Eight orphaned container lines, will they have a home

Eight orphaned container lines, will they have a home

As reported in JOC, CMA CGM, China Cosco Shipping, Evergreen Line and OOCL plan to have their alliance operational in April next year, subject to the relevant regulatory approvals. But in coming together, Drewry said in its Container Insight Weekly, that they have created myriad possibilities in terms of what the partner lines left behind by the four Ocean Alliance carriers will do in response. Only the 2M Alliance of Maersk Line and Mediterranean Shipping Co. remains untouched.

The Ocean Three will lose CMA CGM and China Shipping Container Lines, G6 will lose APL and OOCL and the CKYHE will lose Cosco and Evergreen. Looking for a seat when the alliance music stops are Hapag-Lloyd and United Arab Shipping Company (reportedly discussing a merger), Korean lines Hanjin Shipping and Hyundai Merchant Marine, Yang Ming Line and the three Japanese carriers, NYK Line, Mitsui O.S.K Lines and “K” Line. Drewry looked at what the start of the new alliance would mean for the key Asia export trades to North Europe and North America based on the division of market share on those routes. 

The maritime analyst said as of March 2016, the 2M carriers dominated the Asia-North Europe market with a nominal capacity share of about 36%, followed by the CKYHE Alliance at 25% and Ocean Three and G6 at 19%. The four alliances were more closely matched in the Asia-North America trade that, unlike Asia-Europe, retained a small non-alliance capacity, with CKYHE coming out on top with a 30% share, followed closely by the G6 26% and 2M 23%, while the Ocean Three had 15%. 

Based on current capacity shares, the Ocean Alliance will take over as the largest vessel sharing agreement on the trans-Pacific with a share of just under 36%, while in Asia-North Europe it will be within 5 percentage points of the 2M with a nominal capacity share of 31%. Drewry pondered whether the alliance orphans would join together to take on the 2M and Ocean alliances, or form smaller cliques to maintain the four-alliance structure. A combined Hapag-Lloyd-UASC would give it a 7.6% share of the Asia-North Europe market and 6.5% of the trans-Pacific, based on current nominal capacity, Drewry said. 

To compete with 2M and Ocean in those routes they would need to bring in other carriers. Outside of those trades, UASC will be very keen to find a replacement partner to CMA CGM to help it fill its 13,000 TEU units on the Asia-Middle East route. At the beginning of 2016, there were four global alliances comprising 16 different carriers. By mid-2017, Drewry expects there to be only three main global alliances comprising at the most 13 carriers (following one or more mergers, one or more takeovers and a possible carrier failure, the analyst said).

Glamour of 18,000 TEU vessels fading away

To date 354 ULCS (ships of all sized larger than 10,000TEU) are in operation with another 205 on order for delivery up to 2019. However, although carriers and yards are normally not very open about this, it may be expected that considering the currently depressed container trades, there will be frantic negotiations between the two to postpone deliveries until better times. As matters are, 57 ULCS/771,000 TEU are still up for delivery in the remainder of this year. The planning for 2017 reads 78 ULCS/1,162,000 TEU. 

A total of 18 carriers, all within the world’s 20 largest container liner operators, operate ULCS or have them on order. The top 3 are by number of owned plus ordered ships are: MSC (94), initiator Maersk Line (75) and CoscoCS (77). Combined they account for 44% of the number of ships and 46.5% of nominal TEU capacity. It looks as if much of the glamour associated by some with the operation of +18,000 TEU vessels, also referred to as MLCS (Mega Large Container Ships) is fading away. This is because of reasons as:

Very low oil/bunker prices affecting (reducing) economy of scale advantages

Slow steaming turning out more expensive to carriers

Difficulty in covering the costs of the required extra ships to keep frequency

Prevailing overcapacity, contributed to by sending big ships to trades for which they were not build.

To date 37 ships of over 18,000 TEU are operating and another 72 on order by a total of eight operators. Here it is Maersk Line in the lead (31 units), followed by CoscoCS (22) and MSC (20). This is identical to the Top 3 of the total ULCS fleet although their combined MLCS flotilla share here reaches 66% for both the number of ships and their minimal capacity.

Hyundai to merge with Hanjin

Hanjin Shipping and Hyundai Merchant Marine have confirmed they are in discussions with other container lines on forming alliances when their current alliance agreements expire in 2017, assuming they survive their current liquidity crises. HMM has already started sharing relevant information with other members to discuss reorganisation of the alliance. We are afraid, however, that no details can be made public as of this moment, a spokesperson for HMM said. 

Nothing has been decided yet on how the alliance will be reorganised afterwards. This sentiment was echoed by a Hanjin spokesperson who said, “Hanjin Shipping has been preparing for a new alliance and is in talks with some of the liners. However, we cannot disclose which liners we are talking to.” 

First freight airship

After 20 years of development work, the world’s first commercial cargo airship is set to launch in 2018 after manufacturer Lockheed Martin received an order for 12 of its 20 tonne payload LMH-1 hybrid cargo airships. Lockheed Martin said its Hybrid Airship represented a revolution in remote cargo deliver, capable of carrying more that 20 metric tonnes of cargo along with 19 passengers and two pilots. 

Stressing its potential to transform the delivery of cargo into remote locations that lack road or airport infrastructure, the manufacturer and its launch customer Straightline Aviation (SLA) said the primary initial market identified would be oil and gas or mining companies and their engineering contractors, but they also insist it has many other potential uses, such as in disaster relief work, as an alternative to ice-roads, or even as a link between remote agricultural areas and existing infrastructure for the transport of perishables. 

SLA Co-founder and Chief Executive Officer Mike Kendrick told Lloyd’s Loading List that the costs per mile of the hybrid airship were around one third of those for fixed-wing aircraft such as a Boeing 737 and between one seventh and one tenth of the heavy-lift helicopters currently often used by the oil and gas or mining sector to transport cargo into hard to reach locations, giving the hybrid airship a compelling economic rationale. 

Headhaul TEU miles, concern for carriers

So-called ‘headhaul TEU-Miles’ have grown at a faster rate than demand for the past five years, but analysts have found that in the first two months of 2016 this trend has suddenly reversed which will add to the woes of the beleaguered carriers already struggling to cope with industry wide over capacity. In a new study, SeaIntel says that if this is a harbinger for 2016 overall, then in turn it could also act as yet another catalyst for industry consolidation. 

The development of headhaul TEU-miles demand, combining both the number of containers carried in the headhaul direction and the distance they are moved, is tightly connected with the ability to absorb the deliveries of new container vessels, says SeaIntel. With growth in headhaul TEU-miles negative from January through February this year compared to the ‘pure’ TEU demand measurements, it therefore adds a negative contribution to the ability to fill the new vessels, says SeaIntel. It adds: “This is a reversal of the development seen in the past few years”. 

Carriers move ships to stronger trades

Freight rates on one of the few remaining ocean trades still showing reasonable demand growth are under threat as lines add more capacity, according to Drewry. The analyst said fronthaul Europe to Middle East/South Asia traffic was up 11% month-on-month in February, while backhaul traffic into Europe from the Middle East rose 12.7% and from South Asia by 13.4%. However, the addition of new capacity on the trade is now putting pressure on the demand-supply balance. 

Hapag-Lloyd and Hamburg Sud, partners on the joint Europe-Indian Ocean Service from Europe to the Middle East and South Asia, have increased the size of their ships on the service from 5,900-6,600 TEU to 7,300-9,000 TEU. MSC has deployed the 13,102 TEU MSC Cristina onto its Himalaya Express service, which it operates with Shipping Corp. of India. The similarly sized MSC Maria Saveria will join MSC Cristina on the service on 21 April and MSC will further boost capacity on this route with the addition of 11,660 TEU sisterships MSC Luciana and MSC Sola. 

While traffic growth is encouraging, the rapid and on-going upsizing of ships servicing this trade sounds alarm bells, said Drewry. With MSC being the first to deploy ‘new Panamaxes’ others will most likely follow suit, bringing in a surplus of capacity. While eastbound utilisation rates have held up at around 80-85%, westbound services have come under pressure from the capacity additions, with the Middle East to Europe trade recently dipping below 50% for the first time in 10 months. 

Utilisation on the South Asia to Europe trade also dropped, but from a high of 97.9% in January to 93.1% in February. The upshot has seen freight rates head downwards across the board, even where utilisation in above 90%. Rotterdam to Jebel Ali freight rates dropped to $ 980 per FEU in February, down $ 160 per FEU from the previous month, while Rotterdam to NhaveSheva freight rates slipped $ 50 per FEU to $ 1,080 per FEU. 

(The writer a Maritime Economist is a Chartered Fellow (Logistics Transport), Chartered Shipbroker (UK), Chartered Marketer (UK) and a University of Oxford Business Alumni.He is also a Fellow of NORAD/JICA and Harvard Business School (EEP).)