Shippers Await the Benefits from Mergers and New Alliances

As OCEANAIR pointed out in December, consolidations and alliances were going to be a theme for the transportation industry in 2016. Last December, CMA CGM of France began its acquisition of Neptune Orient Line (NOL) of Singapore, and the European Commission approved this merger. In February, China Shipping and China Ocean Shipping (Group) merged into one state entity, while South Korea’s shipping companies Hanjin and Hyundai struggled to integrate for survival. And Hapag-Lloyd is in discussions with United Arab Shipping Company (UASC) to merge. Much of the recent acquisition and merger activities by ocean carriers prompted this recent restructuring of the global shipping alliance system. These actions taken by ocean carriers demonstrate how rapidly the maritime industry is changing by forcing them to reduce orders, realign operations and reorganize alliances. The advent of megaships was going to pressure the margins for second-tier operators and it has. However, the larger players in this space did not expect the speed in which demand and capacity fell.

The shipping industry responded with new alliances to combat demand and capacity issues. Challenging the 2M alliance of Maersk Line and Mediterranean Shipping Co. will be the newly formed The Alliance and Ocean Alliance. Eventually, NOL will join the Ocean Alliance formed in April that comprises of Cosco Group, CMA CGM, Orient Overseas Container Line (OOCL), and Evergreen Marine, giving this group about a quarter of the market share. The formation of The Alliance will bring some relief to the ailing Korean carrier Hanjin as it joined with Hapag-Lloyd, K-Line, Mitsui OSK Lines, NYK, and Yang Ming to service all the East-West trade lanes. But this is not the only mode seeing new alliances form. This week, Lufthansa and Cathay Pacific joined forces to improve air cargo services from Hong Kong to Europe. Amongst all airlines in international cargo traffic, the two international carriers rank second and third, respectively.

While many of these new relationships and transactions seem to make business sense, these trends could lead to a reduction in services for shippers. The concept of creating these alliances or combining organizations should benefit the customer using the services by offering more choices, increasing competition, reducing congestion and improving efficiencies. The creation of larger entities through this period of alignment needs to benefit the shipper as much as they help the carriers survive and thrive. Hopefully, both air and ocean carriers are being careful not to harm the shipper through reduced choices and diminished service. But with the chance of anticompetitive practices looming, the question of whether the shipper is going to benefit from these new alliances remains uncertain, and shippers may require further oversight and legislation to ensure they are not unfairly taken advantage of by these changes in within the industry.