13-05-2016

Global Ship Operators Set to Strike Vessel-Sharing Deal

SC

A new alliance involving some of the biggest Asian and European container-shipping operators will be unveiled by Friday, closing a circle of new partnerships that will dominate the movement of global cargo, two people involved in the matter said.

“The new alliance will include most or all of the global carriers left out of the two other groupings already announced,” one of the people said. “Anyone left out in the cold will have to concentrate on smaller, regional trades.”

The vessel-sharing deal is expected to involve the Japanese trio of Nippon Yusen Kabushiki Kaisha, Kawasaki Kisen Kaisha Ltd. and Mitsui O.S.K. Lines Ltd.; Germany’s Hapag-Lloyd AG; South Korea’s Hanjin Shipping Co. and Hyundai Merchant Marine Co.; and Taiwan’s Yang Ming Marine Transport Corp.
“The carriers have been in talks over their alliance plans with U.S., Chinese and European regulators and an announcement is expected by Friday,” the second person said.

U.S. Maritime Commissioner William Doyle said this week that a new alliance is in the works, but declined to give details.

Last month, CMA CGM SA and China’s Cosco Group, the third-largest and fourth-largest shipping lines by capacity, said they would form the Ocean Alliance, pulling in Hong Kong’s Orient Overseas Container Line and Taiwan’s Evergreen Marine Corp. The move unraveled other pacts, triggering a new round of deal-making to share vessel space.

Maersk Line, the A.P. Moller-Maersk A/S shipping unit that is the world’s biggest container line by capacity, is teamed up with No. 2 carrier Mediterranean Shipping Co. in the 2M alliance. Those two carriers together hold about 28% of the world’s container-ship capacity, according to industry data firm Alphaliner, although only specific ships and trade circuits are included in the alliance agreements.

Container ships move more than 95% of the world’s manufactured products, which include everything from electronics, clothing and toys to cars, furniture and food.

Being part of an alliance has become imperative for the industry, which is marred by a 30% oversupply of vessels in the water and rock-bottom freight rates—well below break-even levels for much of the past two years. Alliance partners share ships, networks and port calls that cut their costs by hundreds of millions of dollars annually.

Cutting costs by more than 30% is also a must for Hanjin Shipping and Hyundai Merchant Marine, currently undergoing widespread restructuring by main creditor Korea Development Bank to avoid going bankrupt. The two carriers move almost all of Korea’s exports.

Hapag-Lloyd is in separate merger talks with Dubai-based United Arab Shipping Co. UASC will either be part of the new alliance or join in after the completion of the merger talks, the people said.

Nils Andersen, chief executive of A.P. Moller-Maersk, said in a conference call on the company’s first-quarter earnings last week that “small and midsize companies will need to consider their strategy very radically…if they’re not in an alliance that has a future.”

“Either they will have to consolidate in an alliance and give the best possible offer to the customers or they will have to concentrate on very few long-haul routes or on a local regional activity,” Mr. Andersen said.

Source: Wall Street Journal

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