Trade woes are pushing container shipping firms into new alliances, reshaping the troubled industry
As global trade flows shrank over the last five years, red ink blotted container shipping lines' financial results, pushing them into alliances that are reshaping the market, creating new buzz phrases like resource integration, big size, operational efficiencies and route specialization.
Hanjin Shipping Co, South Korea's largest ocean shipping company by fleet size, launched bankruptcy proceedings following years of losses in September. This has rocked the global trading system, which includes foreign governments. Creditors seized ships, ports refused to handle Hanjin-linked cargo.
"Container shipping firms' alliances have become critical as the global shipping industry has been confronted with both cumbersome overcapacity and volume slowdowns," said Wang Haimin, managing director of COSCO Shipping Lines Co Ltd, the container unit of China COSCO Shipping Corp Ltd, a State-owned enterprise and the country's biggest shipping company by fleet size.
Despite the current good demand globally, Wang said the container shipping sector may continue to suffer in the short term as freight rates have dropped quickly in recent years, prompting a wave of consolidation in the container industry.
"Under an alliance or partnership, members can share port calls, networks and ships. Therefore, they can cut costs. This can result in a large amount of financial savings each year," said Wang.
Ocean Alliance, formed by mainland's China COSCO Shipping, France's CMA CGM SA, Taiwan-based Evergreen Line and Hong Kong's Orient Overseas Container Line, announced earlier this month that they will deploy 350 container vessels to the global market to further challenge 2M and the Alliance.
With a total carrying capacity of 3.5 million twenty-foot equivalent units or TEUs, Ocean Alliance will be able to provide a service coverage on a number of trade lanes including 20 trans-Pacific and six Asia-Europe shipping services.
For its part, 2M, formed by Denmark's Maersk Line and Switzerland's Mediterranean Shipping Co SA, started its operations in 2015, and controls more than 2.1 million TEUs, and manages more than 200 vessels.
With each firm staring at financial losses due to overcapacity, three major Japanese container shipping lines said they plan to merge their shipping and overseas terminal operations.
Mitsui OSK Lines, Nippon Yusen KK and K Line plan to form a joint venture to combine their shipping operations. They are also merging terminal management businesses outside Japan. They announced their plans before the Ocean Alliance released its initial five-year plan earlier this month.
Following the move by Ocean Alliance, another partnership, simply called the "Alliance", comprising firms in Europe and Asia, came into being on Nov 8. It has industry majors such as NYK Lines, Mitsui OSK Lines, Hapag-Lloyd AG, United Arab Shipping Co, Kawasaki Kisen Kaisha Ltd and Yang Ming Marine Transport Corp. The Alliance will launch joint operations from April.
