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Maritime Logistics Professional

Size counts on weak Asia-Europe routes

Posted to Far East Maritime (by on June 19, 2013

Big Three tie-up a good cost-reducing idea - for the lines, at least - but economic growth in Europe and a cut in capacity is what the East-West trades really need.

The mega vessel sharing agreement between the world’s three biggest container lines is going to completely dominate Asia-Europe trade with ships from Maersk, MSC and CMA CGM having a good 40 percent share of the market.

The P3 Network, as it is called, will make use of the largest ships in the world, and the newest, with all the lower unit costs and greater fuel efficiencies that brings.

To avoid clashing with regulators in the EU, China and the US, the lines will create a holding company that will manage the fleet but leave sales and marketing to the individual carriers.

A couple of things come to mind. The excess capacity flooding into service will not magically disappear because the world’s biggest lines are working together. The carriers will still be struggling to cope with Asia-Europe freight rates that have reached why-do-we-even-bother levels.

And the lines will be operating 2.6 million TEUs of capacity in 255 ships working on 29 loops. MSC boss Aponte told Lloyd’s List the overall capacity will not be much higher than that currently deployed, good news on a trade that is in such bad shape.

And that is the other thing. Europe’s sick economies are not expected to make a hasty recovery. That means demand from Europe consumers will remain weak, which in turn means ships will be stuck in poor load factor-land.

The difference between the P3 Network and the rest of the world’s carriers is that with lower unit costs, they will be in the position to produce better yields. Throw in slow steaming and more frequencies, and costs just might be kept under control.

Working together is nothing new for the three carriers. They are partners on the transpacific, and on Asia-Europe CMA and MSC work together in a vessel sharing agreement and Maersk works with CMA on the Mediterranean trades. CMA has restructured its debt issues and the other two are in good financial shape, so the lines should be able to withstand the down market and wait for the good times to come back.

The smallest vessel in the P3 Network will be 11,000 TEUs, according to Aponte, so a huge number of 7,000- 9,000 TEU ships will need to find homes or be idled. Already 8,000 TEU ships are finding themselves on the East Coast South America trade, dragging rates down to the seabed.

Like the saying goes: If a 18,000 TEU ship flaps its wings in China, a wave of capacity cascades into emerging economies on the other side of the world. Or something like that.

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