How will Maersk-MSC split redraw container shipping landscape?
FRANCE : The decision by MSC and Maersk — the world’s two largest container lines — to terminate the 2M vessel-sharing alliance was predictable. The bigger surprise will be what happens next.
Will both MSC and Maersk go it alone after 2M ends in January 2025? Will Maersk join another alliance or create a new one? How will this affect the remaining two global alliances: Ocean Alliance and THE Alliance? And how will it affect cargo shipper pricing?
MSC big enough to stand alone
MSC grew far faster than any other ocean carrier over the past two years, taking over the top slot from Maersk.
According to Alphaliner, MSC has acquired 271 secondhand ships since August 2020, with capacity of just over 1 million twenty-foot equivalent units. MSC’s recent secondhand acquisitions exceed the entire capacity of HMM, the world’s eighth-largest carrier.
MSC has over 1.8 million TEUs of newbuild capacity on order, more than double the orderbook of any other carrier. Its orderbook capacity is higher than the existing tonnage of Hapag-Lloyd, the world’s fourth-largest shipping line.
“To me, it is obvious that MSC will go on its own,” Alphaliner shipping analyst and Europe editor Stefan Verberckmoes told American Shipper. “It will have enough resources to offer a worldwide network without any partners, which is what it was used to doing before it joined 2M in 2015.
“It is indeed no surprise [that 2M will end],” said Verberckmoes. “That was really a forced marriage, because at that time, economies of scale were very important, everybody wanted to have large vessels, and the only way to fill them was to cooperate. Now times are completely different. MSC is now able to fly on its own wings.”
Sea-Intelligence CEO Alan Murphy said in an interview with American Shipper: “If MSC was going to invest itself out of the alliance, it has done all the right things, through its secondhand purchases and newbuilding expansion.”
Questions on Maersk
In sharp contrast to MSC, Maersk has kept its fleet capacity flat over the past three years. It focused instead on being an end-to-end logistics integrator, seeking to earn more from long-term customers’ logistics spend.
“For Maersk, the question is completely different,” said Verberckmoes. “They have chosen another strategy and not focused on fleet expansion, so if they want to keep the same network they have now, they need to find a replacement. They will have to review their options.”
American Shipper asked Maersk whether it could provide the same level of service coverage and quality to its customers post-2M without a new alliance partner, and whether it was committed to finding an alliance replacement.
The company responded: “Maersk will continue to be active in vessel sharing agreements [VSAs]. We are already active in over 40 VSAs in other geographies and we remain open to more targeted VSAs than the broad scope of 2M after the agreement ends in 2025.”
For several reasons, Murphy believes it is unlikely that Maersk will replace MSC with a major carrier in a new alliance, or join an existing alliance.
“What I think is more likely is that Maersk will do VSAs. You see how they’ve managed to integrate with Zim [NYSE: ZIM], which is not a 2M member, on the Asia-East Coast trade. They can also do slot charters with THE Alliance on some trades and slot charters with Ocean Alliance on others.
“Rather than formally being in an alliance, I think it’s more likely they will focus on the key markets where they can provide end-to-end services and then find [VSA and slot-charter] partners in the other markets.”
Strategies ‘completely at odds’
One difficulty Maersk faces in replacing MSC relates to a core problem with 2M itself. “The strategic focuses of the two shipping lines have been completely at odds with each other,” explained Murphy.
“Maersk has staked everything on being an end-to-end logistics integrator. If you’re focused on the customer experience and end-to-end logistics, ocean transport becomes just a cog in a big machine. That cog just needs to work. You don’t need to necessarily make money on it because you’re making money on end-to-end logistics.
“But MSC’s focus has seemingly been: We need to make money as a vessel operator. That might very well mean blanking [canceling] sailings at a much higher rate and not wasting money on schedule recovery. In some trades where MSC operates independently, it looks more like tramp [unscheduled] than liner service.
“These two strategies have led to friction within the alliance. I wouldn’t say anybody is wrong here. It’s just that they don’t seem to be a good match.”
Maersk is much more focused on the end-to-end integrator model than any other carrier. So, replacing MSC would present Maersk with the same friction yet again.
“Joining another alliance is very unlikely although not impossible,” said Murphy. “But it would just open Maersk up to all of the challenges it already had with MSC.”
Other hurdles to replacing MSC
Several analysts believe that the 2M divorce will ultimately lead to a broader reshuffling of alliances.
Vespucci Maritime’s Lars Jensen — who has been predicting the demise of 2M for months — said in an online post, “My view is that this is only the beginning of a reshaping of the alliance/VSA constellations, especially on the major east-west trades. In essence, this should be seen as the first domino of many to fall over the next one to two years.”
According to Verberckmoes, “In every alliance breakup, there is always an opening for new perspectives. We have seen in the past that every change in big alliance structures might trigger other changes.”
But Murphy pointed to multiple hurdles, beyond the issue of Maersk’s integrator strategy.
In the case of 2M, Maersk and MSC were roughly equal-sized partners. Maersk would be the dominant partner of any alliance it joined. “You can bring in a Hyundai [HMM], because they’re tagging along, but to bring in an alliance partner that will now dominate the alliance would be very difficult,” he said.
There’s also the regulatory challenge. Chinese regulators barred the proposed P3 alliance among MSC, Maersk and CMA CGM, prior to the formation of 2M. “Can you disallow P3 but allow the Ocean Alliance plus Maersk? I can’t see that,” said Murphy.
Consultancy Drewry said in a research note on Wednesday, “Competition authorities will probably block any move [by Maersk] to join one of the other two alliances, which are contractually committed beyond the termination of 2M. Ocean Alliance runs to 2027 and THE Alliance to 2030.”
Another possibility is that Maersk could woo away a carrier in one of the two remaining alliances, such as France’s CMA CGM, and create a new alliance. “That’s not impossible, because CMA CGM and Maersk cooperated in the past, prior to P3. But there are a lot of challenges with siphoning off someone like CMA CGM,” said Murphy.
Cycle timing
Yet another complication is cycle timing. “You have to remember that alliances were the consequence of massive oversupply,” said Murphy. Carriers overordered large-size vessels and needed alliances to fill them effectively.
“Alliances come under pressure when things are going really well,” he continued. “There’s probably many a carrier that felt hemmed in and restricted by alliance obligations during the pandemic, because they couldn’t make tactical decisions on their own.
“Are things going to go well for shipping lines over the next two years? Probably not. In my opinion, we’re heading into a repeat of 2015-16, with massive oversupply and freight rates at or below cost. It’s going to be a bad two or three years.
“So, it makes no sense to leave an alliance now. But they’re not leaving an alliance now. They’re leaving in two years. It might make sense then. There is an expectation that at some point, [the market] will turn again. I assume that both shipping lines believe that when it does, they will be better positioned outside of an alliance.”
As for Maersk finding a new alliance home, the market outlook is highly uncertain, raising questions about whether other carriers would be willing to play the game of alliance “musical chairs” in the midst of a container shipping recession.
“I think the other alliance [partners] will be cautious about making any major changes now, heading into what is clearly a bear market,” said Murphy.
Bearish or bullish for rates?
Drewry outlined two scenarios in which the end of 2M could lead to lower shipping costs.
In one, an independent MSC faced with rapid fleet growth could “return to its old market-share/low-cost model, which could destabilize the market.”
In another, Drewry speculated that “a radical shake-up of the alliances” while “a remote possibility,” could “lead to carnage in the freight-rate market as new members court shippers over to their new teams.”
But Verberckmoes and Murphy do not see the alliance situation lowering shipping costs.
“I don’t think that alliances have had an impact on price,” said Verberckmoes. “If prices are declining, that means one or two carriers are going for market share, and I don’t think alliance changes have any effect on that. When it comes to rates, it is always the market that decides.”
According to Murphy, “A lot of customers hate alliances and believe them to be the source of all evil in the world. I think a lot of shippers will look at this [the 2M breakup] and think this is good for them.
“That depends on what they mean by ‘good.’ If they mean ‘cheap,’ probably not. In every simulation we’ve done where we look at how you could operate services more independently, with fewer VSAs and fewer alliances, the price goes up.”
He argued that alliances have led to reduced freight costs, in part because members of alliances must compete with each other on price while providing the same ocean service. “In an alliance, you lose all product differentiation on your liner product,” said Murphy. “You’re offering the exact same product — which was a massive driver of very low freight rates pre-pandemic.”