It’s a chess match to stay alive.
No, it’s not as dramatic or exciting to read about as Suzanne Collins’ The Hunger Games where Katniss Everdeen is placed in an arena with 23 other kids where they must all fight until only one child is breathing. No, it doesn’t have that Highlander mentality of “There can be only one.”
But as the games for international shipping supremacy play out, it seems unlikely that all the carriers on the arena of the oceans will survive.
A Quick Prologue
The international shipping industry experienced a boom with increasing freight rates and record shipping numbers in 2007 and 2008 so carriers were making huge ship orders to increase their capacity, anticipating continued growth in the global economy.
However, right around that time a great recession was starting to occur in the U.S. and by 2009 there was a global recession.
Skip forward to 2011 and those ships the carriers ordered when things were good are hitting the water, overcapacity is pushing down freight rates, and carriers are losing billions of dollars.
Alliances Form
When times get hard, the strong often survive while the weak die out. But if you’re not one of the biggest and strongest, joining forces with others can increase your strength and your odds of survival.
Just like alliances formed between tributes in the arena of the Hunger Games, alliances formed between carriers on the arena of international waters.
In late 2011, the G6 Alliance was formed. The carriers in this alliance were Hapag-Lloyd, NYK Lines, Orient Overseas Container Line, Hyundai Merchant Marine, APL, and Mitsui O.S.K. Lines.
In 2012, the G6 Alliance was cooperating in the Asia-Europe and Mediterranean trade lines. in 2013, they expanded to working with each other in the Asia-North America East Coast trade lanes.
In June of 2013, the 3 largest container shipping carriers–Maersk, Mediterranean Shipping Co., and CMA CGM–announced their plans for an alliance for East-West trade. They call it the P3 Network.
The biggest and strongest carriers forming an alliance brings to mind the Careers from the Hunger Games. This alliance is the most dreaded by other carriers, worried about the dominance the 3 largest carriers in the world working together could have on the international shipping industry.
If that wasn’t enough, there is one other alliance to factor into the situation that has already been in existence before the G6 Alliance and P3 Network: the CKYH Alliance consisting of COSCO, K Line, Yang Ming, and Hanjin. Evergreen, while not actually part of the alliance, has worked with the CKYH Alliance in the past.
How Alliances Work
Keeping with the Hunger Games comparison, carrier alliances cannot be complete.
In the Hunger Games, alliances form with the knowledge that the members will eventually have to compete with each other for their lives. Alliances between carriers still have an underlying competition between them. In theory.
Carrier alliances mean they share ships operating in shipping lanes. Carriers cannot work together on setting prices (although many carriers are under investigation for price collusion now). It is not a merger of companies. They still compete with each other for customers paying various freight rates to ship their containers of goods.
For example, the P3 Network will act like a separate company from Maersk, Mediterranean Shipping Co., and CMA CGM, handling the operations of the shipping lines while the three carriers work separately marketing and acquiring shippers and freight forwarders as customers.
Let the Games Begin!
Now the players are on the field and alliances have been formed. The stakes are high as these giant companies face uncertain times after suffering billions in losses and face the risk of collapse.
In the next blog, Catching Fire on the Sea, we’ll look at moves and counter moves made by carriers and their alliances and see for whom the odds appear to be in favor.
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Related Reading:
http://online.wsj.com/news/articles/SB10001424052702304866904579267851984589232
http://www.hellenicshippingnews.com//News.aspx?ElementID=a61cf558-5bf2-445d-8b9b-e11a512b090d
http://www.scdigest.com/ontarget/13-12-11-2.php?cid=7663&ctype=content
