Ocean Carriers - underwater or not?

The second quarter of 2016 saw the emergence of the new “Ocean Alliance” in the wake of CMA’s purchase of APL and an operating agreement with OOCL, COSCO and Evergreen. With a combined total of 1,123 container ships and 5,485,483 TEU of capacity the alliance will dominate trade in the Transpacific. Maersk and MSC combined will have over 5.5 million TEUs as the M2 will control around 28% of existing container capacity virtually overshadowing every other carrier on the Transatlantic and Asia European trade routes. The Alliance (Hanjin, Yang Ming, K Line, and UASC) when launched in 2017 would command according to today’s Alpha Liner figures 2,102,862 TEU. Does it seem as if we have too many eggs in too few baskets? OOCL’s half-year report paints a bleak picture of the ocean carrier industry for the coming 6 months. Freight rates it said were on average 21.2% lower than one year ago and carrier revenue has declined 16.9% since June of 2015. The article went on to liken the recent Asia European rate wars as a “race to the bottom”.   Hanjin Shipping while maintaining its position as number 7 on the July Alpha Liner scale has also been plagued by debt, attempting to restructure its notes with Korea Development Bank. The softening of world economies and China’s inward looking philosophy of building its middle class has left the ocean shipping industry with too much capacity and too little cargo. FlexPort noted recently, “As of March 2016, it costs around $400 to move a 40-foot container from Shenzhen to Rotterdam, which is barely enough to cover the cost of fuel, handling, and Suez Canal fees. Here’s some more context. Let’s say that you want to travel for a year; it’s cheaper to put your personal belongings in a shipping container as it sails around the world than to keep it at a local mini-storage facility.”   What does this mean to (BCO) Beneficial Cargo Owners?  Destabilization of the ocean carrier industry will only continue to erode compensatory pricing. While alliances are not permitted to fix rates under FMC antitrust regulations, an awakening will take place among carriers.  Fair market value for carriage and value added service is seen today only in certain trade lanes and from certain carriers. In an ever-shrinking pool of service providers, it will become the mantra which carriers and alliances live by.   The questions, which remain are: In the future will Ocean Alliances stick to trade lanes, which they currently dominate forsaking cross competition? Or will carriers demand compensatory rates for services provided instead of seeking ways to reduce and consolidate cost through economies of scale and joint vessel operations? Food for thought!  Something has to give in the ocean carrier industry. In the words of Christopher Columbus “…the sea will grant each man new hope” at the end of the day, will it?