Container carriers unveil plans for new "OCEAN Alliance"

Ocean carriers CMA CGM, COSCO, Evergreen Line and OOCL revealed they will form a new alliance next April.

Ocean carriers CMA CGM, COSCO Container Lines, Evergreen Line and Orient Overseas Container Line (OOCL) have signed a memorandum of understanding to form a new carrier agreement they are calling the “OCEAN Alliance.”
The carriers said the vessel sharing alliance will enable each of them “to offer competitive products and comprehensive service networks covering the Asia-Europe, Asia-Mediterranean, Asia-Red Sea, Asia-Middle East, Trans-Pacific, Asia-North America East Coast and Trans-Atlantic trades.”
“This new partnership will allow each of its members to bring significantly improved services to its respective customers,” member carriers said in similar statement. “Shippers will have an attractive selection of frequent departures and direct calls to meet their supply chain needs, including access to a vast network with the largest number of sailings and port rotations connecting markets in Asia, Europe and the United States.”
“The Alliance will also bring service reliability and the most efficient integration of the latest vessels in a fleet of over 350 containerships. Initially the deployment will cover more than 40 services globally mostly connected with Asia, including about 20 services each in the U.S. and Europe related trades.”
Subject to regulatory approvals of competent authorities, the new Alliance said it plans to begin operations in April 2017 and that the initial period of the agreement would be five years.
The combined carriers would be a strong rival to the 2M alliance between Maersk Line and Mediterranean Shipping Co., the two largest container carriers. When that 10-year alliance was announced in July 2014, Maersk said it would include 185 vessels with estimated capacity of 2.1 million TEU on 21 strings.
U.S. Federal Maritime Commissioner William P. Doyle made the following announcement: “I appreciate CMA CGM, COSCO, Evergreen and OOCL officials visiting the Federal Maritime Commission yesterday to discuss their future plans of an alignment. I look forward to reviewing and studying their formal filing of a vessel sharing alliance once it is is filed with the Commission.”
COSCO, which recently merged operations with rival China Shipping said, “Today is a great day for COSCO Container Lines. OCEAN Alliance is a better match for our globalization strategy. We will provide customers with more selections and improved service world-wide.”
CMA CGM is also in the process of acquiring APL.
“Joint service cooperation is an essential part of our own strategic planning. This new alliance enables us to optimize fleet deployment and offer competitive service to meet customers’ changing demands.” said Lawrence Lee, president of Evergreen Marine Corporation.
Lars Jensen, chief executive officer and partner of SeaIntelligence Consulting in Denmark, said it was not a certainty that the proposed alliance will be approved by regulators, noting that China rejected the proposed P3 Alliance in 2014 that would have included CMA CGM in an alliance along with Maersk and MSC. Maersk and MSC formed the 2M after the proposed three-way alliance failed to move forward.
Jensen said the OCEAN Alliance seems to be a more permanent arrangement given it is proposed as a five year agreement compared to the current two year OCEAN 3 alliance that was announced by CMA CGM, China Shipping and United Arab Shipping Co. in 2014. 2M, also announced in 2014, is a 10-year agreement.
Jensen estimates the 2M and new OCEAN Alliance “in round numbers” will be more or less the same size on the Asia to Europe trade.
“The transpacific, that’s the interesting part, because on the transpacific the Ocean Alliance is going to be very large indeed,” he said. “They’re going to be skirting right around the border with whether or not the FMC will allow this to go ahead.”
“You can slice and dice numbers in many ways but in round numbers, they’re going to end up with around a 40 percent market share, at least if you just add what they have,” said Jensen
FMC Commissioner Richard A. Lidinsky Jr., who has said in the past he was unhappy with the way the P3 Alliance proposal was made, said he “appreciated the representatives of CMA CGM, COSCO, Evergreen, and OOCL coming to the Federal Maritime Commission yesterday to inform commissioners of their intent to create the newly announced Ocean Alliance.”
“I have long said that an alliance should not put themselves above governments, as was once attempted by another alliance, but instead should work closely with global regulatory authorities to ensure the best outcome for all involved. I look forward to reviewing and studying the forthcoming filing for the Ocean Alliance. It will undoubtedly have a very significant impact on the foreign waterborne commerce of the United States, our importers, exporters, and consumers,” he added.
Jensen though European regulators are likely to allow the OCEAN Alliance to move forward because it is similar in size to the 2M on the Asia-Europe trade.
“To me when you look at this new alliance, it makes a lot of sense,” he said. He views it as “a counter move to 2M and if it’s allowed to go ahead it will actually be much stronger then 2M on the transpacific and they will be playing an equal game on the Asia-Europe trade.”
Another prominent feature of the alliance is the decision to include the Asia to Red Sea and Asia to Middle East trades in addition to the Asia-Europe, transatlantic and transpacific trades.
Not only is that a recognition of the growing size of those trades but because those regions are often served by large containership ships making intermediate stops on their Asia-Europe routes.
COSCO and Evergreen’s decision to join the new OCEAN Alliance will leave “K” Line, Yang Ming and Hanjin as the remaining members of the CKYHE alliance; CMA CGM and China Shipping membership will leave UASC, the remaining member of OCEAN 3 without alliance partners, and OOCL’s departure and APL’s merger with CMA CGM will reduce the G6 to just four carriers—Hapag-Lloyd, NYK, MOL, and Hyundai.
Those remaining carriers “have a long and hard thing coming in terms of what they want to do,” said Jensen.
He believes it would be difficult for all of those carriers to from a single group, that it would be “like herding cats.”
But he thinks it is likely a third alliance that will be relatively large and try to compete with 2M and the OCEAN Alliance will be formed and several carriers will be left out of an alliance.
“They have to find a new way of collaborating and if you don’t make your way into the new large alliance number 3, my view is that there’s a very slim chance that you will actually survive the next 5 years,” he said.
Another interesting twist, he says, are the growth ambitions of Islamic Republic of Iran Shipping Lines (IRISL), which has ambitions to grow and in February signed a cooperation agreement with CMA CGM.
According to figures on Alphaliner’s Top 100 carrier website, the OCEAN Alliance carriers (including APL) currently own and charter 1,113 ships (444 owned, 669 chartered), which combined, have 5,381,333 TEUs of capacity. In addition, the carriers have 102 ships on order with a combined capacity of 1,305,682 TEUs. Of course, only a portion of those fleets will be involved in the new Alliance, with some ships deployed in trades not covered by the deal, and carriers may change their fleets as a result of the restructuring.
In contrast, 2M Alliance members, Maersk and MSC, have 1,085 ships (457 owned, 628 chartered), which combined, have 5,707,535 TEUs of capacity. In addition, Maersk and MSC have 67 ships on order with a combined capacity of 908,000 TEUs.
The charts below, which include data from ocean carrier schedule and capacity database BlueWater Reporting, illustrate the OCEAN Alliance’s impact on market share in comparison to other alliances.