Smarter Shipping Solutions

State of Ocean Cargo - Panama Canal Expansion

State of Ocean Cargo - Panama Canal Expansion

Posted: July 4, 2016 | Newsletter



The opening of the long-awaited expansion of the Panama Canal is finally here.  The ceremonial inauguration took place on June 26th, 2016 and the first vessel, the Andronikos from the Chinese COSCO Group, completed its successful transit across the newly expanded locks.  However, this historical event takes place at a time when shippers are trying to make sense of the quickly shifting ocean carrier alliances and partnerships.  This mad dash towards consolidation started earlier this year with the announcement of the 2M Alliance, comprised of Denmark's Maersk Line, and the Geneva based Mediterranean Shipping Company.  Together, these two dominate almost 35% of the market share of the Asia-EU trade lanes.



Not soon after this development came the grouping known as the Ocean Alliance, which brought together France's CMA CGM (Compagnie Generale Maritime) and China's COSCO Group, the third and fourth largest shipping lines, respectively.  Following alongside them were Hong Kong's Orient Overseas Container Line and Taiwan's Evergreen Marine Corp. 

With all of the alliance-forming taking place, six carriers still remained to fend for themselves.  The inability to survive in this new environment, forced yet another alliance to take place.  A new vessel sharing agreement (VSA) was formed, being referred to as The Alliance, brought together Hapag-Lloyd of Germany, Japan's MOL (Mitsui), NYK (Nippon Yusen Kaisha) and K Line (Kawasaki), Taiwan's Yang Ming, and the South Korean line Hanjin, with the possibility of adding HMM (Hyundai) and the Dubai based UASC (United Arab Shipping Co.)



This frenzy of opportune marriages was widely predicted by a number of industry analysts.  The outlook in the maritime container shipping industry would likely worsen in 2016, and that consolidation would be the resulting cure. 

The reality that ocean freight demand is dwindling coupled with the continued introduction of mega vessels, capable of carrying more than 18,000 (TEUs), is precisely where the irony lies.  It is expected that the global industry capacity is expected to jump by 4.5% in 2016 and another 5.6% in 2017, while demand is only expected to increase by a minute 1-3% this year.   Industry profits as measured by EBITDA, fell 7% in the latest 12-month period, including a huge 35% decline in the most important - third quarter. 

CPC Commentary:
Speaking from the shippers' perspective, there should be a mixed feeling of more capacity, less need to spread freight out amongst separate carriers whereas less choices means less competition and eventually higher prices (UPS and FedEx).   It is up to the industry to demonstrate that these megaships and alliances are the best response to the economic and financial difficulties faced by the carriers, and at the end of the day that there is added value to the shippers.
 

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