Exclusive: Hidden Dangers of Shipping Alliances

The 2M alliance between the shipping heavyweights, Denmark’s Maersk Line and Swiss Mediterranean Shipping Company is currently under scrutiny of the U.S.A. and China regulators.  The companies are trying to appear confident in the approval of the alliance, saying that the U.S. Federal Maritime Commission’s (FMC) approval should be just a formality.

Maersk Line’s Chief Executive Soren Skou recently visited China, to further clarify the proposed vessel sharing alliance to the local authorities. The companies are trying to persuade the Ministry of Commerce (MOFCOM) of the People’s Republic of China that 2M has no common ground with the P3 Network alliance, which apart from Maersk and MSC also included France’s CMA CGM.

The P3 Network was approved by the U.S. and EU regulators, but ultimately rejected by MOFCOM who saw the agreement as ”a de facto merger” between the three European carriers.

However, the proposed 2M alliance could pose a serious threat to the market, according to the Chairman of the European Shippers’ Council (ESC) Denis Choumert.

In a letter sent to the FMC, Mr. Choumert warned that the “2M operators might set up an extremely damaging situation to world trade.” The letter also stated that allowing Maersk Line and MSC to discuss and agree on some core parameters of the services can lead to a decrease of the competitive environment of the trade concerned by this agreement.

In an interview given to World Maritime News Mr. Choumert said that the ESC had not received any feedback from the FMC at the time, and offered further insight into the ESC’s position on the current trend of forming shipping alliances.

WMN: Would you agree with Maersk CEO N. Andersen who said that the approval of the 2M by the FMC is just a formality?

Choumert: ”No, it is not, it should not be a formality. This alliance is huge and it must clearly be handled with care.  It makes the maritime market much more concentrated and thus it is important that competition authority take time to consider carefully the impact it could have on the market.”

WMN: What could be the worst consequences of the 2M and similar alliances in terms of competition?

Choumert: ”A drastic reduction in service quality, such as less direct calls, more feeders, and lengthier transit times, as well as an increase of freight rates. It could also lead to narrowing of the market with the exclusion of the small players (niche carriers) that are more used to tailor-made services.”

WMN: What activities does the ESC plan to take with respect to the 2M?

Choumert: ”We will continue to attract attention of competition authorities on development of the market, and push them to create a monitoring system to track freight rates and capacities. Regular meetings with the EU’s Directorate General for Competition to alert them on any deviations in the market are also on our agenda.”

WMN: Recently we have seen a number of shipping companies join their forces in vessel-sharing agreements, including Hapag-Lloyd, OOCL, Maersk, MSC, etc. Are these alliances the way to go in combating over-capacity and restoring the balance within the industry? Are shipping alliances taking over the market?

Choumert: ”It is clearly a way to try to restore freight rates and reach economies of scale to decrease cost. With 97% of the capacity between Asia and Europe in the hands of four alliances, we can say that alliances are taking over the market.”

WMN: Can these alliances be viewed as a way to squeeze out smaller-scale competitors from the race?

Choumert: ”Yes of course. Restoring freight rates will be possible by reducing the overcapacity, and thus wiping out some players out of the market.”

WMN: Would you agree with the claim by Drewry’s Shipping Consultants that VSAs are causing port congestions, saying that these alliances have resulted in shuffling of vessels across shipping networks?

Choumert: ”Yes. Having ever bigger ships causes tremendous challenges in the ports.  How can ports manage bigger and bigger ships with higher number of containers to move with less time?

Ports need more cranes and employees to handle an impressive number of containers in short time intervals. For ports, the cost efficiency does not lie in bigger ships, because bigger ships do not allow the ports to use resources efficiently.

There will be a few winners and many losers among ports. Losers will suffer from not being able to get returns on their infrastructure investments. Also,  serving fewer ports may increase the transport loads on the not too environmentally friendly road mode, if feeder or railway transport cannot be implemented.

The VSAs will result in an alignment of capacity on each service. In order to rationalise, the different ship-owner of the same alliance will put on the same string of vessels with the same capacity.  Thus, smaller ships will be cascaded to other trades (they are now cascading “small ships” between 8000 and 13000 TEU out of the Asia-Europe market).”

WMN: Is building bigger container ships a reasonable way to battle port congestion, to cut emissions, and can it help reduce shipping costs?

Choumert: ”Bigger ships are not a solution for port congestion due to the fact that too many containers are reaching the port at the same time. Increasing the load factor of a ship means less emissions per container, which is a good thing of course.

However, bigger ships do not translate to better load factors. The whole logistics chain must be considered if looking at costs, reducing maritime transport costs does not mean that port transit will be cheaper, due to non-rationalised use of port infrastructures and dockers. Congestion is also a cost to be considered.”

WMN: How will the latest 0.1% Sulphur Directive affect large shipping companies, and what effect will it have on mid-sized and small shippers?

Choumert: ”The impact on shippers will be different according to the types of flows handled.  Indeed, deep-sea shipping has no alternatives, so shippers will have to pay for surcharges.  On the contrary, short-sea shipping (intra-EU maritime transport) has some alternatives.  

The increase in prices will force shippers to change their logistics chain and switch back to all road transport, or shorten the maritime part if not avoidable. In the end, it is not sure if the ecological balance will be positive. 

Furthermore, parts of the industry will suffer loss of competitiveness against foreign companies due to this sulphur directive (paper industry of northern Europe for example). All shippers will be affected, not only small or medium.”

WMN: What other problems is the shipping market currently facing?

Choumert: ”The container regulations that will be voted on by the end of next year, which if not applied in a pragmatic way as requested by the ESC,  could lead to a lot of slowdowns in the maritime logistics chain.”

WMN: What direction can we expect the shipping market to take in the next couple of years?

Choumert: ”We clearly expect that the relationship between ship-owners and shippers will be improved, as we aim to be considered as real customers.”

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