Partnerships push intra-Asia strategy

The cascading of larger vessels in to certain intra-Asia trades, and the overcapacity and weak rates currently seen in a sizable portion of this market is creating challenges for carriers operating in this region of the world – nevertheless, container trade is still growing and there are still opportunities to be had.

The intra-Asia market is the largest in the world – it has overtaken the Asia-Europe trade and totalled around 35 million teu in 2012 according to intra-Asia carrier MCC Transport. It estimates that the market will have grown by four per cent in 2013 compared to 2012, and is forecasting growth of five to six per cent for 2014.

Carriers keen to capitalise on the growing trade include Maersk, CMA CGM, APL, OOCL, Hamburg Sud, Emirates Shipping and Regional Container Shipping Lines, who kicked off this year by announcing their cooperation on three Far East to Indian Subcontinent services via a slot sharing agreement that is due to launch in February. 18 vessels ranging from 4,200 to 6,600 teu- with a total capacity of 17,500teu – will be deployed in the enhanced service that will allow the carriers to offer three weekly sailings – covering China, Korea, Pakistan, Malaysia and Singapore – compared to one weekly sailing offered independently by each carrier previously.

“Our multi-carrier co-operation will provide more frequent sailings between Asia’s major trading hubs, and at the same time eliminate unnecessary service duplications. With improved operational efficiency and a more comprehensive service structure, the enhanced Far East-India Express service suite will offer shippers flexible and competitive options best catered to their needs,” the carriers said in a joint statement.

Partnering is being used as a way to deal with the challenges caused by overcapacity as well as to capitalise on market opportunities; that of carrier partnerships. Indeed carrier partnerships can be used to smooth oversupply challenges caused by the influx of panamax ships – some as big as 4,000-4,5000 teu – being cascaded into the trades between Japan, China, Indonesia and Korea from other markets. “There has been an influx of panamax ships into these trades. Big ships are not that suitable for Intra Asia, but carriers have these larger ships and are not sure where to put them, so place them in the trades [mentioned above] as the ports can handle the bigger ships. It can be a big problem – if shipping lines replace 2,000 teu ships with
4, 000 teu that can disrupt trade,” MCC transport CEO Tim Wickmann tells CST.

However Mr Wickmann singles out a benefit of using the larger ships being cascaded: namely that if carriers club together on a large ship they can withdraw several smaller services in the process. Indeed, while MCC transport does not deploy ships larger than 2,500 teu, it would consider chartering them if it was able to join forces with several other carriers on the trades mentioned above and consolidate strings. “It would make sense from an economical point of view, to do this on trades in Intra Asia which can take panamax vessels,” Mr Wickmann observes.

Indeed, partnering with other carriers is a strong strategy of MCC transport and one that it is keen to develop further. It currently jointly operates a string with OOCL between Thailand and Japan and runs another service between China and Thailand with RCL.

The use of partnership is also a strategy being used by other carriers operating in Intra Asia. Towards the end of last year Evergreen Line announced that it would partner with Hanjin to capitalise on the high forecast growth rates of the ASEAN region. The International Monetary Fund’s World Economic Outlook report has forecast that the ASEAN economy will grow by 5.4 per cent this year, compared to an estimated 5 per cent last year. In addition, Evergreen pointed out that it is believed that the free trade development that will potentially result from the establishment of the Regional Comprehensive Economic Partnership (RCEP) will further drive cargo demand in the Intra Asia trades. Negotiations to establish RCEP were initiated last year between ASEAN, China, Japan, South Korea, India, Australia and New Zealand.

Therefore Evergreen joined forces with Hanjin to create its new Ho Chi Minh service (NHS), linking Korea, China, Vietnam, Singapore and Malaysia, deploying four 2,500 teu ships, one provided by Evergreen and rest by Hanjin.

Another important partnership strategy is the use of slot swaps. MCC Transport’s Mr Wickmann explains: “We have developed that a lot in the last few years and as it gives us access to new products and new corridors without having to start up new services ourselves.” MCC Transport currently gives space to another carrier from Thailand to west Japan in return for space between Thailand to east Japan. Highlighting the benefits, Mr Wickmann remarked: “It means we do not have to cover all of Japan and neither do they. Both ships are full, costs are saved and it is a win-win situation for both carriers and our customers. Because a larger portfolio of services is being offered to carriers, they do not need to work with say 10 other shipping lines, but can limit themselves to three or four.”

He said that MCC Transport would continue to expand its portfolio via slot swaps.

Another slot swap opportunity presenting itself is the P3 network that is being launched by Maersk Line, MSC and CMA CGM, pending approval by the regulatory authorities.

“To me it looks positive as the P3 network will be more extensive and offer more port pairs. The slot costs of our ships is higher than slot costs of 14,000 teu or 18,000 teu ships being used in the P3,” Mr Wickmann comments. The only issue is that P3 services would be transhipment rather than direct and normally intra-Asia customers favour the latter. However he says that “if we can get our costs down so that we can be more competitive, maybe the customers can accept a transhipment service at a lower rate”. CST