Consolidations to revamp ship alliances, impact supply chains

tpm-3Several of the world’s top container lines are entering a game of musical chairs. When the music stops, some of them will find themselves in different vessel-sharing alliances because of the chaine at least six carriers are in discussions about switching between the four existing alliances or even talking about forming a new one.

The realignment probably won’t have much of an impact on beneficial cargo owners, however. BCOs are likely to voice the same complaints, perhaps even more so, because they’ll have an even more difficult time keeping track of their shipments as their carriers switch alliances and the resulting combinations increase in size and complexity.

In the most recent development, Cosco and China Shipping, which officially merged their fleets on Feb. 18, are in talks with Evergreen Line and OOCL about forming a new VSA that would shake up three of the four major east-west vessel-sharing groupings, according to Alphaliner.

The new alliance, which research analyst Alphaliner dubs the 2CEO, would create a grouping on a scale that would challenge the largest alliance, the 2M Alliance between the world’s two biggest carriers, Maersk Line and Mediterranean Shipping Co.

The 2M is the only alliance that has not been reported as discussing bringing in new members or losing either of its existing members. The 2M’s current combined fleet capacity totals 5.2 million 20-foot-equivalent container units. The capacity of the combined fleets in the new grouping under discussion between the two Chinese carriers, Evergreen and OOCL would total 3.6 million TEUs.

“That means you get a very strong Ocean Three Alliance and you get somewhat amputated G4 and KYH alliances,” said Lars Jensen, CEO and partner in of Sea Intelligence Consulting. “The challenge for those two remaining amputated alliances is how they can maintain a competitive product with the same number of weekly services now that they become smaller in the number of vessels they can deploy.”

All of this is speculative because there has been no confirmation of the talks about a new alliance. It’s interesting, however, to total the figures for the fleet capacity of the carriers in potential alliances based on data published by Alphaliner.

If it forms, the 2CEO Alliance might even surpass the 2M in capacity if Cosco brings in other carriers after the takeover China Shipping’s container operations. Cosco currently belongs to the CKYHE Group, and China Shipping is a member of the Ocean Three, together with CMA CGM and United Arab Shipping Co.

If Evergreen, OOCL and 2CEO all became part of the Ocean Three, the members of the resulting alliance would have a combined fleet capacity of 5.4 million TEUs. If APL, which CMA CGM will acquire when it completes its acquisition of APL parent NOL this year, becomes part of the new alliance, the members’ total fleet capacity would be 5.9 million TEUs.

The shakeup of the alliances would weaken the two other VSA groupings. The CKYHE Alliance, which consists of Cosco, “K” Line, Yang Ming, Hanjin Shipping and Evergreen, would presumably lose Cosco and Evergreen if the new grouping is completed, turning it into the KYH Alliance. The alliance’s total fleet capacity would shrink from 3.3 million TEUs to 1.5 million.

The G6 Alliance of APL, Hapag-Lloyd, Hyundai Merchant Marine, MOL, NYK Line and OOCL, would become the G5 Alliance if it loses APL when CMA CGM completes its acquisition of NOL. It could become an even smaller G4 Alliance if OOCL becomes a member of the new grouping that is being discussed with Cosco, China Shipping and Evergreen.

The G6 Alliance, whose members now control a total fleet capacity of 3.5 million TEUs, would shrink to 2.9 million TEUs if it loses APL and becomes the G5 Alliance. If it loses OOCL, the remaining G4 grouping would have capacity of 2.3 million TEUs.

For now, APL will remain in the G6 Alliance through 2016 and operate under its own brand name, but eventually could withdraw from it next year and become part of the Ocean Three.

The carriers in discussions about switching alliances probably can’t become members of two competing alliances because neither the alliances nor the various completion authorities in China, Europe or the U.S. would allow it.

The almost total realignment of the alliances would take a year to work out because of the complex problems of meshing services and redrawing the schedules of ports and terminals called by the vessels deployed in them. It also would create a headache for shippers, because they already have problems keeping track of cargo being shipped by different carriers in the same alliance.

“All of the carriers that are talking about mergers are in different alliances, so what happens to the alliances? Whose ships come out? Whose ships stay in?” said Greg Boyle, director of forwarding and distribution for Philips. “When we do our allocations, it’s based on carrier first, but then alliance second. So we have to make sure that we have alliance coverage. And now you’re talking about redoing almost every major alliance in the industry. That’s very concerning.”

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