Members of the world’s two biggest container shipping alliances -the Grand Alliance and the New World Alliance - have joined forces, creating a de facto ’super alliance’ in order to counter the sheer might of the merging Maersk Sealand and P&O Nedlloyd lines. They will begin cooperating on key trade lanes from the second quarter of 2006

All for one: (From left) Philip Chow, CEO of OOCL; Ron Widdows, CEO of APL; Adolf Adrion, CEO of Hapag-Lloyd Container Line; JH Lee, executive VP of Hyundai Merchant Marine; Tadamasa Ishida, executive VP of Nippon Yusen Kaisha; Hiroyuki Sato, CEO of Mitsui OSK Lines Ltd; and Niels Kim Balling, VP liner business of MISC Berhad at a ceremony yesterday to seal their alliance, which shippers worry could further monopolistic conditions

The four member lines of the Grand Alliance (GA) and the three members of New World Alliance (NWA), which includes Neptune Orient Lines’ container division APL, announced yesterday that they will begin cooperating on key trade lanes from the second quarter of 2006.

The agreement was hailed by APL CEO Ron Widdows as a major development that ‘provides us all with an almost doubling of scope and provides probably the best coverage in the industry inclusive of what others may do down the road’. The carriers will initially exchange slots on loops in the Asia-Europe and Asia-Mediterranean trades and add a new jointly operated loop on the Asia-East Coast of North America trade via the Panama canal.

The lines involved in this agreement are GA members Hapag-Lloyd Container Line, MISC, Nippon Yusen Kaisha (NYK) and Orient Overseas Container Line (OOCL) and NWA partners APL, Hyundai Merchant Marine and Mitsui OSK Lines.

The impetus for the deal came primarily from AP Moller Maersk’s acquisition of P&O Nedlloyd, which led to the creation of the giant Maersk Line - and entailed the exit of P&O from the GA where it had been a key partner. ‘With the combination of Maersk and P&O and the scope of service they’ll mount down the road, most of the people in the industry have been looking at where there is some competitive weakness,’ Mr Widdows told BT yesterday. A carrier like APL, which through the NWA currently has four loops on the Asia-Europe trade, will now have access to 11 more loops, or 15 in total. ‘It gives us service from ports that we don’t serve either as frequently or as directly as what we’ll be able to with this arrangement,’ Mr Widdows said.’ That allows us to provide customers with a lot more choice than what they have today without any additional operating cost.’ This works the same for the other members so ‘everyone gets a broadening of scope - an improvement of the overall service they can go to market with - and that’s pretty material when you think about the kind of network you’ll be competing with down the road’, he said.

Missing from the scheme is the transpacific trade route which connects Asian producers to West Coast North American consumers. Noting the complexity of the service structure on the transpacific, Mr Widdows said that the intention was to look at other trades and currently a number of joint service options are being evaluated with new services likely to be introduced by 2007. He pointed out that ‘it’s not an alliance between alliances, but an alliance between members of the two alliances’, because of competition issues. That explanation did little to placate shippers, who see the closer cooperation as running counter to freer and more transparent ocean trade.

Describing the development as ‘bad news’ for global shippers and ultimately consumers, Asian Shippers’ Council chairman John Lu, who is also chairman of the Singapore National Shippers’ Council, told BT yesterday that the move was simply two powerful cartels forming an even larger, more powerful one. ‘I believe it is a move that is against free trade and WTO initiatives and is a move against market transparency,’ he said. Asian shippers have been continually frustrated by what they say is a lack of transparency in container shipping and consider the industry alliances and other groupings as thinly veiled price-fixing cartels. ‘On the face of it, the capacity planning and network sharing is healthy,’ Mr Lu said. ‘But if it only furthers the monopolistic conditions including price fixing, than it is a problem.’

However, Mr Widdows said: ‘There is no coordination of price in any way, shape or form at work here, so we can’t talk about rates, and from the customer’s standpoint, it actually improves the number of choices and options that they have.’

Source: The Business Times Weekend