Wednesday, April 20, 2016

Ocean Freight Alliances Ready for Major Overhaul as Container Shipping Lines Rationalise

You May Wish to Clear Your Head Before Reading This One
Shipping News Feature
WORLDWIDE – Ever since China’s two largest shipping groups merged to form one giant state-owned entity, rumours have abounded as to which other container freight carriers it will join with in order to create a new Alliance designed to see yet more shake-ups in the container shipping industry as it aims to challenge the established vessel sharing agreement (VSA) between the world's two biggest shippers, Maersk Line and MSC. It has now been confirmed that COSCO Container Lines has signed a Memorandum of Understanding with CMA CGM, Evergreen Line, and Orient Overseas Container Line (OOCL) to create the Ocean Alliance slated to begin operations in April 2017, subject to the usual regulatory approvals.

To clarify the situation the two groups now merged under state control are COSCO and China Shipping Container Lines (CSCL). CSCL is destined to be transformed into a container leasing and asset management company and will not be operating as a carrier. When this transition is complete, supposedly by 2018, the new entity, COSCOCS, will replace CMA CGM as the world’s third largest container shipping group whilst by the end of 2016 its containers will be carried under the flag of a new presence, China Line.

With a fleet of around 350 containers ships, the new Ocean Alliance four-way tie-up will cover the Asia-Europe, Asia-Mediterranean, Asia-Red Sea, Asia-Middle East, Trans-Pacific, Asia-North America East Coast, and Trans-Atlantic trades, for an initial period of 5 years. To begin with, the deployment will cover more than 40 services globally mostly connected with Asia, including about 20 services each in the US and Europe related trades. Having opted for ever bigger ships it seems the carriers must join together in this way to ensure they run with economical payloads, rather than competing directly and having vast overcapacity on every trade route.

The Maersk and MSC VSA (2M) controls 27.7% of the global container fleet, currently making them the most dominant alliance in global shipping by a relatively large margin with G6 holding a 16.9% share, CKYHE 16.4%, and O3 14.7%. Ocean Alliance would hold a 23.5% and see a major change to vessel sharing agreements having broken up/reduced the three smaller alliances, assuming that carriers will undoubtedly be forced to leave their current arrangement. Details of the various alliances can be seen via links from our previous stories.

As it stands currently, CMA CGM and CSCL, the container unit of China Shipping, both belong to the Ocean three (O3) alliance with United Arab Shipping Company (UASC). The deal ends at the end of the year. CKYHE will see a huge change to its formation with both Cosco and Evergreen leaving its ranks. K Line, Yang Ming, and Hanjin will be left with approximately 7.4% of the global market. China's newly merged entity has stated previously that it intends to see out its current contracts with the alliances.

G6, which consists of OOCL, APL, Hapag Lloyd, HMM, MOL, and NYK. OOCL says that it remains committed to offering reliable shipping services through the G6 Alliance where the service structure will remain stable and operate as aligned through 2016 and the first quarter of 2017. If OOCL were to leave the alliance, G6 would still command 14% of the global fleet though a name change would probably be in order.

Further, CMA CGM is still in the process of buying Neptune Orient Lines (NOL), which if given the go ahead by regulatory authorities, could increase CMA CGM's market share from the current 8.7% to 11.3% and pushing up Ocean Alliance’s control to 26.1%. NOL owns American President Lines (APL), part of the G6 Alliance, which would likely lose another member if accepted, bringing its share down to 11.4%. Then again, what will be the outcome of South Korea's plan to restructure Hanjin and HMM, whilst talks are still going on about a potential merger option.

Confused? You should be.