closer look container shipping alliances

A Closer Look At The World’s Container Shipping Alliances

Traditionally controlled by sovereign-wealth funds and deep-pocketed individuals, container shipping has been a fragmented industry over the past 30 years. Nowadays, overcapacity and sluggish global trade have forced the biggest container lines to merge or form strategic shipping partnerships. According to industry analysts, the three alliances – which comprise 11 shipping operators – will handle much of the container trade on the Asia-to-Europe and trans-Pacific routes.

In 2017 and beyond, three major shipping partnerships – The Alliance, Ocean Alliance, and the 2M Alliance – will be in fierce competition with each other to dominate the North Asia, South Asia, Southeast Asia-North America trade lanes.

The Alliance

The Alliance is comprised of Hapag Lloyd, K-Line, MOL, NYK Line, and Yang Ming.

Hapag-Lloyd AG, including its acquisition of CSAV, is the world’s fourth largest container carrier in terms of vessel capacity. Hapag-Lloyd offers a fleet with a total capacity of 955,000 TEU, as well as a container stock of more than 1.5 million TEU; including one of the world’s largest and most modern reefer container fleets.

Kawasaki Kisen Kaisha, Ltd., more commonly known as K-Line, is one of the largest Japanese transportation companies. On Monday the 31st of October 2016, Kawasaki Kisen Kaisha, Mitsui OSK Lines (also known as MOL), and Nippon Yusen Kabushiki Kaisha (also known as NYK) agreed to merge their container shipping businesses.

As of May 2015, Yang Ming operates a fleet of 101 vessels with a 6 million-D.W.T and an operating capacity of 501,000 TEUs.

Ocean Alliance

Ocean Alliance membership includes CMA CGM, China Cosco Shipping, Evergreen Line, and Orient Overseas Container Line.

CMA CGM is the world’s third largest shipping line. The company operates a fleet of 428 ships with capacity of 1,556,000 TEU across 170 shipping routes.

In February 2016, the COSCO Group merged with China Shipping Group to form China COSCO Shipping. The company owns more than 130 vessels, with a capacity of 600,000 TEUs, and makes calls at more than a thousand ports worldwide. The company ranks sixth largest in the number of container ships, and ninth largest in aggregate container volume.

Evergreen Line is the unified common trade name for the four shipping companies of the Evergreen Group; namely Evergreen Marine Corp. (Taiwan) Ltd., Italia Marittima S.p.A., Evergreen Marine (UK) Ltd., and Evergreen Marine (Hong Kong) Ltd. Evergreen Line operates the fourth largest container fleet in the world, with over 190 ships with a capacity of approximately 850,000 TEU.

The Orient Overseas Container Line (also known as OOCL) is a Hong Kong-based container shipping and logistics service company. OOCL operates a fleet of more than 300 ships of different classes, with capacity varying from 2,500 TEU to 13,000 TEU.

2M Alliance

The 2M Alliance is made up of number one ranked Maersk Line and number two ranked Mediterranean Shipping Company.

With more than 600 vessels and a capacity of 3.8 million TEU, Maersk Line is the world’s largest container shipping company. Maersk Line also operates many continental trade lines. It operates its Intra South East Asia through MCC Container Lines, Europe through Seago Lines, and the famous Sea-Land Service for its intra-Americas trade routes.

The Mediterranean Shipping Company (also known as MSC) is the world’s second-largest shipping line in terms of container vessel capacity. MSC operates 471 container vessels with an intake capacity of 2,435,000 TEU.

The Outlook

On major trade routes it is expected that the existing container shipping partnerships will enjoy almost 90 percent market share. The Ocean Alliance is expected to have 40 percent of the market share, while The Alliance will have 27 percent, and 2M (with Hyundai Merchant Marine) will enjoy 20 percent. Non-alliance carrier members such as ZIM Integrated Shipping, Hamburg Sud, Pacific International Lines, Wan Hai Lines, and to some extent, Matson, will have a decision to make; should they continue servicing the Asia-North America trade lanes?

winners losers 2016 container shipping

Container Lines Saw Mergers, Alliances, & Bankruptcy in 2016

In the past year (2016), the container shipping sector has been challenged on many fronts. Falling freight rates – which have been under pressure since 2007 – coupled with years of struggling with over capacity, have weighed heavily on all of the industry’s participants.

From shipping ports and container terminals to box carriers big and small, 2016 was characterized by mergers, alliances, and bankruptcy.

Mergers and Acquisitions

Japan’s three largest container lines – Nippon Yusen Kaisha, Mitsui OSK Lines Ltd. and Kawasaki Kisen Kaisha Ltd. – announced late in November of 2016 that they planned to merge their operations. This consolidation gave them control of 7 percent of the world’s container shipping trade.

Earlier in 2016 also saw the merger of China’s top two carriers, Cosco and China Shipping Container Lines.

maersk line container shipping consolidation

We welcome consolidation. Our industry is fragmented and consolidation can help transform our business for the benefit of our customers. – Spokesman For Maersk Line

Hapag-Lloyd AG was very active in container liner acquisitions in 2016. Following the German container shipper’s purchase of CSAV, the company invested in the United Arab Shipping Company (UASC). This investment gave Hapag-Lloyd access to UASC’s six 18,800 TEU container ships, as well as a larger market share. This moved the company from the sixth-ranked container line, to fifth globally.

The popular French carrier CMA CGM acquired Neptune Orient Lines, the Singapore-based owner of APL.

Alliances and Partnerships

The OECD reports that currently almost all of the world’s major container lines are part of a global alliance. On certain routes such as Asia-North Europe, the vast majority of services – 21 out of 22 – are offered by the major container shipping alliances.

bimco consolidation

Consolidation is one of the remedies to cure the horrible market – Peter Sand, Analyst at BIMCO

Maersk Line is the 2M vessel alliance with the world’s number two ranked container line, the Mediterranean Shipping Company.

The three Japanese liners (mentioned above) that merged in November of 2016 are part of a vessel-sharing group with Hapag-Lloyd AG, known as the Alliance.

Bankruptcy

Beginning in 2007 an excess of container shipping vessels, coupled with weakening trade growth, drove container lines to try to underbid each other’s freight rates. This ultra-competitive environment proved to be crippling for some industry leaders. South Korea’s biggest container shipping line, Hanjin Shipping Co., became the first victim of the price war; filing for bankruptcy protection in August of 2016.

Looking Ahead To 2017

Analysts and industry leaders agree that freight rates have likely hit bottom. This means that there is nowhere to go but upward and back to profitability. This improvement, coupled with the reduction in competition resulting from the year’s mergers, acquisitions, and bankruptcy, means that investors in the shipping industry can expect a much more favorable market in 2017.