Rate War Fears as New Alliances Compete for Market Share

Two months from now, container shipping lines will begin operations under a new alliance structure, the result of mergers, acquisitions and the failure of Hanjin Shipping in 2016 that tore three of the four vessel sharing agreements apart.

News ID: 71733

Date: 20 January 2017 - 11:00

According to MANA, But the two new alliances – Transport High Efficiency (THE) Alliance of NYK, MOL, ‘K’ Line, Hapag-Lloyd and Yang Ming, and the Ocean Alliance of COSCO, CMA CGM, Evergreen and OOCL – will from 1 April be competing with each other as well as with the 2M Alliance of Maersk Line and Mediterranean Shipping Company (MSC) in a battle for market share that observers believe could get ugly.

The Ocean Alliance will hold the largest share of the Asia-North America market at 41%, followed by THE Alliance at 29% and 2M+HMM at 21%, according to container shipping analyst Alphaliner. The analyst said freight rate prospects in 2017 will depend crucially on the carriers’ ability to avoid another debilitating rate war.

“The launch of the new alliance networks in April, involving the new 2M-HMM partnership, Ocean Alliance and THE Alliance, as well as the anticipated entry of SM Lines on the trans-Pacific route, could trigger another battle for market share,” the analyst noted.

A price war is the last thing carriers need after the heavy industry losses in 2016 when rates fell to record lows in the first quarter, erasing liner profitability. Analyst Dynamar has reported that in the first nine months of 2016, the top 12 lost USD13 billion, and while improving rates in the fourth quarter will have improved profitability, there will be few carriers that end 2016 in the black.

within the new alliance structure is also a concern for forwarders. Edoardo Podesta, Dachser Far East managing director for air and sea logistics in Asia, said it would be a bonus if carriers managed to smooth the volatility in the market, but if the rate wars persisted it would only continue the wild fluctuations of the last couple of years.

“What has been creating competition in the past was not that the carriers had different pricing, it was because some carriers were going for market share and they were more aggressive on pricing.