Another shoe dropping
When Maersk Line, Mediterranean Shipping Co., and CMA CGM announced in June their intention to form the P3 Network, many analysts figured it was just a matter of time until other carriers responded to the challenge.
In early December the six containership companies that belong to the G6 Alliance said they also want to expand their cooperation to the Asia-U.S. West Coast and transatlantic trade lanes.
The G6 Alliance is a combination of carriers that belong to the Grand Alliance (NYK, Hapag-Lloyd and OOCL) and New World Alliance (APL, Hyundai Merchant Marine and MOL). Formed in late 2011, the carriers began cooperating in the Asia-Europe trade in March 2012, and entered the Asia-North American east coast trade in May 2013.
The G6 members said they would provide details on services and port rotations for the new Asia-West Coast and transatlantic services at a later time, but like the P3 wanted to begin service in the second quarter of 2014.
It wants to deploy about 76 ships across 12 services connecting 27 Asian and West Coast ports. Approximately another 42 ships will be deployed across five services, including two pendulum services, in the transatlantic, calling 25 ports.
Globally the G6 would have a network deploying 240 vessels to connect 66 Asian, American and European ports.
That contrasts with the P3 which will encompass 255 ships with 2.6 million TEUs of capacity on 29 strings.
Just days after it announced its plan to expand, Zim revealed it was speaking to the G6 about further cooperation in the Asia-U.S. West Coast trade and Hapag-Lloyd said it was in merger talks with CSAV.
If approved by regulators, the G6 members said they would offer more service choices and increased sailing frequency. For example, on the Asia-West Coast trade, each G6 Alliance member will be able to offer almost twice as many sailings compared to what is currently offered separately by the New World and Grand alliances.
G6 said its members will continue to market their services individually as they do today.
It is expected that other carriers, such as those that belong to the CKYH alliance of COSCO, “K” Line, Yang Ming and Hyundai, may react to the moves of the P3 and G6 by linking up with other lines. In November, for example, Yang Ming, United Arab Shipping Co. and China Shipping announced cooperation in the transpacific.
This fall, the Copenhagen-based consultant SeaIntel said its review of the P3 members will lead to significant advantages, compared to CKYH and G6, both in average vessel size and number of ports served directly.
Alan Murphy, chief operating officer of SeaIntel, said his firm found the CKYH and G6 alliances currently on the Asia-North Europe trade operate an average vessel size of 11,050 TEUs and 11,250 TEUs, respectively, while MSC said the average size of P3 vessels by the second quarter of 2014 will be 12,900 TEUs.
“The P3 carriers will have a significant economy of scale advantage, allowing them to operate with a much lower unit cost,” he said.
SeaIntel also found that in the Asia-U.S. West Coast trade, the P3 carriers will have a significant scale advantage, with their announced average vessel capacity in the second quarter of 2014 being 9,500 TEUs, compared to New World Alliance’s current average of 6,900 TEUs, Grand Alliance’s 6,500 TEUs, and CKYH’s 5,800 TEUs.
The Australian investment bank Macquarie made a similar analysis of each of the P3 partners, and found Maersk is likely to see a much greater reduction in unit costs from the P3 network than either MSC or CMA CGM.
It said the average size of Maersk’s Asia-Europe fleet would increase from 9,600 TEUs to 14,100 TEUs by the end of 2015, potentially reducing Maersk’s unit costs by 34 percent. Because it has more large ships, it will benefit the most from the economies of scale.
SeaIntel also found that the P3 could have an advantage over the G6 and CKYH because it can service a greater number of ports.
“In the Asia-North Europe trade, the P3 Network will yield 143 unique port-to-port combinations, meaning that the P3 carriers can directly serve 80 combinations more than the G6 carriers and 87 more than the CKYH carriers. In the Asia-Mediterranean trade, the P3 carriers can also offer a larger pool of directly served port-to-port combinations, with the P3 carriers offering 172 combinations, while G6 only offer 50 and CKYH offer 89.”
Murphy said if the P3 network is approved by regulators, he expects “other carriers/alliances in the near future will come up with some kind of counter-reaction, as they otherwise will see their competiveness greatly reduced.
“The reaction could very well be the CKYH and G6 carriers start a renewed program of ordering mega-vessels, despite the detrimental effect this would have on the long-term market outlook,” he said.
In a recent Bluewater Reporting study, author Francis Phillips looked at the possibility of even bigger combinations, such as the addition of Hapag-Lloyd to the P3.
Out of 213 P3 services worldwide, he said 38 strings had Hapag-Lloyd, CSAV, and Hamburg Süd as partners alone or in some combination, using the same hubs and spokes as the P3 carriers at present and in their new services seeking regulatory approval.
“In addition to the 69 existing P3 member services with east-west component legs, there were 144 running exclusively north-south. Yet, in each case, at least one major east-west hub was included in the service rotation. This is the essence of ‘hub and spoke.’ By making all their services pass through a central ‘hub’ or multiple hubs in each key region, dividing each service into separate ‘spokes’ on either side of a hub, Maersk, MSC and CMA CGM are able to solve the age-old liner problem of keeping ships full,” he said.
Could it be, Phillips asked, that in the longer term as bigger ships get cascaded into the north-south trades that the P3 could be extended to become the P8 by including Hapag-Lloyd, Hamburg Süd, CSAV, CCNT and Marfret in the network?