Hanjin’s bankruptcy leaves the proposed carrier grouping THE Alliance at a size disadvantage to both its future rivals, with Drewry Maritime Research asking whether a replacement may be called up in its latest Container Insight Report.
The container shipping industry is in a state of flux at the moment and nobody can honestly say they know for certain what the landscape will look like six months from now.
Even before Hanjin Shipping filed for bankruptcy protection the industry was preparing itself for big changes to the make-up of the major shipping alliances, which from April, 2016 are scheduled to downsize from four to three.
However, Hanjin’s impending demise and uncertainty surrounding new membership agreements and regulatory approval have clouded the picture.
Hanjin was one of six carriers along with Hapag-Lloyd, K Line, MOL, NYK and Yang Ming that in May, 2016 announced they would form THE Alliance to serve the East-West container trades from the Q2, 2017.
The South Korean carrier was the second largest of the group with 460,000 TEU in nominal ship capacity in the East-West routes before it exited the stage in August.
Hapag-Lloyd’s merger with United Arab Shipping Co. (UASC) will add 315,000 TEU in East-West capacity so it bridges some, but not the entire, gap.
Expectations that there would be an eighth partner (UASC being the seventh) were confounded when it emerged that the financially troubled Hyundai Merchant Marine (HMM) was in talks to join the world’s two largest carriers Maersk Line and MSC in the 2M alliance.
Calculating potential market shares for the three proposed mega-alliances is complicated by the fact that HMM’s deal with the 2M lines is yet to be concluded and that no one knows who will pick up Hanjin’s capacity, which was approximately 5% of East-West ships in August, 2016.
Technical Paper: Maritime Shipping: Disadvantages of Scale
HMM would very much be the junior partner in the 2M/H2M alliance but even so the addition of too much Hanjin capacity could pose competition issues as the existing lines are already at the upper limits of what is acceptable to regulators.
In the US, the Federal Maritime Commission (FMC) has requested more information to consider the proposal of the OCEAN Alliance members CMA CGM, Cosco, Evergreen and OOCL, although there is no suggestion that the move will cancel or even push back the scheduled April start.
While acknowledging that making perfectly accurate market share projections is impossible at this stage, Drewry says that THE Alliance will be far smaller than its two rivals.
When Drewry asked the major carrier in THE Alliance, Hapag-Lloyd, how they planned to handle the loss of Hanjin there was no indication in its reply that they are looking to bring in anyone else.
Hapag-Lloyd said: “THE Alliance is creating its future product at the moment and it will be a very competitive product in all East-West trade lanes with attractive port coverage, comprehensive port-to-port connections and competitive transit times.”
Surprisingly, in the current era of competitive-cooperation between lines there are still a few non-alliance affiliated carriers that might be targets.
The Hamburg Süd Group would bring the most capacity but as a North-South specialist it might want the alliance to broaden its scope before agreeing to join.
Zim has thus far been happy to piggy-back on the East-West services of other alliances and has given no indication that it wants to become part of any group.
The uncertainty over what the industry will look like is less than ideal as shippers prepare tenders for shipping contracts.
None want a repeat of the Hanjin situation with billions of dollars’ worth of cargo stranded outside ports and they will want to know in advance which carriers will be sharing ships to avoid those that they consider to be financially risky.
The Drewry View: With so much uncertainty, shippers will probably look to hedge their bets with the alliances at the beginning and see which one works best for them in the long-term.