Global News Carrier order books, alliance changes signal continued reliance on scale

Mediterranean Shipping Co. recently reached the milestone of controlling 20% of worldwide operated container vessel capacity through an unprecedented fleet expansion. Meanwhile, several other top 10 carriers have sizeable order books in addition to the ships they are purchasing and leasing in the second-hand and charter markets.

Size does count. This is why, beyond individual growth, carriers have consolidated and sought to gain product advantage within consortiums and slot charter deals. It is also why consortiums have enabled small and midsize carriers to survive — and in some cases punch above their weight — in the major east-west trades.

But for midsize carriers, they can still punch above their capacity weight if they can cooperate with alliance partners.

Given this dependence on size and thus reach, particularly in the east-west routes, there was some concern about the ability of Ocean Network Express (ONE), HMM and Yang Ming to concoct a viable solution following the departure of Hapag-Lloyd from their THE Alliance. Many industry observers even considered this as a threat to the carriers’ individual futures.

Thus, the announcement of their new network and cross-slot-charter deal, dubbed the Premier Alliance, has been greeted by some as akin to grabbing salvation from the jaws of marginalization. This understates the options ONE, HMM and Yang Ming had following Hapag-Lloyd’s exit, but it does emphasize that capacity access is the starting point for determining the punch each carrier packs.

MSC is of course the carrier that has been driven most by size; its acquisitions of both newbuild and second-hand ships have gone hand in hand with its desire to run an independent network. MSC’s fleet expansion has been dramatic, but it is lower risk than it might look. The consolidation of the industry and the reduction in the share of non-operating owners spells more control for the largest carriers and more ability to build big war chests in good times.

The decision by MSC to work with the Premier members in the Asia-Europe trade and independent carrier ZIM Integrated Shipping Services in the trans-Pacific is typical of the short-term flexibility that has been a defining characteristic of their longer-term strategy. Some would question the need for these slot charters, but neither Premier nor ZIM are a threat to MSC’s dominance, and this gives MSC an extra edge versus the Ocean Alliance of Cosco Shipping/OOCL, CMA CGM/APL and Evergreen Line and the Gemini Cooperation of Hapag-Lloyd and Maersk. Most carriers looking to grow The Gemini consortium is also an acceptance of size mattering. In announcing the breakup of the 2M Alliance — MSC and Maersk — in early 2023, Maersk initially vowed to go it alone. But a cold hard look at its network told Maersk it was going to struggle to get good coverage and needed to find a suitable new alliance partner, make an acquisition, or significantly upgrade capacity by purchasing and/or chartering ships. For Hapag-Lloyd, as a midsize top 10 carrier, the decision to link up with the second-largest carrier, which also happens to be culturally compatible and have similar quality objectives, was logical.

The combined order book of the Gemini members is relatively modest, and they may eventually have to consider whether restricting themselves to their own deployments actually delivers the best result. The bigger question mark within Gemini is where Maersk is ultimately going. Embarking on a business transformation to become an integrator is a massive bet, and its degree of success may ultimately take Maersk and its relationship with Hapag-Lloyd in a different direction.

The Ocean Alliance is the only grouping that remains unchanged. It has critical mass by definition — with three of the top seven container carriers — and all three members have significant order books. If Ocean has a size issue, it is one of potentially becoming too big for regulators’ liking, rather than lacking the means to provide extensive coverage. Assuming its deployments stay streamlined, it will remain a force to be reckoned with.

Most of the top 10 carriers are doubling down on their size and reach, whether through expanding their own fleets or access to consortiums and slot-charter agreements. Those that are pursuing a wider offering are presenting inland, air and logistics as options in a suite of services and carefully avoiding throwing the baby out with the bathwater.

There are, of course, trade and geographical factors they cannot control, but in a more consolidated industry, those that stick around are likely to earn higher longer-term returns than the historical average.

Maersk, as the lone exception, has sacrificed growth in the ocean sector — but compromised by joining Gemini — to invest in access to a bigger pie, and the outcome of this transformation hangs in the balance. If it’s a stunning success, there will be analysis of how much ocean and terminal assets contributed to or distracted from it. If it’s a failure, then a pivot back to their roots is very possible, and that will mean a return to building ocean capacity.