In the last decade, the global liner industry landscape changed considerably. From the “Big 3” Maersk Line, MSC, and CMA all the way to the creation of the P3 alliance, let’s take a look at the short-lived European attempt to take over the industry, which ended in an even stronger Chinese leadership.
Try to remember... It’s the 1950’s, the “American Dream” is going strong: Ford, General Motors, and Chrysler dominate the auto industry, and independent manufacturers like Hudson, Packard, Nash, or Studebaker are either merging or disappearing. The industry’s three main players are often called the “Big 3”.
In the 2000’s, consultants worldwide dig up the expression to talk about the shipping companies leading the container shipping industry: Maersk Line, MSC, and CMA CGM.
The boom of available capacity
Back in 2009, when the global economy was deeply affected by the consequences of the Lehman Brothers bankruptcy, nearly all shipping companies were operating at a loss. Overcapacity was already pointed out as the plague of the industry, which also shows that, although this was considered to be temporary, it turned out to be a structural issue, since it has continuously impacted the liner industry for the past three decades.
It’s not surprising, when you consider how the shipping offer has evolved, especially in the past decade. The evolution in the size of ships has been simply incredible, and incomparable to any other means of transport.
The forces at play
In 2009, Maersk Line is the #1 shipping company, comfortably installed at the top. The company focuses on direct relationships with shippers, and is trailblazing the reefer market. With this strategy, Maersk Line is making sure it has a leadership position, which it successfully keeps when the market share race starts with the large P&O Nedlloyd acquisition in 2005, followed by a longer-term acquisition strategy of smaller and specialized players.
Also in 2009, MSC appears as the outstanding runner up. The company starts upgrading its entire fleet. Focusing mainly on forwarders, the company was able to achieve a fast-paced organic growth. In terms of progression, influence on the market, and business model, MSC is the obvious winner of these past two decades, if you overlook recent developments in China.
CMA CGM is in its golden age. The company started betting on China starting in the early 2000’s, and is now reaping profits from this strategy. And, it will actually be copied by the rest of the industry. Another stroke of genius: in addition to 20’, CMA CMG opens Algeria to 40’, thereby creating a profitable dynamic.
During the height of the economic crisis, Jacques Saadé, company CEO, states that only the biggest players can survive. He was right once again, and proved that he is a visionary. Even though the company’s financial equilibrium is complex, France can still take pride in being the home of the world’s 3rd largest liner operator.
2013 – 2014: the European illusion
In the context of a never-ending economic slowdown (with the exception of a short rebound during the first trimester of 2010), the idea of an operational alliance between the three market leaders emerged rather naturally.
The “Big 3” (who hate this name, we’ll let you guess why...) thereby officially announced, in June 2013, the creation of a broad western alliance, called P3. Their goal: controlling costs more efficiently, in the contest of all major players deploying a large number of VLCS (very large container ships).
On March 24, 2014, the American Federal Maritime Commission approves the creation of this alliance. A few weeks later, on June 3rd, the European Commission does the same. So, for all players in the containerized maritime shipping industry, the deal seems done. They feel like the agreement from the Chinese Trade Ministry is just a formality, and it’s time to finalize the layout of the new services. The Big 3 start discussing the location of their future headquarters, while the rest of the industry is rushing to implement new organizational models to fight the upcoming alliance and do their best to survive.
But on June 18, 2014, all of this goes out the window. The market learns that China has refused to give its approval to the P3 alliance, without any justification. The industry was stunned. After planning the change for over a year, everyone got prepared to operate on a new battlefield (and has been waiting for it impatiently).
In light of recent Silk Road developments, it is easier to understand why China would turn down the P3 alliance in 2014. It was simply unacceptable for China to agree to the creation of a mega alliance without a Chinese player involved, and who’s decision centers would be based in Copenhagen, Geneva, or Marseille rather than Shanghai.
The P3 alliance project clearly threatened to destroy all Chinese efforts, especially the ones supporting the planned integration of China Shipping and OOCL by COSCO. This was also most likely the last opportunity Europeans had to assert a strong leadership in the containerized Liner market.
2019: where are we now?
As we’ve seen, the P3 alliance failed, but the whole process wasn’t fruitless because it created the very powerful 2M alliance between Maersk Line and MSC.
This cooperation is marked by a high level of coherence and complementarity. Together, these two players hold almost 33% of market shares, and the P4 would have held up to 44.3% of the market (according to the 2019 BRS report).
As for CMA CGM, it was the fastest growing company of the entire industry in the past 10 years, and its available capacity went from 1 million to 2.68 million TEUs. Unfortunately for the company though, it wasn’t enough to keep its ranking as the 3rd largest player. Cosco now holds this position with a capacity of 2.88 TEUs, following the integration of China Shipping and OOCL.
Cosco does remain an important partner for CMA CGM. The two players have founded the Ocean Alliance in 2016, in partnership with Evergreen and OOCL. But for CMA CGM, the main challenge will be keeping its independence in a Chinese dominated alliance.
Photo : @ Anne Kerriou