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Ocean Carriers Are Hardly Finished Trying to Form Alliances

Ocean carriers are clearly not yet done with mega-alliance expansion following China's rejection of P3.

Ocean Carriers Are Hardly Finished Trying to Form Alliances

Maersk and MSCís subsequent 2M agreement is only the latest. Evergreen and the CKYH alliance are still talking to the U.S. Federal Maritime Commission about extending the scope of their operating agreement between Asia and Europe to include the U.S., and CMA CGM has yet to clarify who its new partners will be. The hot money is on CSCL and UASC.

New partnerships are required as no one has yet come up with a better alternative to reduce costs and improve service frequency at the same time, short of take-overs and mergers. Some may claim that mega-alliances are little better than price-regulating cartels, but poor to non-existent ocean carrier profitability since their introduction argues otherwise. As in the airline industry, where just three alliances handle the majority of passenger traffic, ocean carrier alliances handle the majority of East-West container traffic, and less integrated vessel-sharing agreements handle much of the North-South traffic. As ships get larger, even bigger cooperation agreements between more carriers will be needed to squeeze out economies of scale.

They will draw comfort from the EUís recent decision to extend its Consortia Regulation for another five years, up to 2020, despite objections from some shipper organisations. In broad terms, the legislation automatically exempts consortia members from the EUís antitrust rules providing their combined market share does not exceed 30 percent. A higher share is possible providing the benefits are deemed greater than the risks, and abuse of a dominant position cannot be proven.

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