Ocean Alliance gets formal FMC approval

The Federal Maritime Commission (FMC) said last week it has concluded its review of the proposed Ocean Alliance.

Set to take effect today, October 24 and begin operations next April, the carrier members of the Ocean Alliance include: COSCO Shipping, CMA CGM, Evergreen Marine, and Orient Overseas Container Line Limited (OOCL).

With this agreement now intact, FMC said that its members can share vessels, charter and exchange space on each other’s ships, and enter into cooperative working agreements in international trade lanes between the United States and ports in Asia, Northern Europe, the Mediterranean, the Middle East, Canada, Central America, and the Caribbean.

“The Commission worked very hard to balance the needs of not only the Ocean Alliance applicants, but all other parties involved in the intermodal supply chain, with the ultimate goal of safeguarding competition in international oceanborne common carriage, with the American shipping public foremost in mind,” said FMC Chairman Mario Cordero in a statement. “The Agreement going into force represents a consensus of what will allow OCEAN Alliance carriers to achieve efficiencies without harming the marketplace.”

Plans of this new Alliance were initially announced in April, when the four member carriers inked an memorandum of understanding form a consortia covering the Asia-Europe, Asia-Mediterranean, Asia-Red Sea, Asia-Middle East, transpacific, Asia-North America East Coast, and transatlantic trades.

Representatives for the Alliance called it a “milestone agreement among four of the world’s leading container shipping lines,” adding that Alliance will have nearly 400 vessels in its container fleet.

Foster Finley, managing director at AlixPartners and co-head of the firm’s maritime practice, told LM in April that the “long-beleaguered” financial state of the maritime container-shipping industry was likely to worsen in 2016.

“The only thing apt to cure the industry’s malaise is further consolidation,” he said.

Other analysts suggest that there may yet be more shifting of alliances if some carriers are to survive. But blending of business cultures may pose some problems.

“On one hand, companies are very different and also have very different cultures,” said Lars Jensen, CEO and partner of SeaIntelligence Consulting in Copenhagen. “On the other hand, the industry demonstrates aspects of a mono-culture which will be challenged in the coming decade.”

As a consequence, Jensen believes carriers will have to concentrate on “a common thread” in the future.

“While the market remains cyclical, the idea of shipping as tradecraft has had its day,” he said.

The new alliance come on the heels of the merger of Cosco and China Shipping’s container lines and CMA CGM’s move to buy Neptune Orient Lines (NOL), where it plans to pull container line APL out from the G6 Alliance.

The 2M Alliance, comprising Maersk and MSC is also being challenged by this move, analysts contend. Also brought into question is the future of Kawasaki Kisen Kaisha (K Line), Yang Ming Line and the since-departed Hanjin –  all members of the CKYHE alliance.

Chris Rogers, research director for Panjiva, said that the Ocean Alliance is probably the most stable of the three “new style” alliances.

“2M (MSC and Maersk) have been considering whether to add Hyundai Merchant Marine, which may complicate matters if HMM buys some of Hanjin Shipping’s assets or routes,” he said. “The Alliance (led by Hapag-Llloyd) is supposed to include Hanjin Shipping as a member, so it may need to rethink its strategy.”

Rogers also said that the Ocean Alliance’s operations are mainly focused on U.S. routes, with Panjiva data showing that the Ocean Alliance had 19.8% of U.S. inbound, seaborne volumes in September. This compares to 18.2% when the alliance was first announced in April, and the current 2M Alliance’s 15.4% and 13.8% for The Alliance excluding Hanjin Shipping.

With the ocean cargo sector effectively going from 4 alliances to 3, when the Ocean Alliance takes effect in April 2017, the further concentration should enable the alliances, within themselves, to better control capacity as a means to improving revenue, explained Ben Hackett, founder of maritime consultancy Hackett Associates.

“But at the end of the day it depends whether the other two alliances do the same,” he said. “Should an alliance, or a member of an alliance break ranks on pricing and go for market share (as Maersk have suggested) then capacity planning goes out the window.

What this does is to create stronger service providers and also more clout to negotiate with terminals for lower handling costs.  Cargo owners are afraid that these three stronger alliances may end up raising prices (and why should they not given the amount of losses that they have sustained).  One can perhaps hope for more stability in the market.”

On a global basis, Hackett said that the EU is probably less sanguine about the alliances than the regulators in the U.S. and China. And despite the alliances the industry remains fragmented below the top 5, he noted, while also pointing out it is reasonable to expect to see some mergers and perhaps a carrier or two disappearing.