Drewry: Top Three Muscle Out Others

Maersk Line, MSC and CMA CGM now have such big economies of scale in the transpacific that they can ride out the current eastbound freight rate war more comfortably than the rest of the pack, should they choose to do so.

Recent vessel deployment in the transpacific by Maersk Line, MSC, and CMA CGM suggests a clear focus on economies of scale. Instead of trying to be ‘all things to all people’, their strategy appears more directed towards only calling at ports where their ships have a clear competitive advantage.

Gone are the days of trying to appeal to all customers at all times on a ‘swings and roundabout’ basis, particularly those wanting to reduce the number of service providers employed, and in has come more careful transpacific cargo selection.

This has mainly involved the three carriers cutting out those West Coast North America ports where insufficient demand exists for big ships, or access to big ships is restricted because of physical limitations. So, it is OK if you want to go directly to Los Angeles, Long Beach or Oakland, but not so good if you want to go to Seattle, Vancouver, Prince Rupert, Portland or Tacoma. Maersk Line and CMA CGM do have a joint pendulum service from Asia to Seattle (returning via Vancouver), but with a limited port-pair range. Up and coming ports such as Lazaro Cardenas in Mexico also appear to be in favour.

And, as in the Asia-Europe tradelane, the three also appear reluctant to share their economies of scale with anyone else. Slot charters apart, CMA CGM mainly partners MSC, and Maersk mainly shares vessels with MSC and CMA CGM.

The end result is that, compared to a combined market share of just 22% of all effective eastbound transpacific vessel capacity deployed in April (i.e. after deduction of space for wayport cargo etc), the average size of vessel deployed by the three carriers (8,550 teu) was a massive 32% higher than the tradelane norm of 6,490 teu. CMA CGM’s (8,822 teu) was a hefty 36% more, MSC’s (8,712 teu) was 34% greater and Maersk Line’s (8,108 teu) was 25% higher (see chart below).

Ocean carriers’ average transpacific vessel size in April 13 (teu)

This compares with the three carriers’ 33% share of global fleet capacity last year. As shown in the following chart, their share of the total vessel transpacific capacity provided by all carriers was a much higher 36%, but this includes pendulum services used to carry other traffic, as well as capacity allocated for wayport cargo. The point demonstrates why this information needs to be treated with care, some of it being quite superficial.

Each carriers’ share of total transpacific vessel capacity in April 13

Maersk Line, MSC and CMA CGM consequently have tremendous economies of scale over others, enabling them to ride out the current eastbound freight rate war more comfortably. Carried through to a global level, it probably explains why CMA CGM and Maersk were amongst the most profitable of all major ocean carriers at EBIT level last year (ie prior to payment of loan interest and tax). MSC’s position is unknown, being privately owned.

It also explains why carriers, such as APL and Hanjin, whose transpacific cargo accounts for a large proportion of their total liftings (29% and 41% respectively in 1Q13), yet operate vessels well below the average size, were amongst the poorest.

Seen in reverse, the exercise demonstrates what these other carriers can yet achieve with their newbuild orders over 10,000 teu. In due course, most vessels below 10,000 teu will eventually be cascaded out of the Asia/Europe route into the transpacific tradelane, which will put even more pressure on the smallest players.

Although Matson and PIL appear particularly vulnerable in this respect, both carriers have well established niche markets to protect themselves – the former between the US mainland and Guam, and the latter between Australia and the US. In this sense, the transpacific leg is probably just marginal business.

Operating within alliances doesn’t seem to help yet, as the CKYH’s average vessel size (5,883 teu) was 9% below the average, the NWA’s was 2% less at 6,380 teu, and the Grand Alliance/Zim’s was just 2% more, at 6,609 teu.

Drewry, June 5, 2013