Picture by CHUTTERSNAP for Unsplash
You probably don’t think much of it, but ocean carriers (and shipping alliances, to which we will soon turn our attention) shape the way international trade works. And these powerful enablers of global trade are about to embark on a momentous change—one that’s hard to notice without getting deep into their operations.
Understanding Ocean Carriers
Let’s start with the basics. In our current system of international trade, roughly 90% of all commerce happens by sea. There are a variety of reasons why such is the case, with the foremost being that containerships are simply more cost-efficient, as spot rates for ocean freight are consistently lower than those of air transportation—ground, albeit relatively cheap, fails to connect large parts of the planet. Furthermore, it’s relatively easy for us to build large ships capable of carrying tens of thousands of multimodal containers supported by the buoyancy of the sea. Meanwhile the largest cargo plane known to humankind (the Antonov AN-225) can carry just 1,100 cubic meters or a mere 28.5 TEUs. But besides these facts, it remains the case that ocean shipping is highly relevant.
Since the bulk of products are transported by sea, one would expect for there to be ample competition when it comes to carriers, with dozens of companies competing for a fraction of a multi-billion dollar pie. Surprisingly, however, the world of ocean carriers (the term commonly used for transportation companies in charge of moving products by sea) is highly consolidated. It is currently estimated that, in the global ship, there are a total of 7,023 active ships and over 30.2M containers. Yet of these, 5,046 ships and 28.9M TEUs are currently controlled by the 30 largest carriers in the world—that equals 71.8% of all ships and 95.7% of all TEUs.
The fact that the share of cargo ships owned is much lower than the share of TEUs, further indicates that the largest companies in the world hold a tight reign over the ownership of larger container ships. While MSC and Maersk—the two largest carriers—have an average capacity per ship of over 7,100 and 6,100 TEUs respectively, the rest of companies not in the top 30 have a much lower average capacity of roughly 4,300 TEUs per vessel.
Top Carriers TEU Capacity
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(Data from Alphaliner)
One might infer from the above graph, it is not just that ownership of vessels is consolidated amongst the top 30 carriers. Even at the top, there are drastic differences. The top 10 largest carriers account for 84.26% of all containers at sea. The top 5 carriers alone (MSC, Maersk, CMA CGM, COSCO, and Hapag Lloyd), control 64.52% of all containers..
Yet even these levels of consolidation understate the current practices in the world of container shipping. You see, although each of these carriers, on their own, is large enough to cover large segments of the market, few are able to holistically cover the entire planet. This, in turn, has led to the creation of “shipping alliances” which, today, control 32.5% of all TEUs at sea—and whose parent companies account for 84.2% of all TEUs.
In the broadest terms, we can think of shipping alliances as agreements between carriers to share their vessels to gain further coverage of the ocean. When two carriers enter into an alliance, they agree to share their vessels with one another. So, say, you hire a carrier which we will call Carrier A. Carrier A happens to be in an alliance with Carrier B and Carrier C. This means that Carrier A can freely use the vessels of Carrier B or Carrier C to deliver products on time—although there is ample evidence that carriers often miss their deadlines even with shipping alliances in place. So, even though you hired Carrier A to transport your products across the ocean, there is a considerable chance that they will be carried by Carrier B or C.
Carriers argue alliances are a means to improve their services by increasing reliability and route coverage for clientes—which, indeed, is hard to deny. However, it is also worth noting the strong consolidation these shipping alliances create.
Currently, in the world, there are three shipping alliances that hold an effective monopoly over the bulk of the world’s cargo. The largest, by share, is the 2M Alliance between Maersk and MSC—the two largest carriers in the world—which accounts for 34.2% of all trade. The second largest, the Ocean Alliance, consists of CMA CGM, COSCO, Evergreen, and OOCL, representing an additional 31.4% of all TEUs at sea. Finally, Hapag-Lloyd, ONE, HMM, and Yang Ming together form THE Alliance, and represent 18.6% of all TEUs.
The above means that, together, the carriers in these three alliances control 84.2% of all TEUs at sea. The rest of the top 30 carriers, for reference, only control 11.6% of TEUs, while the rest of carriers outside the top 30, hold only 4.2% of the market. Meaning, ocean carriers are highly consolidated and hold extreme bargaining power within these alliances.
TEUs by Companies in Shipping Alliances
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(Data from Alphaliner)
Now, it should be noted that, for the above calculus, we took the total fleets of each company, while the actual vessels and TEUs in an alliance might vary to said numbers. We did so to prove the high consolidation amongst top shippers. In reality, each alliance only holds a fraction of all TEUs available to carriers—and in fact, post pandemic, there’s been a general trend to register new routes outside of alliances. Once we look at the actual TEUs handled per alliance, it is the case that alliance TEUs fall to a still highly considerable 32.47% of all TEUs in the world.
TEUs Controlled by Shipping Alliances and Independent Carriers
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(Data from Freight Waves)
But this status quo is soon to change. Maersk and MSC recently announced that the 2M alliance will end in 2025, as their original agreement comes to an end. MSC will remain out of alliances for the time being—more on this shortly—while Maersk will attempt to create a new alliance with Hapag-Lloyd known as the Gemini Coalition. Interestingly, since the number of TEUs committed in the Gemini Coalition (3.4M) is higher than those committed by MSC and Maersk to the 2M Alliance (2.82M), the market share controlled by shipping alliances will decrease from 32.47% to 35.44%. But now, MSC will enter as an individual player to the world of carriers, much larger than any coalition with 19.86% of all TEUs.
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(Data from Freight Waves)
But the above assumption is discounting a crucial fact. MSC has been preparing for the end of the 2M alliance by drastically increasing its orders for new ships in the coming year. It is estimated that MSC will receive an additional 1.2M TEUs in the near future, which will bring its total TEU fleet to 7.2M—a 20% growth in total capacity in a matter of months. In fact, MSC’s orderbook is so large that it will surpass the expected TEUs that will be received by the Gemini Cooperation, and THE Alliance—only the Ocean Alliance manages to surpass MSC at the moment. Not to mention that it is more than double the orders from all other non-alliance Top 30 carriers. Once we consider all orderbook deliveries, MSC’s control over the market grows to 20.5% of all TEUs handled by top 30 carriers—and 19.85% of global container traffic. This is a still highly consolidated market with four players (instead of three) controlling well over half of all containerized trade.
Order Book for Top Shipping Alliances and Carriers
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(Data from Alphaliner)
In summary, the alliances that control international trade—and which we often fail to consider—are about to change come 2025. Carrier alliances, however, are here to stay, and so is consolidation. MSC’s departure from shipping alliances might signal a world where carriers can operate reliably without the need for large pacts with competitors. But whether others will soon act in the same manner, remains to be seen. For now, consolidation is still the key feature of ocean carriers.