Standalone container shipping companies will find it increasingly difficult to operate on the world’s busiest ocean routes as new alliances bring supply more in line with demand in the overcrowded industry, a senior executive of France’s CMA CGM SA said Monday.
“Like in the airline industry, being alone is difficult, so you are better off being in a partnership with the benefits stemming from economies of scale and by sharing the risk,” CMA CGM Vice Chairman Rodolphe Saade told The Wall Street Journal in an interview. “If someone is to start from scratch, it will be difficult to secure the financing and buy the ships. We will see more alliances coming up as this is the trend in the shipping industry.”
The Marseilles-based company, the world’s third largest in terms of capacity, said last week that it would team up with China Shipping Container Lines Co. 601866.SH +0.33% and Middle East shipping major United Arab Shipping Co. to share vessels and port facilities on some of the world’s largest trade loops. The so-called Ocean Three alliance came after the world’s two biggest container-shipping companies-Maersk Line, a unit of Danish conglomerate A.P. Møller-Mærsk A/S, and Swiss-based Mediterranean Shipping Co.-announced a similar tie-up in July.
Mr. Saade said Ocean Three would operate a combined 129 vessels, controlling around 20% of all cargo moved on the Asia-to-Europe loop, 14% of cargo crossing the Pacific Ocean and 10% of that crossing the Atlantic Ocean. By comparison, the 2M alliance, comprising Maersk Line and MSC, intends to deploy around 185 ships for a 35% market share in the Asia-to-Europe loop, a 15% share on the Pacific and a 37% share on the Atlantic.
Container shipping, which carries around 95% of the world’s manufactured goods, has suffered for the past decade from overcapacity that has led to falling freight rates, which major operators have described as unsustainable. A plethora of smaller shipping companies regularly undercut freight rates across all major routes, hoping to stay in business until the industry recovers.
Mr. Saade estimates annual growth in demand for container shipping in the benchmark Asia-Europe loop of around 5%. This still leaves an overcapacity in the water of around 7%. The alliances will bring more stability in the market,” he said, adding that smaller, stand-alone competitors with smaller ships of up to 12,000 containers would be forced to redeploy them in other, less competitive routes over the next couple of years.
“Asia-Europe is the most competitive loop in our industry and to remain competitive you need large ships,” Mr. Saade said. “Today’s workhorses that carry 10,000 to 12,000 containers will increasingly redeploy to the AsiaMediterranean and be replaced by 14,000-container vessels.” People familiar with the alliance’s plans have said MSC will also likely charter on long-term leases five Triple E’s from
Scorpio Group, based in New York and Monaco, and China’s Bank of Communications Co. UASC and CSCL have a combined 11 Triple E’s on order. Mr. Saade said CMA CGM doesn’t plan to buy Triple E’s soon. “We are currently covered in terms of vessels,” he said. “In
2015, we will be taking delivery of six 17,000-container ships in addition to the three we already have.” Both alliances need clearance from U.S. regulators.
Mr. Saade said Ocean Three would operate a combined 129 vessels, controlling around 20% of all cargo moved on the Asia-to-Europe loop, 14% of cargo crossing the Pacific Ocean and 10% of that crossing the Atlantic Ocean. By comparison, the 2M alliance, comprising Maersk Line and MSC, intends to deploy around 185 ships for a 35% market share in the Asia-to-Europe loop, a 15% share on the Pacific and a 37% share on the Atlantic.
Container shipping, which carries around 95% of the world’s manufactured goods, has suffered for the past decade from overcapacity that has led to falling freight rates, which major operators have described as unsustainable. A plethora of smaller shipping companies regularly undercut freight rates across all major routes, hoping to stay in business until the industry recovers.
Mr. Saade estimates annual growth in demand for container shipping in the benchmark Asia-Europe loop of around 5%. This still leaves an overcapacity in the water of around 7%.”The alliances will bring more stability in the market,” he said, adding that smaller, stand-alone competitors with smaller ships of up to 12,000 containers would be forced to redeploy them in other, less competitive routes over the next couple of years.
“Asia-Europe is the most competitive loop in our industry and to remain competitive you need large ships,” Mr. Saade said. “Today’s workhorses that carry 10,000 to
12,000 containers will increasingly redeploy to the AsiaMediterranean and be replaced by 14,000-container vessels.”
.
