The Freight-Rate War:
With freight rates falling more than 50% in the last 18 months, the financial health and solvency of several carriers is threatened. COSCO is selling assets in order to avoid being de-listed for losses on the Shanghai Stock Exchange; Zim Lines losses balloon to the extent their ability to continue operations is called into question, and Hanjin and others are barely hanging on. As stable freight rates allow carriers to stay in business and offer the services and schedules that permit shippers to operate some truly impressive global supply chains, the shippers’ response to the P3 has been to accuse the carriers of restraint of trade and protest to the EU. Lost in the public squabble is that 'missed sailings' and 'delayed arrivals' by the carriers have suddenly climbed to a 2-year high – neither of which is conducive to those shippers working on a Just-In-Time basis.
This new class of vessel is a game-changer in the world of carriers. The biggest dry-cargo vessel in history (and larger even than the U.S. Navy's fleet of nuclear-powered aircraft carriers), the Triple-E is designed to carry a record-setting 18,300 TEU's in a specially-designed hull sailing 2 knots slower and therefore more economically. As carriers continue in their attempts to drive down costs, Maersk has 20 of these giants joining their fleet by mid-2015. The value of the Triple-E to help a carrier maintain profitability was quickly understood by UASC and China Shipping Container Lines who quickly announced ordering 5 Triple-E size vessels each – except theirs would be even larger, rated at 18,800 TEU's.
The P3 Alliance.
The announcement of the container shipping alliance P3 Network between Maersk Line, CMA CGM and Mediterranean Shipping Co (MSC) is one that could truly warrant the tag “game changer”. The influence of the world’s three largest container lines on the major east – west trades promises to be formidable; the P3's announced plans are to start out with 255 vessels carrying 2.6m TEU's on 29 loops on three trade lanes – Asia-Europe, transpacific and transatlantic.
Analyst Alphaliner says that on a global level the three lines have a combined 37.1% share of boxship capacity with 6.3m TEU, so the P3 will control 41% of this capacity. The alliance will also have the largest boxships in service with Maersk’s 18,000 teu Triple-E's and CMA CGM 16,020 teu capacity vessels.
Following closely behind the announcement of the P3 Alliance was the G6 and CKYH. The G6 consists of APL, Hyundai Merchant Marine, Mitsui O.S.K Lines, Hapag-Lloyd, Nippon Yusan Kaisai (NYK), and Orient Overseas Lines. The G6 will have 90+ ships concentrating on Far East-Europe and Far East-Mediterranean in order to adjust product and services to market conditions.
UASC and CSCL already cooperate on a vessel-sharing alliance and could conceivably join either the G6 or the CKYh. This would rival the P3 as both carriers have five-each 18,800 TEU vessels on order and UASC has five additional 14,000 TEU's joining their fleet.
Barely-solvent Hanjin invited equally loss-making Evergreen into the CKYH Alliance in order to rationalize their Asia-US East Coast service. The other CKYH members include struggling COSCO, Yang Ming Line, and “K” Line.
Hapag-Lloyd has invited both CSAV (Chilean Lines) and Hamburg-Sud to discuss an alliance or other venture.
Mega-alliances are a way of creating consolidation in an industry sector where mergers and acquisitions have proved difficult. Each alliance cited declining volume growth and overcapacity in recent years as the reasons behind the formation of the alliance and each blamed the other alliances and said theirs was a defensive response to market conditions.
There is a potpourri of other stories of interest: the 8,100 TEU MOL Comfort splitting in half and sinking in the Indian Ocean, the six-year labor agreement signed by the US's International Longshoreman Association (ILA) and the carriers and port operators of the East Coast and Gulf ports, Piracy off Nigeria and West Africa replacing Somalia as the most dangerous to world shipping, and how consumer on-line shopping threatens to overwhelm already-complex global supply-chain-management system.
It is yet to be seen if mega-alliances can bring rate stability to the container industry as the carriers struggle for profitability yet again. It will be interesting to see if the regulatory approval for the P3 is forthcoming – or if not – why not? If the P3 is disallowed, will the G6 be permitted? Or UASC / CSCL with their 10 Triple-E's be allowed to join any mega-alliance?
The answers are vital to both the carriers and the shippers. Approval would be positive both for shipping lines in terms of securing a profitable future and for shippers in terms of stable and predictable pricing and service levels. Disapproval will result in the likely failure of Zim, Hanjin, Evergreen, and many of the other Tier 2 / Tier 3 carriers, and the shippers may not like the rates and services offered by the surviving carriers. 2014 promises to be a most interesting year – come share it with us!