The container shipping industry will see disruption in 2017

Container carriers have for a long time been caught in a vicious circle of weak fundamentals. To lower their production costs, they may invest in ever larger assets, leading to periods of overcapacity and low utilization and corollary declining freight rates.

These crises typically eventually resorb themselves through tonnage rationalization to bring supply and demand back into balance. With the sluggish growth we have witnessed over the past years, this is increasingly achieved through increasing cooperation amongst carriers with the aim of taking out cost and managing assets efficiently.

The cycle we have observed over the past fifteen months is no different from the ones that preceded it. The global container shipping demand growth was about 1% in 2015 while the supply of tonnage increased by 7%. 2016 looks set to end up in approximately the same vein, everything else remaining equal. In an industry with wafer thin margins, such a gap between supply and demand creates extra costs that are not sustainable.

We can see in some of the measures that are being taken that the carriers are dealing with this waste in a decisive way. Currently 7% of the global fleet is idled. The industry is consolidating and the alliances operating in the major trades are reshuffling to assist with the aim of achieving the lowest possible production cost.

The industry will clearly benefit from these efforts. In the long run, every stakeholder benefits from having a cost efficient supply chain without waste. The goal of the alliances is to enable container shipping lines to optimize their networks and benefit from economies of scale and scope. This potentially allows individual alliance partners to market competitive services that are attractive to customers; more ports, more direct services, more frequency, produced effectively.

However, these economies of scale and scope typically will need some time to crystalize.

After a tumultuous and stressful period for customers which saw four major alliances come on-line at the start of 2015, we are now seeing indications that the alliance structure will again change.

When a container shipping line moves from one alliance to another both alliances need to redo their networks. There will in the beginning be shorter and longer periods with frequent changes to services and offered capacity, and fluctuating reliability. 

There are currently four large alliances – Ocean Three (China Shipping, CMA CGM and United Arab Shipping), CKYHE Alliance (COSCO, Evergreen, K-Line, Yang Ming and Hanjin), G6 (APL, Hapag-Lloyd, Hyundai MM, MOL, NYK and OOCL) and 2M (Maersk Line and MSC) in the Asia to Europe service, the largest trade lane in the world.

Of these, only 2M will not be undergoing major changes in 2017.

We know from experience how complex it is to implement a network of 200 very large vessels sailing around the world. 2M has been running stable and reliable for over a year – and has enabled Maersk Line to provide a wide range of services at a competitive price.

We will very soon announce a series of upgrades to eliminate the customer felt pain-points by balancing number of direct port calls with the need for buffer in our schedules and thereby continue to provide customers with a stable, enhanced alliance.

What are you thoughts on the recent changes to various shipping alliances? How valuable is stability to you? Let me know in the comments section below.