Mega alliance brings sea change in industry
Formation of the P3 pact by Big Three sets tone for shake-up as small players seek to consolidate or strengthen co-operation to stay afloat
The shipping industry looks set for a shake-up next year as minor players seek to consolidate or strengthen co-operative agreements in response to the formation of a mega alliance by the world's three largest lines.
The Big Three - Maersk, Mediterranean Shipping Co (MSC) and CMA CGM - said in June they would form a vessel-sharing agreement on the Asia-Europe, transpacific and transatlantic trade links from the second quarter of next year.
Smaller lines have since begun looking for ways to remain competitive as the P3 alliance seeks to maximise the use of up to 2.6 million teu (20-foot equivalent units) in cargo-handling capacity. This will mean the Big Three can now compete with lower freight rates amid a shipping downturn.
In response, CKYH, an alliance between Cosco Container Lines (Coscon), K-Line, Yang Ming Marine Transport and Hanjin Shipping, was looking to acquire new members while strengthening existing partnerships, a Coscon executive said.
But China Shipping Container Lines (CSCL), initially believed to be planning a firmer alliance with CKYH, is now rumoured to be seeking to join the P3 instead.
"The news now is that CSCL, together with its partner United Arab Shipping Co [UASC], is seeking to join the P3 network, bringing with them 10 of the world's latest and largest vessels - 18,000-teu 'Triple-E' ships with a fuel efficiency that is 35 per cent lower on a per-teu-carried basis," a source said. "But I doubt if P3 will accept the approach as the pair has pretty different cultures and management styles."
Bonnie Chan, a shipping analyst with Macquarie Capital Securities, also considers the pact unlikely since 10 Triple-E vessels were not a lot and two new members would complicate the establishment of the P3 alliance.
Maersk has ordered 20 Triple-E vessels to be delivered over the next two years. The first made its maiden voyage in June.
CSCL was said to be in talks with bigger mainland rival Cosco Group over a possible merger but nothing has materialised yet, and it only maintains a loose partnership with CKYH and UASC on slot-buying and ship chartering.
CSCL managing director Huang Xiaowen denied the speculation and said the company had no plans to form any alliances at this stage. "Strengthening partnerships is a must in the changing market environment," he said. "But this doesn't have to be an alliance."
But Coscon's general manager of global sales, Hu Hua, said alliances were the way forward. "The huge shipping lines … have to form alliances because the trade has entered a prolonged low-growth period," he said. "Forming an alliance allows the Big Three to minimise costs while maintaining high efficiency."