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>> USA tariffs on steel and aluminium. more.

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>> Transpacific - port coverage from April 1st.more.

>> Are direct services becoming less attractive for shipping lines?. more.

>> What happens to the small ships post Panama Canal expansion?. more.

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Ocean Network Express (ONE)

Over the last several years the container shipping industry has been characterised by mergers, alliances and greater co-operation between lines, in a bid to improve operational efficiency and achieve greater economies of scale, leading to stronger financial performance. The major Japanese shipping lines K-Line, MOL and NYK first revealed their plans to consolidate operations in October 2016. The merged entity was formally named as Ocean Network Express (ONE) in May 2017, with plans to begin operating in April 2018 subject to regulatory approvals.

NYK the world’s 10th largest shipping line (based on fleet TEU capacity) will hold a 38% stake in the new joint venture with MOL and K-Line 11th and 13th respectively, each holding a 31% share. With a combined fleet of 1.4m TEU, ONE is expected to become the 6th largest container shipping line based on fleet capacity (as shown in Figure 1), with a market share of approximately 7%. This assumption is based upon how the industry currently looks (July 2017) and so does not include OOCL’s integration into COSCO’s fleet and Hamburg-Sud into Maersk.

Figure 1: Fleet capacity (mTeu) of the top 10 shipping lines (including ONE), July 2017

Source: MDS Transmodal Containership Databank, July 2017

The most common ship size in the ONE fleet (as it stands) would be the 3000-4999 TEU and 5000-7499 TEU categories, equating to roughly 50% of its total fleet. In terms of ULCVs (Ultra-Large Container Vessels) ONE will have no fewer than 31 of the type by April 2018; however this is still only 30% of MSC’s fleet, which has the largest number of ULCVs. Additionally, there are no vesselsin the 15,000 to 19,000 TEU category. The ONE members also have a combined total of 15 vessels on order, averaging some 14,300 TEU with around 8 of these expected to be delivered by ONE’s launch date in April 2018.

In terms of deployed TEU capacity (based on vessels operated, thus ignoring slot agreements): the Far East-North America trade lane would be the largest that ONE would participate on. We estimate that this would be 32% of its total capacity. We estimate that the Intra-Asia and Far East – Gulf & ISC would be approximately 18% and 12% respectively, of ONE’s total deployed capacity, as indicated in Figure 2.

Figure 2: ONE members deployed capacity by trade lane, July 2017

 Source: MDS Transmodal Containership Databank, July 2017

With the members of ONE already apart of THE Alliance (alongside fellow members Hapag-Lloyd and Yang Ming) there will be minimal change in deployment on the three deep-sea East-West (Transpacific, Transatlantic and Asia Europe) trade lanes.

K-Line, MOL and NYK are currently relatively small players in the Intra-Asia trades, lying outside the top 10 shipping lines for deployed capacity; however the merging of the three would propel the ONE into the top 5. The Intra-Asia trade is becoming a highly competitive market with the merging of China’s CSCL and Cosco (and their affiliated carriers) and the creation of partnerships and slot exchanges such as the Korean HMM+K2. Average TEU capacity of vessels (fully cellular) on the Intra-Asia trade has increased by 4% from 2016Q2 to 2017Q2 which is, in part, due to the increasing numbers of Panamax containerships being cascaded. ONE would inherit a large number of these vessels. Additionally with 2017 experiencing a 50% decline in direct deep sea Europe - Far East services calling into Japan compared to 2016, transhipment via other Far East ports may be of some significance to the competitiveness of Japanese exporters and importers.

In June 2017 ONE was dealt a blow when the South African anti-trust authorities rejected the merger. The ruling is thought to relate more to historical collusion between the members in the car carrier markets because the merging of container operations would only put the new entity 4th by deployed capacity on the Far East-South Africa trade.

The formation of ONE may be part of a trend where alliances are a precursor to mergers, as appears to be happening in Ocean Alliance where COSCO has purchased fellow member OOCL.  The 2M Alliance is seen as the alliance blue print for global shipping lines with just two strong members creating greater scale economies, synergies and operational efficiencies. With the existing ONE shipping lines already being part of THE Alliance the merger is insignificant in terms of overall vessel deployment and capacity on the East-West trades, however it could be argued that integration of K-Line, MOL and NYK’s terminals could give ONE an operational advantage. The merger is more important in other trade lanes such as the intra-Asia market, which has become increasingly important and competitive, where consolidation and partnerships have taken place.