SEARCH searchBY TOPIC
right_division Green SCM Distribution
Bookmark us
sitemap
SCDigest Logo
 
 
distribution

Focus: Global Supply Chain and Logistics

Our Weekly Feature Article on Topics Related to Global Supply Chain & Logistics
 

From SCDigest's On-Target e-Magazine

- April 1, 2014 -

 

Global Supply Chain News: Consolidation the Name of the Game Now in Ocean Shipping

Is the End of Smaller Independent Carriers Coming, as US Approves the P3 Network

 

SCDigest Editorial Staff

 

Amidst vast overcapacity and major losses for many ocean container shipping lines, consolidation in one form or another is likely to continue apace.

The problem for the carriers is at its core a simple one: there is simply too much capacity versus the number of boxes being shipped, as world trade growth continues to slow. Recent estimates are that total global trade likely grew in the 2.5% range n 2013, lower than the growth in global GDP.

SCDigest Says:

start

It's clear the name of the game is to bulk up right now, in the hopes that bigger will indeed be better from a bottom line perspective.

close
What Do You Say?
Click Here to Send Us Your Comments
feedback
Click Here to See Reader Feedback

Prior to the Great Recession, growth in global trade was commonly about twice that of global GDP growth. Seeing that sharp rise in containers being moved, carriers placed orders for so-called "megaships," with the Maersk Triple E’s, capable of holding some 18,000 TEU, leading the way, but most new ship orders being in the 12,000+ TEU range.

The orders kept coming even after the recession , in part because the money-losing carriers sought to reduce costs per box by operating ships that could hold more of them in a sailing.

But where would the extra volume come from to fill the larger vessels? Hence the logic of the consortia, in which different carriers agree to pool ships and capacity.

Last summer, the three largest container shipping (Denmark’s Maersk Line, France's CMA-CGM and Swiss-based Mediterranean Shipping Co.) announced plans for what it called the P3 Network.

Under the arrangement, the three carriers will share vessels and capacity, with the hopes of reducing operating costs and better balancing supply and demand. P3 will be an operating entity only – the three carriers will continue to price, market and sell their services independently.

Shippers, however, were concerned with the additional clout the arrangement could give the carriers, and approval from major regulators on the move was never assured. However, last Thursday US Federal Maritime Commission signed off on the deal.

While European and Chinese regulators still have to also approve the consortia, executives at the carriers viewed the U.S. regulatory body as the alliance’s top hurdle.

The P3 Network will control about 15% of the globe’s current container capacity, and much more than that on specific lanes.

In response to the plans for P3, the rival G6 Alliance (Hapag-Lloyd, NYK Lines, Orient Overseas Container Line. Hyundai Merchant Marine, APL and Mitsui O.S.K. Lines) announced in late 2013 that it was expanding its services to 240 container ships serving 66 ports in Asia, America and Europe.

The market then also saw an announcement of a consortium among Asian-based carriers, (Cosco, K Line, Yang Ming and Hanjin) into a new CKYH Alliance, which will add another letter to its name and become the CKYHE alliance, as it announced in March that it was adding Taiwan-based carrier Evergreen to the mix.

The group hopes to start alliance operations in April, though it too has to achieve certain regulatory approvals.


(Global Supply Chain Article Continued Below)

 
CATEGORY SPONSOR: SOFTEON

 
 

Add to that Hapag-Lloyd’s planned acquisition of Chili-based CSAV, making it the world’s fourth largest carrier, and it’s clear the name of the game is to bulk up right now, in the hopes that bigger will indeed be better from a bottom line perspective.

That could mean tough times for smaller carriers not members of one of these alliances, and many may find selling themselves off to larger players is in the end the best path.

Some are optimistic relative to container volume growth over the next couple of years. Hapag-Lloyd CEO Michael Behrendt, for example, says the industry’s outlook in the coming years looks much "brighter" than it has been, with container traffic expected to grow 4.4% this year and 5.2% in 2015.

Impact on Shippers

What is the impact of shippers from all this? Hard to say yet, especially as there will be both short-term and longer-term effects.

The industry researchers at Drewry note that "big shippers stand to gain much [from the alliances] from improved service frequency and a more regular supply of vessel capacity in the short term, thereby reducing the risk of shut outs and roll-overs in times of tight supply."

But, it adds, "the risk to shippers of reduced competition is clear to see, although those sharing vessels may well find themselves competing more on price than service differentiation."

 

 

But it says there are also longer-term dangers.

It quotes a statement made by the niche transatlantic carrier Atlantic Container Line to the US Federal Maritime Commission: "Should the P3 alliance be approved, every remaining carrier will be forced to join forces in a similar bloc to remain competitive. The single independent carrier will go out of business. American exporters will no longer have a large portfolio of carriers to choose from. Instead, he will have only two or three big consortia to choose from, with service one or two days per week instead of seven days per week as today. The smaller terminal operators, smaller truckers, smaller logistics vendors and smaller ports will quickly disappear."

But despite that view, the Commission approved the P3 Network just the same. Only time will tell how this will impact the industry and shippers.

Do you believe this consolidation will be good or bad for shippers? Let us know your thoughts at the Feedback button (email) or section (web form) below.


 

Recent Feedback

 

No Feedback on this article yet

 

 
 
   
.