How New Ocean Alliance Is Already Shaking Up International Shipping

All the rumors have led up to this… A big, new carrier alliance has been announced: The Ocean Alliance.

After China Cosco Group and China Shipping Group merged to form China Cosco Shipping Corporation, a shipping leviathan, we said a big carrier alliance shake-up was coming. This is it.

The Ocean Alliance is between CMA CGM, China Cosco Shipping Corporation, Evergreen Line, and OOCL.

The Journal of Commerce (JOC) reported:

The Ocean Alliance was born in Shanghai on Wednesay as CMA CGM, China Cosco Shipping, Evergreen Line and OOCL signed a memorandum of understanding to offer more than 40 global services connecting markets in Asia, Europe and the United States. 

Despite some calling for maritime regulators to reconsider allowing carrier alliances, the odds are pretty good that this new alliance will be approved. So far, Europe and the U.S. have a history of approving every big carrier alliance that comes their way.

China did block the massive P3 Network, but considering its shipping leviathan (China Cosco Shipping) is part of this newly agreed upon alliance, it’s unlikely that China will withhold its consent.

This massive new carrier alliance directly affects all the major alliances currently in existence, except the massive 2M alliance between Maersk and MSC.

Yes, I’m going to pull out my Carrier Craziness Bracket to show what is happening here. But probably for the last time.

My March Madness bracket was busted in the first round this year when Michigan State lost because I picked them to go all the way. Now my Carrier Craziness Bracket is officially busted too with the creation of the Ocean Alliance.

The bracket was already in trouble with the creation of China Cosco Shipping. It was obvious something had to change since China Shipping was part of the Ocean Three and Cosco was part of the CKYHE Alliance. There were all kinds of rumors about which carriers would join the merged company in a new alliance.

China Cosco Shipping managed to get a member from the G6 Alliance (OOCL), the Ocean Three (CMA CGM), and CKYHE (Evergreen) to join them, creating a very large alliance to compete with the 2M.

Obviously, this shakes up all the alliances and will certainly have them scrambling to realign themselves.

The scramble has already started.

You may have noticed the orange boxes around Hapag-Lloyd and UASC in the busted Carrier Craziness Bracket above leading to a new line that reads, “Merging”. The Wall Street Journal reported just hours ago:

German container shipping operator Hapag-Lloyd AG Thursday said it is in merger talks with Dubai-based rival United Arab Shipping Co. that would combine their fleets, amid a consolidation frenzy that is sweeping the industry.

This is not the first time I’ve said competition is shrinking out there when it comes to carriers for shippers’ international shipping. For years, I’ve been saying that many carriers will not be around in the near future. Now we keep seeing it happen before our eyes.

Alliances, mergers, buyouts, carriers struggling with profitability… Competition is tightening.

While overcapacity has created record low freight rates recently, shrinking of competition will eventually push freight rate pricing back upwards.

Assuming this new carrier alliance gets approval and moves forward as planned and the 2M remains as it is, over half of the world’s container shipping capacity will be controlled by the two alliances. The JOC article quoted above gives the precise numbers:

Carriers in the CKYHE and G6 alliances will have to scramble for new partners to counter the 2M and the new alliance. Maersk and MSC combined control 27.7 percent of the global container ship fleet, according to industry analyst Alphaliner. The combined quartet of CMA CGM, China Cosco Shipping, Evergreen Line and OOCL would control 23.5 percent of the global fleet. The members of the new alliance and the 2M would control a total of 51.2 percent of global container ship capacity.

You can see a detailed history of shipping alliances through previous posts provided below. The top links are the most recent with the oldest posts on carrier alliances at the bottom of the list.

Source: UC Blog