Maersk, Hapag-Lloyd Form Shipping Alliance in Industry Reshuffle — 2nd Update

By Dominic Chopping

Danish shipping giant A.P. Moeller-Maersk and Germany's Hapag-Lloyd are teaming up to form a new vessel-sharing agreement from next year, shaking up the global lineup of shipping alliances.

Following the end to the pandemic-fueled cargo boom, when freight demand outstripped the supply of ships, the industry has been left with a surplus of vessels and sharply lower freight rates. Now, the recent escalation of hostilities in the Middle East has forced shippers to divert their vessels by thousands of miles to avoid the Red Sea, where attacks on merchant vessels by Houthi forces in Yemen continue.

Maersk has paused all transit through the Red Sea and Gulf of Aden until further notice following an attack on its vessel Maersk Hangzhou on Dec. 30., while Hapag-Lloyd has previously said it would avoid Red Sea transits.

The long-term deal announced Wednesday--dubbed Gemini Cooperation--seeks to boost efficiencies and help accelerate the companies' decarbonization efforts by delivering a flexible and interconnected ocean network, they said.

A fleet pool of around 290 vessels will be used in the collaboration, offering a combined capacity of 3.4 million containers, with Maersk deploying 60% of the ships and Hapag-Lloyd 40%.

Maersk has a total fleet of around 740 vessels while Hapag-Lloyd has 264.

"By entering this cooperation, we will be offering our customers a flexible ocean network that will be raising the bar for reliability in the industry," Maersk Chief Executive Vincent Clerc said. "This will strengthen our integrated logistics offering and meet our customers' needs."

The two companies will target schedule reliability of above 90% once the network is fully phased in, they said.

As a result of the agreement, Hapag-Lloyd will leave the THE Alliance that it currently participates in with Korea's HMM, Singapore's Ocean Network Express and Taiwan's Yang Ming at the end of January 2025.

Maersk previously said that its 2M alliance with Mediterranean Shipping Co. would end in January 2025.

The 2M and THE Alliance are two of the largest shipping alliances currently operating, with a third called Ocean Alliance comprising CMA-CGM, Cosco Group, OOCL and Evergreen.

Shipping alliances have long been used as a way for container lines to offer broader geographic coverage while bringing costs down, but Wednesday's deal should just be seen as a change in partners rather than an incremental positive in industry consolidation or industry structure, analysts at Barclays said in a note.

"We see a rapidly evolving industry dynamic with a rearranging of deck chairs following the dissolution of the 2M alliance in January 2025. We remain of the view that the industry structure remains highly competitive with a persisting lack of capacity discipline," Barclays said.

The agreement comes at time of mounting challenges for the shipping industry. After riding the wave of booming trade and record profits from a surge in demand for goods during the pandemic, freight rates have nose-dived, making many sailings across the big ocean trade loss-making and prompting shipping lines to cut sailings, cancel port calls and slow their sailing speeds to conserve fuel.

Maersk is already moving to cut more than 10,000 jobs from its workforce, which stood at 110,000 at the start of last year, as it seeks $600 million in savings. It reported that freight rates fell 58% on year in the third quarter and were down 90% from their peak during the pandemic. Revenue in its main shipping business fell 56% on year to $7.9 billion in the most recently disclosed quarter ended September 2023.

Overcapacity has also been dampening freight rates after container lines went on an ordering spree during the pandemic to move record amounts of cargo.

"Despite Red Sea disruptions impacting near-term container spot rates, the industry is carrying significant oversupply, sea freight volumes in November were just 5% higher than 2019 while container vessel capacity is just over 20% higher than 2019," Barclays analysts wrote.

Write to Dominic Chopping at dominic.chopping@wsj.com

(END) Dow Jones Newswires

January 17, 2024 07:52 ET (12:52 GMT)

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