Building THE Alliance: liners join forces
Shipping container lines Hapag-Lloyd, Nippon Yusen Kaisha, Hanjin, K-Line, Mitsui O.S.K. Lines, and Yang Ming have formed THE Alliance, a new shipping behemoth accounting for an 18% share of the global container fleet capacity.
As of next April, THE Alliance will officially start its work, although that date is predicated on receiving regulatory approval from authorities - including those in the US, China, South Korea, Japan and Taiwan. Confidence is high that this will pass without any major setbacks.
The six members have more than 620 ships and a combined capacity of around 3.5 million twenty-foot equivalent units (TEU): big numbers for a big alliance.
"As alliance partners you are sharing ships and pooling the transport volume," says Rainer Horn, a spokesperson for Hapag-Lloyd.
"Each partner benefits because they reduce investments for new ships, and reduce transport costs per item because you can deploy much larger vessels compared to a stand-alone [position], as a greater transport volume means that you can deploy bigger ships."
Many of the precise details are sketchy, as work goes on behind the scenes regarding regulatory approval. What is known, however, is that the agreement will last for an initial five years, with an assumption that if all goes well it will be extended.
Greater cooperation, lower costs
In a joint statement in April, members said: "This agreement is a milestone and will enable the six partners of THE Alliance to offer sailing frequencies and direct coverage in the market.
"The unique product will feature enhanced port coverage in Asia, North America, and Europe, including the Mediterranean as well as Middle East. The network of THE Alliance will ensure frequent sailings, high reliability and very attractive transit times for all shippers in the East-West trade lanes."
These trade lanes are, namely, Asia-Europe/Mediterranean, Asia-North America West Coast, Asia-North America East Coast, Transatlantic and Asia-Middle East/Persian Gulf/Red Sea.
For Hapag-Lloyd, the reason is simple: more ships mean better coverage. The increase in service in each trade lane means greater port coverage, but "also shorter transit times", explains Horn. "The bottom line is you are getting a much better product while at the same time saving money by lowering costs and the investments needed. Normally it is the other way around."
How THE Alliance will work in practice
German line Hapag-Lloyd will, alongside the five Asia-based carriers, send one or two 'alliance' staff to a joint office, "which is steering the alliance business", explains Horn. "[This will] prepare or take decisions for changes in the service network, schedules, ports called or dropped, and so on.
"You cannot decide this on your own when in an alliance. You need to discuss it with your partners - this is a change, but in most cases it does not cause a problem."
Horn also says there will be some effect on how the carriers plan their fleets - for example when ordering new ships for trade in areas where THE Alliance will operate. It is commonplace, therefore, for "partners to discuss and align new orders regarding the number of ships, the size of ships, and time of delivery and deployment".
This partnership could be bolstered even further by the announcement that United Arab Shipping Company (UASC) is in merger talks with Hapag-Lloyd. If these talks are successful then UASC, as part of Hapag, would also have a seat at table - and "their ships could also then be used" for Alliance purposes, adds Horn.
The ailing Hyundai Merchant Marine had also been in talks to join, but in June it was revealed the South Korean shipping line was instead keen on linking up with 2M. The world's largest shipping alliance - consisting of Maersk Line and the Mediterranean Shipping Company - it controls about a third of the Asia-Europe trade route. Hyundai said in a statement it wanted to "raise our presence in Asia-US routes", indicating talks with THE Alliance were likely to come to an end.
Competing with 2M and the Ocean Alliance
Horn is honest in his assessment that THE Alliance will not dramatically change precise details of trade on the East-West lanes, "since there were alliances before on all East-West trade lanes".
Change or no change, the agreement follows a growing trend and is designed to weaken the dominance of 2M and challenge the newly formed Ocean Alliance, a partnership between CMA CGM, China Cosco Shipping, Evergreen Line and Orient Overseas Container Line. It is scheduled to start operations in April next year, just like THE Alliance. Coincidence?
Looking at size, in terms of fleets of vessels in excess of 8,000 TEU, THE Alliance is the smallest of the three groups, says research by SeaIntel Maritime Analysis. But Hapag-Lloyd and others will look at this statement with optimism: "All three are powerful alliances and THE Alliance can certainly be a match for both 2M and Ocean Alliance," said SeaIntel.
Research company Alphaliner has also studied levels of capacity on the Asia-Europe trade, coming to the conclusion that the Ocean Alliance carriers would control nearly 35%, compared with 33.4% for 2M. On the trans-Pacific market, Ocean Alliance would have a 28.9% share, while 2M comes in at 15.9%. No word yet on what percentage THE Alliance would control.
Despite its optimistic view, SeaIntel also voiced concerns in May over the complexity of THE Alliance - first and foremost with the number of carriers involved. It will need to "find a way to design a network that meets the needs of up to eight different carriers [dependent on UASC and Hyundai joining], each with their own requirements and wishes, and with different customer portfolios that need to be served", it said.
Horn, as to be expected, is upbeat, but it would be remiss of the carriers - in the months remaining until a regulatory decision is passed - to ignore such a warning. Failure to do so could severely weaken THE Alliance's ability to challenge its competitors.