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.
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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.
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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)
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