By Theo Notteboom
Having demostrated (see inforgraphic below) how strategic alliances among container shipping companies have changed in the past 20 years, PortEconomics co-director Theo Notteboom, explains the scenarios on alliance formation in container shipping today.
Four alliances are operational in the market: 2M, Ocean Three, CKYHE and G6. Alliance partnerships often evolved as a result of mergers and acquisitions (e.g. merger between P&OCL and Nedlloyd and the take-overs by P&O Nedlloyd and SeaLand by Maersk) and the market entry and exit of liner shipping companies.
The news that reaches us in recent months seems to indicate we are entering the next consolidation wave in container shipping. The proposed merger between China Shipping Group and Cosco Group is coming closer now that the Chinese Government is likely to approve the merger draft plan at the end of this year. At the same time, Singapore-based NOL (Neptune Orient Lines) is likely to sell its container division APL (American President Lines). Maersk Line and CMA CGM seem to be the most likely contenders to acquire APL. In South Korea, there are increased speculations on a possible merger between Hanjin and HMM (Hyundai Merchant Marine). These likely mergers and acquisitions are going to affect the current configuration of alliances in container shipping.
The infographic presents five possible scenarios at the level of the alliance formation in case all three M&A activities would go ahead, i.e. the merger between Cosco and China Shipping, the sale of NOL (to Maersk or CMA CGM) and the merger between Hanjin and HMM. The scenarios are non-exhaustive and serve pure as an illustration of what could happen.
In Scenario 1 the G6 alliance loses APL as a member, but compensates this by welcoming the merger company Hanjin/HMM. Also the CKYHE alliance sees a member leave (Hanjin) but welcomes the China Shipping part of the new COSCO/CSCL company. The Ocean Three alliance is most affected in this scenario as it is only left with two members which might make the alliance capacity-wise too small to effectively compete with the other carrier groups.
Scenario 2 assumes the creation of an Asian mega alliance as the Chinese and Korean merger companies would join the CKYHE alliance. Both O3 and G6 would be seriously weakened. The new CKYHE alliance and 2M (strengthened with APL) are likely to have significantly larger fleet capacities than the other two alliances.
In scenario 3, the Ocean Three alliance gains most strength as the fleets of both Cosco and APL would be phased in the alliance operations. The G6 alliance is faced with a much smaller fleet capacity.
The fourth scenario combines the creation of an Asian mega alliance with a resurgence of the P3 alliance idea. The P3 alliance between Maersk Line, MSC and CMA CGM was announced in the Summer of 2013 and got the approval of the European and American competition authorities. However, P3 in the end did not become operational as the Chinese authorities did not approve the set-up. However, if an Asian mega super alliance would emerge, we believe that a P3 configuration would have more chance of materializing. Scenario 4 would result in the reduction of the number of alliances from four to three as UASC (now O3) might have to seek membership of the modified G6 alliance.
The scenarios outlined above all assume that the current alliance structures are altered, but no fundamental reshaping of alliances would take place. Obviously, we cannot exclude a scenario that would lead to a complete new landscape and order in the partnerships between shipping lines (scenario 5).
Theo is aware that the above discussions are highly speculative. Whatever the real outcome will be the next couple of months promise to be very challenging for ports and terminal operators in their efforts to secure the volumes of carrier formations.
Do you see any other possible outcomes? Or maybe we might see the end of alliances as we know it.