How Will Carrier Alliances Behave in the 2015 Shipping Market?

 In carrier alliances, International Shipping

And then there were four.

Four alliances of carriers fight for profitability and market share in the international shipping industry:

  • 2M
  • Ocean 3
  • G6

In our last blog, we outlined the contradictory views of how these carrier alliances will impact the international shipping industry in 2015. Today, we look at how the different alliances are likely to behave in the 2015 international shipping market.

The 2M, Ocean3, CKYHE, and G6 are not identical nor do they have the same assets. This being the case, and obviously with different executives running the different alliances, it cannot be expected for the carrier alliances to have the same stratagems.

Perhaps the fact that the carriers are expected to have different behaviors, pushing and pulling in opposite directions has led to the opposing views of how they will impact 2015.

Lars Jensen, Partner and CEO of SeaIntel shared excellent insight into how we may see the carriers behave in an interview with ShippingWatch that the online media company outlined in an article.

If it were a paper Jensen wrote, his following quote from the ShippingWatch article could serve as its thesis:

“The four alliances differ from each other in terms of services, number and not least the size of their ships, and this gives them a reason to focus on different aspects in their efforts to ensure profitability.”

Here are two areas where carriers are likely to diverge in behavior:

Ship Speed

For a while now, slow steaming has dominated container ship speed in international shipping.

Slow steaming has a virtuous side of reducing emissions, but it’s really the bottom line factor that makes slow steaming so attractive to carriers.

Slow steaming allows container ships to significantly reduce their fuel consumption, which in effect reduces carriers’ costs.

With their many large and megaships, the 2M and Ocean 3 are expected to continue slow steaming.

“Slow steaming is and will remain part of our toolbox, both in relation to capacity management and cost reduction efforts, not least in terms of fuel” said Michael Christian Storgaard, senior press officer at Maersk Line according to Ship and Bunker.

It makes sense for the carriers in these alliances to keep slow steaming, despite low oil prices that would make it seem like speeding ships back up would be profitable, because increasing ship speed would also create or increase overcapacity, which pushes freight rates down.

Drewry, the Maritime research company, said, “…we can be confident in saying that no matter how low [oil bunker prices] go, carriers will not return to sailing containerships at their design speeds for fear of flooding the market with the latent capacity that has been held in check by slow steaming.”

However, CKYHE and G6 do not have the same kind of large ship fleets 2M and Ocean 3 have. According to Jensen in the ShippingWatch article, this gives CKYHE and G6 incentive to speed up their container ships with the low oil prices.

“It’s not only possible to potentially save some money by saving a ship. The big ship you save effectively means that you have more big ships available,” Jensen said via ShippingWatch.

If the smaller two carrier alliances do decide to take advantage of low oil prices and speed up ships to save money and make grabs at market share, the increased capacity should put downward pressure on freight rates for shippers.

Market Focus

Ship speed pays particular attention to the smaller two alliances; however, when Jensen spoke of market focus to ShippingWatch, his attention turned to the two larger alliances.

The focuses of the two larger carriers and the roles they’ll play in the international shipping market are very different from each other according to Jensen.

Jensen sees 2M as likely trying to create stability in the international shipping market while the Ocean 3 makes a run at increasing their market share. This would have the two carrier alliances pushing and pulling the international shipping market in two different directions.

Here’s how Jensen puts it via ShippingWatch:

“2M could potentially act as the one trying to create more stability in the market. Both carriers are primarily interested in improving their profitability per container. They’re not looking to conquer market shares. As such, they could serve as a stabilizing factor in the market.”

“…one could fear that Ocean 3 will approach the market in 2015 looking to increase its market share. This makes sense in terms of the carriers’ setup, and this would pull developments in the opposite direction of what 2M plans to with the market.”

Stable is not exactly a common word for describing the international shipping market. However, a little sense of stability in the market would go a long way toward helping the carriers maintain profitability. It will probably take some time for the carriers to establish a sense of stability as alliances change the landscape of the oceans.

2015 will be a very interesting year to watch how the carrier alliances behave, react to each other, and affect the international shipping market.

Through it all, Universal Cargo Management will be here to help you navigate your imports and exports in the ever changing world of international shipping.

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