According to Maritime Executive’s Brian Gicheru’s post, when Maersk and MSC announced that they were winding up the 2M Alliance and going their separate ways, the two shipping industry titans claimed that a change in their individual business strategies had rendered their alliance unfeasible. In the weeks that followed, multiple editorials attempted to dissect the news, especially what it portends for the future of container shipping. Some argued that the 2M Alliance divorce heralded a breakup of other shipping alliances in the coming years.
However, these analyzes have left an open question. What drives the formation, stability and dissolution of the Global Shipping Alliances (GSA)? In a new research paper published in the Maritime Policy and Management Journal, leading maritime economists Hercules Haralambides, Huizhu Ju, Qingcheng Zeng, and Yimeng Li investigate the forces shaping the evolution of GSAs.
Shipping alliances remain one of the container shipping industry’s hottest inventions, aimed at achieving greater efficiency and lower costs. Despite the GSAs’ success in helping container shipping navigate periods of low profit margins, their model came under severe pressure during the Covid-19 pandemic. Lawmakers in some parts of the world complained that the GSAs were not fully aligned with antitrust laws. The claim was that the alliances helped shipping lines accumulate considerable market power to the detriment of consumers.
In fact, for the last hundred years, most governments have exempted the shipping industry from the scope of competition law. Since shipping is a low marginal cost industry, just like agriculture and aviation, unrestrained price competition could be destructive. Thus, carriers have been granted “self-regulation” privileges such as capacity management (alliances). In part, this explains why the GSAs have continued to go from strength to strength since their inception in the 1990s.
However, the GSAs have also proven to be unstable coalitions. They are in a constant state of reorganization, and in some extreme cases, termination becomes inevitable.
In their study, Prof. Haralambides and the other economists show that the evolution of shipping alliances is the result of the interaction between several factors.
Specifically, mega-ship developments have a significant impact on alliance formation, resulting in the concentration of the shipping industry over time. Before 2006, container ships were mainly in the 6,000-12,000 TEU size group. As of that year, ships of 15,000 TEU increased rapidly, especially in the period 2009 to 2013, when ships in the 12,000-15,000 TEU range increased. The creation of shipping alliances since 2013 was mainly driven by the development of ship sizes over 15,000 TEU.
“It seems that the often deified economies of scale of mega-vessels are nothing more than a pipe dream unless their capacity can be fully utilized, and there are only two ways to achieve that. This includes forming alliances and selling slot capacity, wholesale, to NVOCCs and global logistics companies,” the study states.
Furthermore, the document concludes that shipping alliances are contemplated and pursued in periods of excess capacity and low freight rates. In prosperous markets, carriers tend to display more individualistic behavior.
Equally interesting is the finding that new construction prices have an impact on alliances. That is, lower shipbuilding prices encourage shippers to overinvest, leading to overcapacity. This forces carriers to consolidate through alliances.