International Maritime

COMMENTARY

By Jeremy Masters

Mediterranean Shipping Co . ( MSC ) recently reached the milestone of controlling 20 % of worldwide operated container vessel capacity through an unprecedented fleet expansion . Meanwhile , several other top 10 carriers have sizeable order books in addition to the ships they are purchasing and leasing in the second-hand and charter markets .

Size does count . This is why , beyond individual growth , carriers have consolidated and sought to gain advantage within consortiums and slot-charter deals . It is also why consortiums have enabled small and midsize carriers to survive — and in some cases punch above their weight — in the major east-west trades .

But for midsize carriers , they can still punch above their capacity weight if they can cooperate with alliance partners .

Given this dependence on size and thus reach , particularly in the east-west routes , there was some concern about the ability of Ocean Network Express ( ONE ), HMM and Yang Ming to concoct a viable solution following the departure of Hapag-Lloyd from their THE Alliance . Many observers even considered this as a threat to the carriers ’ individual futures .

Thus , the announcement of their new network and cross-slot-charter deal , dubbed the Premier Alliance , has been greeted by some as akin to grabbing salvation from the jaws of marginalization . This understates the options ONE , HMM and Yang Ming had following Hapag-Lloyd ’ s exit , but it does emphasize that capacity access is the starting point for determining the punch each carrier packs .

MSC , of course , has been driven most by size ; its acquisition of both newbuild and second-hand ships have gone hand in hand with its desire to run an independent network . MSC ’ s fleet expansion has been dramatic , but it is lower risk than it might look . Industry consolidation and the reduction of the share of non-operating owners spells more control for the largest carriers and more ability to build big war chests in good times .

The decision by MSC to work with the Premier members in the Asia – Europe trade and independent carrier ZIM Integrated Shipping Services in the trans-Pacific is typical of the short-term flexibility that has been a defining characteristic of its longer-term strategy . Some would question the need for these slot charters , but neither Premier nor ZIM are a threat to MSC ’ s dominance , and this gives MSC an extra edge versus the Ocean Alliance , which includes Cosco Shipping / OOCL , CMA CGM / APL and

Evergreen Line , and the Gemini Cooperation of Hapag-Lloyd and Maersk .

Looking to grow

The Gemini consortium is also an acceptance of size mattering . In announcing the breakup of the 2M Alliance — MSC and Maersk — in early 2023 , Maersk initially vowed to go it alone . But a cold hard look at its network told Maersk it was going to struggle to get good coverage and needed to find a suitable new alliance partner , make an acquisition , or significantly upgrade capacity by purchasing and / or chartering ships . For Hapag-Lloyd , as a midsize top 10 carrier , the decision to link up with the second-largest carrier , which also happens to be culturally compatible and have similar quality objectives , was logical .

The combined order book of the Gemini members is relatively modest , and they may eventually have to consider whether restricting themselves to their own deployments actually delivers the best result . The bigger question mark within Gemini is where Maersk is ultimately going . Embarking on a business transformation to become an integrator is a massive bet , and its degree of success may ultimately take Maersk and its relationship with Hapag-Lloyd in a different direction .

The Ocean Alliance is the only grouping that remains unchanged . It has critical mass by definition — with three of the top seven container carriers — and all three members have significant order books . If Ocean has a size issue , it is one of potentially becoming too big for regulators ’ liking , rather than lacking the means to provide extensive coverage . Assuming its deployments stay streamlined , it will remain a force to be reckoned with .

Most of the top 10 carriers are doubling down on their size and reach , whether through expanding their own fleets or access to consortiums and slot-charter agreements . Those that are pursuing a wider offering are presenting inland , air and logistics as options in a suite of services and carefully avoiding throwing the baby out with the bathwater .

There are , of course , trade and geographical factors they cannot control , but in a more consolidated industry , those that stick around are likely to earn higher longer-term returns than the historical average .

email : jeremy @ shippingmastershk . com

Midsize carriers can still punch above their capacity weight if they can cooperate within alliances .

www . joc . com October 21 , 2024 | Journal of Commerce 17