade. If they don't I think what we will see is lines continuing to pull out tonnage because their owners simply wont accept that they continue to deploy expensive assets in a trade that doesn't repay them.”
   Saade at CMA CGM shares similar sentiment about the short-term prospects of the transpacific market. “For 2008 and beyond we feel that one has to be cautious on the transpacific and that is why we have decided to join forces with these major carriers. Our market share will stay pretty much the same and we are not looking at increasing today. If the market picks up, which we feel it should in the months to come, then it will be a different story.” ' Simon Heaney