Shipping world continues to change and create different formations to adapt the current economical environment. The years of merge and acquisitions in container carriers’ world passed. Now the new trend is Mega Alliances; where 3-4-5 carriers from top 20 carriers of the world combine their vessels capacity and vessel operations. Alliances are not something new to the industry but, their size and their processes are changing.

P3 – CMA, Maersk, MSC

CKYH – Cosco, Kline, Yang Ming, Hanjin

G6 – Hapag, NYK, OOCL, APL, Hyundai, Mol

We already have CKYH and G6; where carriers have slot agreements with each other and use each other’s vessels. According to the first news, P3, which will start in second quarter of 2014, has a different approach. The vessels of P3 network will be operated independently by a joint vessel operating centre that will be established in London. The idea of these alliances primarily are coming from bringing the per slot (space that each container takes on the vessel) cost down and increase the effiency. That’ s why these alliances are operating in largest East/West Trades.

What is expected to change in the market with these alliances? Well, especially if you are a smaller scale / niche carrier that’s operating in these trades with your own smaller vessels then your life will certainly get difficult. Bunker is the largest operating cost of a container vessel. Average per slot bunker cost difference between a 5,000 teus vessel and 15,000 teus vessel (even if you have only 5,000 teus allocation on this vessel) is between %35-%40. In such a competitive environment, this difference is a game changer. So, costs are coming down, the freights should go down? Actually I think the rates will go other way around, and there is couple of reasons for that.

First one is, in the current market we already have these vessels in operation and carriers are still announcing losses. So, it’s not only about the capacity but it’s also about how efficiently you can use the fleet you have.

Secondly, the above cost structure might eliminate couple of smaller carriers from those main lanes. At the end of the day, if you have less number of carriers, there will be less competition.

Finally, one of the main reasons of freights being like a roller coaster for the past 3-4 years, was the declining growth of demand against the supply. First year of crisis, the carriers had so much capacity that drove the freight levels all the way down. While the following year, because of the losses, carriers idled many vessels which crunched the space and drove the rates up. Now with using the networks “the lines expect to be able improve their efficiency through better utilization of vessel capacity” as Maersk advises on their website. This means, the space will be better controlled depending on the demand. This is definitely good news considering that during the crisis, we all experience supply / demand imbalance affects  the number of sailings, creates lack of space / equipment and less flexibility on free times at origin / destination.  It might sound not very promising from the customer point of view since this also means rates might go up for carriers to make better profits since they have better control on supply. And I guess this will be also the main question of competition authorities and regulators for these carriers in the upcoming months.