Small carriers struggle to keep up with big boys

PUBLISHED : Thursday, 22 December, 2011, 12:00am
UPDATED : Thursday, 22 December, 2011, 12:00am

Box shipping lines including Cosco, China Shipping Container Lines and Evergreen may have to join forces with rivals if they are to compete with mega-carriers on Asia-Europe trade routes, analysts said yesterday.

They spoke after six carriers, including Orient Overseas Container Line, announced plans to pool their services to better compete with Maersk, the Danish shipping giant, and European carriers CMA CGM-Mediterranean Shipping.

The six lines, which also include Singapore's APL and South Korea's Hyundai Merchant Marine, have formed the G6 alliance which, together with Maersk and CMA CGM-Mediterranean Shipping, control about 65 per cent of the Asia-Europe container trade.

The G6 alliance will deploy more than 90 large box ships on nine joint Asia-Europe and Asia-Mediterranean services, offering at least one sailing a day from ports such as Hong Kong.

The alliance will compete directly with Maersk's daily service launched in October.

'The formation of the G6 and CMA CGM-Mediterranean Shipping partnerships, both to start in April, is in direct response to Maersk launching its daily operation,' said one shipping executive. 'By coming together, they have created fleets that can compete with Maersk's service levels and port coverage. The question is how smaller shipping lines can compete.'

Analysts said these smaller operators - including the Cosco-led CYKH alliance and independent lines CSCL, Evergreen and United Arab Shipping - could be squeezed. Asked how these firms were likely to respond, Rahul Kapoor, a shipping analyst with RS Platou in Singapore, said they could either get bigger by joining together or acquire larger vessels similar to those that had already been ordered by the bigger rivals.He was unaware if alliance talks were underway between lines such as Cosco or Evergreen, but added: 'We would expect something to happen.'

A European-based shipping analyst added: 'It is relatively likely that Evergreen Line, CSCL and Zim, which already have a good partnership on Asia-Europe, could be next in line to announce a tie-up.'

The analyst thought it more likely the three would team up with Cosco and its partners Kawasaki Kisen Kaisha, Taiwan's Yang Ming and South Korea's Hanjin Shipping, to form the fourth large 'player' on Asia-Europe services.

OOCL, the Tung family-controlled shipping company, ordered 10 13,000 teu (20-foot equivalent units) container ships earlier this year for deployment on Asia-Europe routes upon delivery in 2013. CMA CGM and Mediterranean Shipping have 16,000 teu vessels on order, APL has 14,000 teu ships under construction and the first of Maersk's 18,000 teu leviathans is scheduled to enter service in 2013.

These larger vessels would offer better economies of scale by moving more containers at lower cost than smaller ships operating on the same routes and put smaller carriers at a competitive disadvantage.

While lines such as Cosco and CSCL have 13,000 teu larger vessels in service or on order, Evergreen and Yang Ming have baulked at ordering such large ships.

Pointing to the advantages of the G6 alliance to cargo owners, Stanley Shen, from OOCL's investor relations, said freight consigned to OOCL could be shipped on any of the six lines' vessels to a wider choice of ports. Kapoor agreed cargo owners would benefit from the daily Maersk service and larger alliances by being able to offer more reliable services.

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