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Each day TFO Canada publishes a sample of trade news on the Canadian import market along with any new, updated or changed regulations and legislations regarding international trade; countries in which TFO Canada offers services and on the export sectors which it promotes.

 

Shipping Alliance to Cover Some of World's Busiest Trade Routes

Wednesday, September 10, 2014 > 09:42:47
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(Wall Street Journal – Costas Paris) 

The French container-shipping giant CMA CGM SA said Tuesday it has formed an alliance with China Shipping Container Lines Co. and Middle East shipping major United Arab Shipping Co. to share vessels on some of the world's busiest trade routes.

The new alliance, called Ocean Three, is expected to deploy about 150 ships that would move roughly 20% of all cargo between Asia and Europe and 13% and 7% across the Pacific and Atlantic oceans, respectively, people involved in the deal said.

The move comes after larger rivals Maersk Line and Mediterranean Shipping Co. sealed a 10-year tie-up in July that is expected to save them billions of dollars in operating costs.

CMA CGM said the Ocean Three vessels would call "in all the biggest Asian, European and North American ports, using transshipment hubs common to the three partners."

CSCL said in a separate written statement that the agreement would be valid for two years after the start of operations and would be automatically extended if the parties involved have no objections.

Maersk Line, a unit of Danish conglomerate A.P. Møller-Maersk and Switzerland-based MSC are the world's two biggest container-shipping companies in terms of capacity. They announced their so-called 2M alliance in July. Chinese regulators earlier rejected a wider tie-up called the P3 alliance, which would have also included CMA CGM, over concerns that the combined strength of its proposed members would threaten Chinese container carriers.

"Ocean Three is an antidote to 2M," said Jonathan Roach, a container analyst with London-based Braemar ACM Shipbroking. "It's in line with staying competitive with the 2M and it's a good deal, because they have invested in some of the biggest ships in the business and also brought a Chinese company into the fold."

Container shipping, which carries about 95% of the world's manufactured goods, has suffered for the past decade from overcapacity that has led to falling freight rates, which major operators have described as unsustainable. A plethora of smaller shipping companies regularly undercut freight rates from Asia to Europe and across the Atlantic and Pacific oceans, hoping to stay in business until the industry recovers.

The 2M alliance would control a 35% market share in the Asia-to-Europe trade loop and 15% and 37% of the cargo moved across the trans-Pacific and trans-Atlantic routes, respectively. The 2M fleet would include Maersk's 20 Triple E vessels, the biggest and most efficient ships in the business, able to carry in excess of 18,000 containers each.

People familiar with the matter said MSC will also likely charter on long-term leases five Triple E's from Scorpio Group, based in New York and Monaco, and China's Bank of Communications Co. UASC and CSCL have a combined 11 Triple E's on order. These vessels steam more slowly than most other ships to save fuel, slashing operational costs by 20% on each container shipped, compared with the average cost of existing vessels with less fuel-efficient engines.

Both alliances need clearance from U.S. regulators. William Doyle, a commissioner for the U.S. Federal Maritime Commission, said in an interview last week that he would consult with his Chinese counterparts at a meeting in November before the commission reaches a decision on the 2M alliance. The Ocean Three partners haven't yet filed with the commission.

The alliances are expected to gradually push smaller competitors out of the benchmark Asia-to-Europe route because their smaller and less fuel-efficient vessels won't be able to compete. This is expected to bring some stability in freight rates as supply, which is currently 15% above demand, will be more tightly regulated.

A.P. Møller-Maersk Chief Executive Nils Andersen said in a recent interview that overcapacity would take at least four years to be absorbed.


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