Has age of new mega alliances limited shippers’ options?

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Port_of_RotterdamThe new carrier mega-alliances started in the main East-West container trades this month, but fears that the increased cooperation among the big liners will dilute competition and reduce options for shippers seem unfounded, according to the latest analysis from Drewry.

In the report, the maritime industry consultancy said the Asia-North Europe trade post-alliance restructure is “generally well-balanced in terms of geographical coverage with strong competition in the key lanes,” but with Maersk and MSC’s 2M having an overall market edge.

The 2M controls 31% of the effective weekly capacity, followed by the CKYHE and G6, both with 24%, and finally the Ocean Three with 21%.

The total number of weekly Asia-North Europe services has been reduced from 22 to 21 compared with December 2014 and the number of ships on these services has subsequently come down from 245 last month to 232, with smaller unwanted ships having been cascaded away from the trade.

Despite these changes, available capacity has largely been maintained with westbound slots of 218,500 TEUs per week, down just 1% on December, because of the introduction of more new ultra large container vessels (ULCVs).

China dominates trade coverage

The main battle ground is China, where around 70% of all the container traffic to North Europe originates, said Drewry. Collectively, the alliances depart from 10 mainland China ports every week to North Europe, with a total of 74 weekly voyages. The 2M carriers have a clear advantage with 27 China-North Europe departures per week, well ahead of Ocean Three (18), CKYHE (17), and the lagging G6 (12).

On the geographical spread of service calls to China, Central China is the best served with a total of 37 weekly departures with Shanghai getting the most calls at 17, followed by Ningbo at 14 and Xiamen at six. The 2M claims dominance with 14 departures per week spread between the three ports, five more than its nearest rivals Ocean Three.

South China is also well served with 24 weekly departures, the majority from Yantian in the Shenzhen port complex, which has 16 loading calls. Again, 2M has the ascendancy with nine weekly departures, compared with five each for the other alliances.

North China ports are less covered despite their rapid growth of late, said Drewry, citing its data showing that demand from North China to North Europe was up by 12% in the 11 months through November 2014, compared with 9% for the two other regions. The reason for the growth: More manufacturing has moved there to take advantage of lower labor costs.

So far, there are currently only 13 weekly departures to North Europe. Strikingly, the G6 carriers only make one North China-North Europe call, while the other three groups each make four calls.

“The region’s present coverage is commensurate with its volumes to North Europe, but carriers will need to find room for more North China calls in the future if they want to take advantage of the region’s potential,” said the report.

In contrast, Japan and South Korea are not well covered, having only seven and nine weekly departures to North Europe, respectively.

“In Japan’s case, the paucity of direct services seems to be a fair a reflection of its declining volumes and contribution to the trade that saw no boost from the yen’s depreciation,” said Drewry.

2M and G6 (with its two Japanese members MOL and NYK) are the go-to alliances for Northeast Asia to North Europe with seven and six weekly departures. In contrast, the Ocean Three and CKYHE groups have zero Japanese calls, even with the inclusion of Tokyo-based “K” Line.

While the outlook for more traffic from Japan and South Korea is weaker than other parts of Asia, the benefit of weaker competition does mean that incumbent carriers can charge a freight rate premium.

Leading ports of call in Europe

At the other end of the trade, there are now 84 weekly arrivals in North Europe, spread between the obvious gateways with a handful of unique calls off the beaten track. Europe’s largest container port Rotterdam has the highest number of arrivals from Asia at 18, followed by Hamburg at 17. Between them the two major European ports receive 41% of all the calls from Asia, which considering the congestion issues they have both faced recently is possibly on the high side.

The UK has 19 calls in total split between Felixstowe (11) and Southampton (8), giving it a second-best 23% share of all calls into North Europe. “The UK’s healthy coverage does dispel any lingering fears that the country would become a feeder-nation following the sale of Anglo-Dutch carrier P&O Nedlloyd in 2006,” said Drewry.

All of the four alliances are well covered to the main markets of Germany, the Netherlands, UK, France, and Belgium, but the 2M offers a few specialist calls to Scandinavia and Poland.

“Importers and exporters can have little complaint about the range of options available,” stated Drewry. “For example, there are 14 weekly services from Shanghai to Rotterdam, the two busiest ports in the trade. That means shippers can call upon 16 carriers (not to mention non-alliance slot charterers) to get the most competitive freight rate quotes.”

For the more time-sensitive shippers, the alliances also provide a wide array of transit times to suit their needs.

Drewry noted with interest how the advent of the new alliances looks to have increased the average speeds of ships on the trade, which it traces to both dramatically lower bunker fuel costs and the desire of carriers to make their new services more attractive to customers. It estimates that average westbound service speeds have sped up to 18.5 knots versus 17.8kts as measured in December. The 2M again leads the way with an average speed of 19.8kts, while the G6 brings up the rear with 17.5kts.

Impact of ULCV orderbook

A factor to consider when looking at the alliances is the huge orderbook they have among them, and how many of the biggest ships will have to be squeezed into the Asia-North Europe trade.

Looking solely at the 13,000-TEU-plus newbuilds that are the most likely to enter the trade this year, the G6 appears to have no such ships on order and will undoubtedly lose ground by the end of the year. Ocean Three has the most of these ships and will subsequently leap-frog the G6.

The 2M lines, which are already on the fringes of the EU’s acceptable market-share threshold will also extend its market leading position, but not enough to draw further scrutiny from regulators. The scheduled build completion dates of the 2015 ULCVs suggest that there will be as many as three new weekly services from the start of the second half of the year, which will give shippers even more choice and likely suppress freight rates, said Drewry.

The G6 is the alliance to watch, it continued, since it has the weakest port coverage and transit times, and its shortfall of big ships will see it lose market share and lose ground on slot costs.

“Being in such an obviously weaker position risks them having to become price-takers in order to fill their assets. It is therefore unsurprising that the likes of MOL and OOCL have been heavily linked with new orders for 20,000 TEU ships. The six lines will hope they have not fallen too far behind by the time those ships are delivered.”

Concluded Drewry: “Many feared that the formation of the mega-alliances would intensify the homogenization of the industry whereby carriers can only compete with one another on price as they all have the same services. However, closer inspection of the schedules reveals that the alliances are far from uniform and between them they have created a pretty well-balanced network with wide port coverage at both ends of the trade.”

Photo: AlfvanBeem