The sea freight model from China is changing

With the break up of Maersk and MSC’s 2M alliance in under two years, the shipping line alliance structure that has given the biggest container carriers the power to adapt services and capacity to maximise profitability will end.

The 2M members, Maersk and MSC will not continue their decade old alliance when it expires in 2025, leaving them free to pursue individual strategies, with Maersk investing in end-to-end supply chain capability and MSC investing in its ever expanding fleet.

MSC has the scale to be the most comprehensive ocean and short-sea shipping network in the market. Its fleet is already the world’s largest and will be further bolstered by a mass of new ordering and the largest secondhand tonnage acquisition spree in shipping history,

The 2M vessel-sharing agreement, which allowed the two carriers to manage their capacity more effectively by pooling cargo, prompted a wave of consolidation in the industry and the formation of The Alliance (THEA) and Ocean Alliances.

The end of 2M could lead to significant capacity shifts, as Maersk will become a significantly smaller player that has “come to the conclusion that a more standalone Maersk network is a better response to the coming years than it was in the past” and other carriers rethink their vessel-sharing alliances, as they try to protect their east-west networks and build market share.

With the Alliances ending, the container shipping industry enters a potentially extended period of overcapacity, which may see a return to a competitive scramble for market share, which will drive down profits and see the shipping lines indulge in another round of M&A, which would further reduce choice and could see regulators step in.

When MSC has taken delivery of all the tonnage it currently has on order, it will be one third larger than Maersk, and with MSC determined that all tonnage is utilised, it will be interesting to see how aggressive they might be on pricing.

However, the downside of that scenario, is that if rate levels fail to return marginal profits carriers will initially blank sailings to stop bleeding cash and of that fails to recover the cost of covering routes, carriers will simply close down services and lay up vessels.

Which is not good for them – or shippers.

Hardly a convincing outlook for an industry that needs to reinvent a profitable and sustainable model, that will not attract the regulators’ ire and that is equitable, to win shippers support.

In the coming months new shipping alliances, vessel sharing agreements and service launches will alter the competitive dynamics on all the major trade-lanes, which is why we will closely monitor developments, stay close to our industry partners and identify opportunities for our customers

If you have any questions or concerns about the developments outlined here, please EMAIL our managing director, Colin Redman.