The Hindu Business Line : To `contain' Maersk Line...<br> Shipping alliances plan joint services

ONE RECENT development has caught the attention of the world of shipping. It is the announcement by the two major shipping alliances — the Grand Alliance and the New World Alliance — that they are joining in a cooperative slot-exchange agreement on the Asia-Europe and Asia-Mediterranean trades and plan to start a service from Asia to the US. The members of the Grand Alliance include Hapag-Lloyd, NYK, OOCL and Malaysia International Shipping Corporation while the New World Alliance's members are APL, MOL and Hyundai Merchant Marine.

The announcement only confirms that the major container operators of the world are serious about strengthening their services against the overwhelming competition they expect to face from Maersk Sealand, which is to become Maersk Line following its take over of P&O Nedlloyd. The process of absorption will be over by February.

The competition from Maersk is going to be truly formidable. Now, Maersk, together with its sister concern, Safmarine, operates 387 vessels with a total capacity of 1.036 million TEUs and P&O Nedlloyd 162 vessels (460,000 TEUs). The merged entity will thus have a fleet of 549 ships with a total capacity of 1.5 million TEUs, enough to impact significantly the world liner shipping market for the next few years. More so because both the carriers have been investing heavily in new acquisitions — many of them of over 8000-TEU capacity.

Maersk has on order 96 ships with a capacity of 510,000 TEUs and P&O Nedlloyd 42 ships with a total capacity of 220,000 TEUs. The second largest carrier Mediterranean Shipping Company, with a market share of just over eight per cent, operates 257 vessels, with a capacity of 681,000 TEUs and has on order 45 vessels totalling 337,000 TEUs.

The market share of Maersk, following the merger, is expected to be more than 20 per cent. The competitors, thus, have sufficient reasons to feel worried and therefore the need to tighten their belts.

Yet, the announcement of the Grand Alliance and the New World Alliance on rationalisation of routes and services has an element of surprise. True, in June, when A.P. Moller-Maersk announced plans to buy P&O Nedlloyd, the news touched off speculation about a new wave of mergers by container carriers. But nobody expected blockbuster amalgamation of large global carriers.

At most, some large carriers were expected to gobble up a few small regional lines. If money did not prove to be a barrier to mega mergers, national pride and egos would, it was felt.

In fact, the impression that was gaining ground was that more than mergers of carriers, there would be consolidation of the marine terminal industry. And not without reason. As the competition intensifies, the shipping lines would seek to own or control marine terminals to eliminate the middleman between them and their customers.

If the shipper needed help getting containers out of the terminal in the shortest possible time, the carrier should be able to provide that service directly instead of depending on a third party — the terminal operator.

There was another point. Once P&O Nedlloyd was absorbed into Maersk Sealand, the acquired line's cargo would provide additional business for Maersk's APM Terminals. APM would acquire minority stakes in key global locations. It would acquire a 50 per cent stake in Port Newark Container Terminal. Besides, P&O Nedloyd has a 25 per cent stake in a new mega terminal in Antwerp, which opened in July.

It has a minority stake in a terminal in Colombo and a 25 per cent stake in the Cagliari transshipment terminal in Sardinia and is also taking over an 86-acre terminal in Los Angeles, where APM already operates the largest terminal in the port. It may be noted that APM grew to it current size, the third largest among container operators, through amalgamation of Maersk's network with former Sealand terminals.

The surprise announcement by the Grand and New World alliances is believed to have been prompted by a report that Maersk is planning to use some of the P&O Nedlloyd ships it pulls out of Grand Alliance to start a new Asia-US East Coast service via the Panama Canal early next year.

The withdrawal of P&O Nedlloyd ships has already triggered reorganisation of services on various routes. Many in the industry have started wondering how the Grand Alliance will be able to maintain its services and capacity after Maersk withdraws P&O Nedlloyd's ships from the alliance in February.

The announcement of cooperative agreement and the introduction of new joint services therefore is intended to reassure customers that there will be no void by the withdrawal of P&O Nedlloyd ships and that services will continue to be available to them. P&O Nedlloyd's slots will be reallocated according to the capacity each member of the two alliances contributes.

However, a few things remain less clear. First, the extent of cooperation among the members of the two alliances, particularly on routes between Asia and Europe and between Asia and the Mediterranean. The carriers have only stated that they will exchange slots and that they may start joint services in due course. The details of the proposed services are yet to be announced.

Second, whether rationalisation of services will actually result in reduced port calls on the plea of cost saving? If that happens, there will be fewer choices for shippers.

More than anything else, the future of services by various shipping alliances will depend on the shipping scenario that will unfold in two years from now. By 2007, nearly 170 ships with an average capacity of 7500 TEUs each will be sailing the seas. In their desperate bid to have the ships deployed to amortise the capital costs, shipowners may have to look beyond the alliances. Once that happens, there is no knowing where it will end.

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