14 Korean lines form alliance to restore faith, post-Hanjin
- Korea's 14 container carriers signed a memorandum of understanding (MoU) Tuesday to create the Korea Shipping Partnership (KSP), an ocean cargo alliance to restore faith in the liner industry, Pulse reported.
- The KSP expects to begin operations early 2018, and will include virtually all of the nation's box carriers, including those already associated with other partnerships, such as Hyundai Merchant Marine. However, reports suggest the alliance's impact may be limited to regional trades.
- Under the agreement, the lines will coordinate fleet expansions, add new shipping routes and jointly pursue an overseas terminal for operations.
Even though the dust from the wave of ocean shipping consolidation seems to have settled, the formation of KSP shows changes in the industry are far from over. Now, the side effects of consolidation on major trades will begin to take shape.
First, the sheer scale of the alliance — with 14 independent carriers combining to coordinate a capacity that equals a top 10 global carrier, according to data from Panjiva — shows economies of scale apply to smaller trades, too. KSP's decision to coordinate new vessel acquisitions suggests they will jointly invest in larger ships, too.
Second, the explicit intent of the deal is to restore faith in the Korean liner shipping industry. The fall of Hanjin Shipping cast a shadow on all Korean carriers, who in clients' minds (even if not in reality) were most closely associated with the former powerhouse. The carriers hope the alliance will improve every lines' perceived reliability as well as its competitiveness.
Lastly, but perhaps most importantly, the new alliance is but the latest in a series of nationally-based consolidations. Japan's top three lines announced a merger in November, 2016, and COSCO's recent purchase of Orient Overseas Container Lines (OOCL) indicates China's box carriers are moving in the same direction.
Yet, Alphaliner aptly points out that an alliance is not a merger, but rather a cooperation agreement requiring goodwill among all its participants. However, when looking at the trade lanes each line operates in, it becomes clear the carriers are in direct competition, unlike other alliances which complement each other. The Loadstar reports such concerns will likely undermine the success of the KSP.
Perhaps it will. Regardless, the move is a clear indication regional carriers see a need to achieve greater economies of scale as larger ships cascade into smaller trades, and such partnerships are one way to do so.