By Thomas

Shipping, container: More alliances!

The Danish daily newspaper Berlingske (yes it is in Danish) about consolidation in the container shipping industry.

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http://www.business.dk/transport/endnu-en-container-alliance-paa-vej-mod-maersk

Breef summary:

a) A new alliance: CKYH – The Green Alliance consists of COSCO, K-Line, Yang Ming and Hanjin together with Green Line. Due to be operational Q2 2012.

b) The worlds number 2 and 3 MSC og CMA CGM.

c) Six medium lines allied into “G6”.

d) Mærsk announced that they did not intend to neither buy out smaller players, nor lay up ships.

Comment:

The purpose of these alliances is to remove capacity from the market in order to increase freight rates.

This indicates the seriousness of the crisis in the industry. It is no secret that much capacity has already been removed by slow steaming – even superslow steaming. When you go from f.i. a scheduled cruise speed of 18 knots to 12 knots you effectively remove around 1/3 of capacity and departures. That has clearly not been enough.

Will these new alliances be successful? Very unlikely:

I) How are these alliances going to distribute the routes between them? Who gets the juicy routes? They might try a bookkeepers approach and make an equalizing schedule – and there are other administrative tricks, which all suffer the drawback of being a compromise which leaves everybody unhappy.

II) Will a bargained schedule take out the ships with the worst economy? Predominantly yes – consistently no. For three reasons:

The biggest ships have the lowest costs; but they might not – if they are not sailing with a full load. It will keep ships in the fleet that are older and smaller due to the fact that certain destinations are served best by them. Ships that are really to small will be kept in the fleet and shortfall of capacity will be made up by faster steaming – and higher oil cost.

We are back to the question: Who is going to die? There is no solidarity on death row.

III) How are these “alliances” going to keep track of the exact position of every single container? No costumer wants to hear that the container promised in Rotterdam – due to a small hiccup – is in Calcutta. By the way how are the proceeds going to be distributed among the participants if a destination demands offloading at a terminal between departure and destination?

No, it seems like Mærsk’s approach is better:

If capacity is more or less free, why not have more ports of call? Take a schedule that could go from Los Angeles to Yokohama to Shanghai to Los Angeles. The container from Shanghai to Yokohama will have one big detour; but if you crank up speed nobody will notice and the container will be delivered punctually.

It will mean that said container will be parked on the ship unnecessarily – yes, but is it worse than leaving it at a port where it might be subject to pilfering?

It does however mean that you have to have ships big enough to act as parking space – which isn’t a problem for the time being. And it means that you need ships that can sail faster with no appreciable raise in cost – compared to sailing with two ships.

It will mean continued low freight rates which will leave only the strongest lines in the business – which is the whole purpose of the exercise.