60th Anniversary for Container Shipping - marked by Mega Alliances!

60 Years of container shipping:
April 26, 1956, is regarded as a key date in the history of container shipping when standardised containers were first used to transport cargo by sea. The converted tanker Ideal-X sailed from Newark, New Jersey to Houston, Texas, carrying 58 containers on its decks, along with petroleum in its hold.

The idea of putting cargo into containers was the brainchild of trucking magnate Malcom McLean, who calculated that loading a medium-sized ship the conventional way cost $5.83 a ton, compared with less than $0.16 a ton on Ideal X. Mr McLean went on to found Sea-Land Services, for many years the trailblazer as containerisation opened up new markets and gradually connected just about every corner of the world to the global economy.

Today, the European lines dominate the box trades.  Numero Uno being Maersk Line which has reached its number one spot through a series of acquisitions, including Sea-Land back in 1999, followed later by P&O Nedlloyd. Maersk has also led the way in ship development, with vessels of up to 20,000 teu now in service.

An Alphabet soup in the making ?

The current tumultuous times for ocean carriers, especially with poor financial results and the prospect of worse to come in 2016 & 2017 have certainly focused the minds of the top container lines.

Global shipping lines are regrouping to compete more effectively against market leaders who are grouped under strong alliances.  Carrier alliances are once again at the centre of industry attention, as 2017 is bound to see considerable changes in structure and size of at least three of the four carrier alliances.

History of consolidations and alliances:

Over the past decade, shipping lines have talked endlessly about the need for more consolidation, with too many small players still trying to make their way in this highly fragmented and cut-throat business.

First signs of the consolidation were when Maersk Line bought P&O Nedlloyd in 2005, and Hapag-Lloyd acquired CP Ships. Smaller acquisitions happened with Hapag-Lloyd merging with the container arm of CSAV in late-2014 and compatriot Hamburg Sud taking over another Chilean line, CCNI. CMA CGM also bought the German shortsea operator OPDR. But these deals were never going to make a really big difference.

G6 : Two smaller consortia, the Grand and New World alliances, joined up to form the G6, consisting of Hapag-Lloyd and five Asia lines.

P3 that never took off and led to formation of 2M & O3:   Maersk, Mediterranean Shipping Co and CMA CGM attempted to establish the P3 Network, only to be thwarted by the Chinese authorities that would not give permission. Hence, the top two formed the 2M alliance, leaving CMA CGM to team up with China Shipping and UASC in Ocean Three.

CKYHE : Evergreen eventually joined the CKYHE group, along with Cosco, K Line, Yang Ming and Hanjin Shipping.

Reasons for the new MEGA ALLIANCES in 2016 – 2017 :

1. End of the G6 & CKYHE : Nippon Yusen, Mitsui OSK and Hapag-Lloyd are all currently part of the G6 Alliance, which will cease to exist next year, while Hanjin Shipping, Kawasaki Kisen and Yang Ming belong to the CKHYE alliance that also includes Cosco Container Lines Co. and Evergreen Marine Corp Taiwan Ltd.

2. The new vessel-sharing alliances are being formed to take on bigger rivals amid over capacity that has depressed freight rates. The bigger alliances are 2M : A.P. Moeller-Maersk A/S and Mediterranean Shipping Co. that are allied under the 2M partnership, which controls 28 percent of the market

NEW MEGA ALLIANCES IN CONTAINER SHIPPING : 2016-2017:

Ocean Alliance : CMA CGM SA, the world’s No. 3 carrier, and three other major lines signed a preliminary agreement to form a new group called the Ocean Alliance, which could become the second biggest after Maersk Line’s 2M partnership with Mediterranean.

France-based CMA CGM is taking over Singapore’s Neptune Orient Lines Ltd. and plans to bring the latter’s container operations unit APL under the Ocean Alliance. That will mean the partnership could have 26 percent of the market, according to figures from Alphaliner.

Ocean Alliance - by CMA CGM, COSCO Container Lines, Evergreen Line and OOCL

Container shipping faces another major shake-up as four top carriers CMA CGM, Cosco Container Lines, Evergreen and OOCL unveiled their plans for a new vessel-sharing agreement that will challenge the other alliances.

The Alliance :  Hapag-Lloyd AG, Germany’s top container shipping line, and five Asian carriers will form a new vessel-sharing alliance.

The partners :  Hapag-Lloyd AG  & Japan’s Kawasaki Kisen Kaisha Ltd., Mitsui OSK Lines Ltd., Nippon Yusen KK, South Korea’s Hanjin Shipping Co. and Taiwan’s Yang Ming Marine Transport Corp. It will control 18 percent of the world’s container shipping fleet with more than 620 vessels and a combined capacity of 3.5 million standard twenty-foot containers, or TEU, according to the statement.

THE ALLIANCE

Merger talks between Hapag-Lloyd and United Arab Shipping Co. SAG are progressing, and it is anticipated that UASC will become part of the new alliance, helping increase the total capacity of this partnership to more than 4 million TEU.

The Alliance, agreed for a five-year term, is scheduled to commence operations in April 2017 after regulatory approvals.

Possible alliances in future

In these extraordinary times, there could be a decision by the three big Japanese shipping groups or even the two Korean shipping majors to combine their container shipping activities. That really would be a stunning development.

During these extraordinary times, consolidation vis-à-vis alliances and M&As will help the global container shipping industry as it marks its 60th anniversary!

Previous post on M&A 
http://shippingscmlogistics.blogspot.com/2016/04/consolidations-m-alliances-in-container.html