Is this the backlash of overcapacity within shipping markets, and if so what does it mean to your freight prices' Merging to build alliances has one simple intention – cut operating costs to survive against the overcapacity situation in the container shipping industry.

 

2016 witnessed changes to the container-shipping industry like never before.

A trend of mergers and acquisitions and one big operator going under - ended with three major alliances arranged to dominate ocean trade for years to come.

 

Overcapacity and weak global trade has forced the largest players to merge or form alliances

This allows them to cut operating costs by hundreds of millions of dollars by sharing ships and port calls. Ocean Alliance is the largest operational agreement ever made between shipping companies, With more than 40 maritime services and 323 ships.

 

The members of the Ocean Alliance

OOCL is one of the world’s largest integrated international container transportation, logistics, and terminal companies. They are one of Hong Kong’s most recognized global brands.

 

Evergreen Line operates the fourth largest container fleet in the world, with over 190 ships with a capacity of approximately 850,000 TEU.

 

CMA CGM and China’s Cosco Group are the world’s 3rd and 4th largest ocean carriers by capacity. Basically, this merge will serve as an agreement of slot and vessel-sharing between these carriers.

The CMA CGM Group will have the biggest market share in this agreement deploying a fleet of 119 ships among the most efficient on their respective trades. It offers 17 services on the Asian-Northern Europe, Mediterranean, Red Sea and Middle Eastern trades, and 23 services on the North American trades making them the number one Alliance on the Transpacific.

 

The backlash of overcapacity within shipping markets

An overly optimistic expectation towards recovery in trade, following the global financial crisis of 2008-2009 prompted an industry-wide trend to order ever-larger vessels.

With overcapacity looming over their heads, ocean carriers went on a frenzy to lure customs in, by underbidding each other. This caused rates to drop to insanely-low levels. High capacity, low market volume, and even lower rates, all contributed to a huge trend of carriers losing money year after year.

 

There are no longer are over 15 carrier service options – now, there are just three

There is a growing trend to consolidate through mergers and acquisitions, and it will likely continue.  By end of the current round of mergers and acquisitions, the industry will have only about 10 ocean liners to choose from. Fewer competitors may pave the way for freight rates to rise, but how the market will respond to this change remains to be seen.

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