Last month, this column examined the possibility of a merger between struggling South Korean shipping conglomerates Hanjin Shipping and Hyundai Merchant Marine (“Who’s next for liner M&A?,” page 30). Mentioned in that discussion was the fact that almost any consolidation on the part of major ocean carriers will, by definition, affect far more than just the individual market share of the companies involved.
With state-owned COSCO and China Shipping (CSCL) officially launching the merged China COSCO Shipping Corporation Ltd. (COSCOCS) and CMA CGM set to finalize its $2.8 billion acquisition of APL parent Neptune Orient Lines, current carrier alliances and vessel-sharing agreements could shift dramatically in the next year or so.
Both CSCL and CMA CGM currently belong to the Ocean3 Alliance. CMA CGM has said previously it plans to bring APL into the fold once that transaction is finalized, and rumor has it the two are looking to continue cooperating after their respective mergers are complete.
Recent media reports have suggested the combined CMA CGM-APL and COSCOCS are attempting to get Taiwan’s Evergreen Line and Hong Kong-based OOCL to join them in a new vessel-sharing agreement on the major east-west trades. The carriers have, for the most part, refrained from commenting on the speculation, but industry analyst Alphaliner already has a name for this hypothetical alliance: the “CCEO.”
Asked about the possibility of changing alliances, CMA CGM Vice Chairman Rodolphe Saadé told the Wall Street Journal, “We are becoming a larger shipping line and we are in the position to select the partners with whom we want to do business.”
It’s important to keep in mind that none of this is expected to happen any time soon. CMA CGM’s purchase of APL still requires regulatory approval from the U.S., European Union and China before it can be completed, and COSCOCS has indicated that although it has begun the business integration of COSCO and CSCL, no changes will be made to their respective service networks until early 2017. This timeline also makes sense given the current Ocean3 agreement, which is set to expire at the end of this year. And all this assumes a CCEO Alliance would not be too large in the eyes of antitrust authorities, as was the case with the failed P3 Alliance of Maersk Line, MSC and CMA CGM, the predecessor of the 2M and Ocean3, which was scuttled by Chinese regulators in 2014.
The adjacent chart, built with data from BlueWater Reporting’s Trade Route Deployment Report, compares the current combined weekly deployed capacity of each of the four major carrier alliance groups and non-alliance lines in the transpacific, Asia-Europe and transatlantic trade lanes. For the sake of this discussion, the Ocean3 has been replaced by the projected CCEO group, and it should also be noted the figures stated in the chart assume that the other major vessel-sharing alliances—2M, G6, and CKYHE—remain the same, which is unlikely, and that Ocean3 Alliance third-wheel UASC does not join another alliance.
With a combined 254,638 TEUs of weekly deployed capacity, the CCEO would control an impressive 35 percent of overall market share in the major east-west trades. In this scenario, COSCOCS would contribute the most weekly capacity at 81,347 TEUs, with the merged CMA CGM-APL group close behind at 80,727 TEUs, and Evergreen and OOCL adding 57,485 TEUs and 35,079 TEUs per week, respectively.
In terms of projected overall weekly deployment in the east-west trades, the 2M would hold a 25 percent market share (187,095 TEUs), while the G6 Alliance would control 18 percent (137,682 TEUs) and the CKYHE Alliance 15 percent (110,166 TEUs). Non-alliance lines, which are becoming increasingly rare in the industry due to the need to fill increasingly large containerships, would hold just 7 percent of overall market share with 54,153 TEUs.
By comparison, the current Ocean3 deploys a total of just 110,037 weekly TEUs across all three lanes. Analysts have suggested the primary motivation for the formation of a CCEO alliance would be to compete directly with the 2M Alliance, but the Ocean3 already sports almost as much capacity in the transpacific, and with the impending deployment of its massive 18,000-TEU vessels on that trade, it may surpass the 2M without shaking up alliance alignment. However, even with the larger vessels, the Ocean3 would still trail the CKYHE and G6 alliances by a considerable amount in the transpacific. Where the 2M dominates presently is the Asia-Europe trade, but it’s questionable whether any carrier would be excited to grow its market share there given the toxic overcapacity situation that has caused rates to plummet over the past 14 months.
Given the extremely complex nature of consolidating ocean carrier networks and shifting alliances, many of the predictions here will likely be proven false in time. But if analysts let that stop us, this column would read like a response from the classic Magic 8-Ball toy: Reply hazy, ask again later.
Meyer is web editor of American Shipper and a research analyst with BlueWater Reporting. He can be reached by email at bmeyer@shippers.com. n
Container Analytics: Alliance Magic 8-Ball
