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Shipping alliances is a popular concept in liner shipping. This concept opens windows towards strategic partnerships between/among shipping lines. Further, it supports utilizing the vessel space efficiently and support shipping lines with their balance sheets.
Shipping alliances are also known as global alliances and ocean alliances and are very similar to vessel sharing agreements (VSA). Here partnered shipping lines share the vessels on the agreed trade lanes instead of operating their own vessels separately. This is a mechanism of sharing or pooling the vessel space by each line.
Slot Charter Party (SCA) is a different concept and should not be confused with the alliance.
For example, consider Maersk line operates a container vessel from Singapore to Hamburg. Instead of having another and own line container vessel, MSC pool space with Maersk. And MSC sells the Maersk vessel space to their customers. However, the customer deal with the MSC line as usual for exporting the shipment and loading vessel belongs to Maersk.
Vessel sharing doesn’t mean that each line should have their own ships or a customer base in each trade lane equally. Based on the demand each line has, the vessel space is shared among alliance partners.
The vessel Sharing Agreements focus on a specific trade lane and agree upon the terms and conditions of sharing the vessel space. And the Global alliance is more vast and focuses on the global level rather than one shipping route.
There are few alliances operating in container shipping. Out of which, the main alliances are the 2M Alliance, the Ocean Alliance, and THE Alliance. They have a market share of 75% of the total container volume handles via sea. And these alliances control over 96% of East-West trades’ container capacity.
Benefits of Alliances
Being a part of alliances is not only beneficial for the small shipping lines but also for the big operators. Since each line has a coverage of their strong shipping routes and has a customer base covering different regions, the alliance covers all the trade lanes enabling all the partners to have a broader coverage.
Further, the operational cost of each partner reduces as they don’t have to operate vessels separately. When the operating cost of the shipping line reduce they have the ability to maintain the freight rate in a stable manner. Otherwise, to fill the ship they have to have low-profit margins and compete with other lines to attract more cargo volumes to the line.
Furthermore, if a line has a small volume in a particular shipping route, it is obvious the line has to increase the freight to cover the cost. Thus when there is an alliance the volume for the same route increase and the per unit variable cost reduces.
This further enables the better utilization of resources, while achieving economies of scale.
Since the alliance is strong than the individual they have more power to negotiate port tariffs.
This is not only beneficial to the shipping lines but also to the whole supply chain down to the end customer of a product.
What are the Shipping Alliances available in the Industry?
2M has formed between the world’s largest container shipping operators Maersk and MSC in 2014. Later few more alliances have formed due to the advantages of the same towards their sustainability in the shipping lines.
G6 Alliance, CKHYE Alliance, O3 Alliance, THE Alliance, Ocean Alliance, and the latest ONE alliance are the alliances formed among container shipping. Some of them are still in place while some have terminated or expired.
We will check out more details about these global alliances.
2M has formed between the Denmark shipping line Maersk and the Swiss-Italian shipping company Mediterranean Shipping Co. Both the lines are family businesses.
Maersk and MSC formed 2M alliance in 2014 covering the trade routes of Asia-Europe, trans-Pacific and trans-Atlantic.
2 M alliance will continue for 10 years ending in 2024. The initial agreement between shipping lines includes a capacity of 2.1 million TEU. Out of which Maersk has contributed 1.1 million TEUs. The HMM had joined 2M in 2017 for three years partnership.
The initial plan was to form P3 alliance among Maersk, MSC, and CMA CGM. As the alliance among the three container giants failed, Maersk and MSC together have launched the 2M alliance.
Ocean Alliance is a partnership among the Frech shipping line CMA CGM, China-based COSCO Shipping, Taiwan-based Evergreen Line, and Hong Kong based OOCL(Orient Overseas Container Line).
Ocean alliance was launched in 2017 for a period of 05 years. In 2019, they have confirmed that the agreement will be renewed for 10 years ending in 2027.
Ocean Alliance has 330 ships with a 3.8 million TEU capacity. Out of which 111 ships are operated by CMA CGM.
Ocean alliance covers 19 -Transpacific services, 7- Asia -Europe services, 4 -Asia -Mediterranean services, 2 -Transatlantic services, 4 -Asia – Middle East services, and 2 -Asia-Red Sea services.
The alliance was launched in 2017 by German shipping company Hapag Lloyd, Taiwanese container line Yang Ming and Japanese three carriers MOL, NYK, and K-Line.
33 services provided by “THE Alliance” connect more than 81 major ports throughout Asia, North Europe, the Mediterranean, North America, Canada, Mexico, Central America, the Caribbean, the Indian Sub-Continent, and the Middle East.
Out of the services 5 are in Asia – North Europe, 3 in Asia – Mediterranean, 2 in Asia and the Middle East, 11 in Trans Pacific – West Coast, 5 in Trans Pacific -East Coast (via Panama and Suez), and 7 in Trans-Atlantic.
In April 2018 Japanese three carriers MOL, NYK, and K-Line have combined their container operation into “Ocean Network Express” which is known as “ONE”. ONE continues the alliance with Yang Ming and Hapag Lloyds.
On 1st April 2020, South Korean container line HMM (Hyundai Merchant Marine) joined “THE Alliance”. With the new partnership, THE alliance will continue their partnership until 2030.
THE alliance has 241 ships calling more than 1150 ports covering 3.3 million TEUs.
G6 alliance was formed in 2012 among APL (American President Lines), Hapag-Lloyd, Hyundai Merchant Marine (HMM), MOL, NYK Line, and Orient Overseas Container Line (OOCL).
G6 alliances had covered more than 40 ports in Asia, Europe, and the Mediterranean with 90 ships in their 9 services offered.
The G6 alliance was dismissed in 2016 after a 4-year partnership.
CKHYE Alliance was a partnership among Cosco Shipping, K-Line, Yang Ming, Hanjin, and Evergreen Line formed in 2014. Alliance was launched to cater to the trades between Asia and Europe, including the Mediterranean region from 1st March 2014.
CKHYE had six joint services operating between Asia and Northern Europe and three Asia-Mediterranean services.
Alliance was continued until March 2017 and no extension was done further.
O3 alliance or Ocean three alliance was a former alliance among CMA CGM, China Shipping Line, and United Arab Shipping Co.
China Shiping Line has integrated with CONCON on 1st March 2016. O3 alliance is no longer exists.
Shared Work of Members in Alliance
Shipping lines have shared work when they are in alliances as well the work to take care of by the shipping line to make sure their consistency in the industry.
A vessel carries cargo of the shipping lines in the alliance, hence they all get together to prepare the stowage plan of the ship and capacity planning according to the contribution of each shipping line.
Further, there are rules and regulations to be followed which are established by the bodies like IMO and ethical behaviors to follow like following sustainable shipping practices. Such decisions are to be made collaboratively as the carriers work together under the alliance.
Of course, the operational efficiencies, cost-sharing, and industry practices are to be discussed too.
Thus, the alliance does not cover efforts made on marketing or space selling. It should be done by each carrier.
Even the vessel is shared, each individual’s customer base will not be shared with the shipping lines in the alliance. Further, the capital investment on procuring new vessels is to be done individually.