Two Shippers Aim to Speed Cargo --- Hapag-Lloyd and Maersk, in new alliance, plan bigger ships, fewer stops

Two Shippers Aim to Speed Cargo --- Hapag-Lloyd and Maersk, in new alliance, plan bigger ships, fewer stops

"Two of the world's biggest shipping companies have a new plan to reduce cargo delivery delays. The answer, they say, is to use bigger ships and cut the number of port calls each ship makes.

Shippers have been plagued by vessel diversions from the Red Sea and the Suez Canal since late last year after a series of attacks on commercial vessels by Iran-backed Houthi rebels in Yemen. The longer routes around South Africa have added at least two weeks of sailing time and pushed freight rates higher.

Gemini -- a new alliance between Denmark's A.P. Moller-Maersk and Germany's Hapag-Lloyd that is set to become operational in February -- aims to improve on-time performance. The move comes as shipping companies brace for a decline in freight rates and prepare to compete more fiercely for business.

Hapag-Lloyd and Maersk are at the top of recent rankings for service reliability, with on-time rates of around 55%. A Hapag-Lloyd executive called that unacceptable and said that Gemini's target is to reach 90% reliability.

The cost to send a container from China to California is now $4,834, still far below the heights seen during the pandemic but higher than the $2,440 price at the start of the year. The rate to move cargo from Asia to Europe has fallen to $3,850 from $4,040 at the start of the year.

Big shipping companies ordered a flotilla of new ships during the pandemic, when consumers in the U.S. and Europe spent heavily on manufactured products and there weren't enough vessels to move them. But the surge in demand proved temporary. Now that a surplus of new ships has begun sailing, operators expect a sharp downward correction in freight rates -- and shipowners' profits -- when the Red Sea reopens and they have more capacity than they need.

Gemini has prepared two-route scenarios: an eventual return to the Red Sea and the continued use of the alternative Cape of Good Hope route.

"We will return to the Red Sea when it is sufficiently safe to do so," Maersk said.

Officials involved in setting up Gemini say they hope to keep customers or attract new ones who are willing to pay a premium for better on-time performance. Their plan is to gradually cut by around half the current 10 port calls for a vessel sailing from Asia to Europe.

Gemini will use ships that can move more than 20,000 containers, compared with their current mix of ships that can hold between 14,000 and 20,000 containers, officials from the alliance said.

Gemini vessels will mainly sail from ports on China's Pacific Coast and will stop at ports where Maersk or Hapag-Lloyd own container terminals. There, Gemini ships will have lower docking costs and get priority handling for faster cargo deliveries, the officials said. Gemini ships will skip ports such as Hong Kong, Busan in Korea, Singapore, Antwerp in Belgium and Le Havre in France. The move isn't expected to have a negative impact on those.

Gemini's plan to cut port calls is expected to boost the charter market as smaller ships will be needed to feed cargo to the big ocean liners sailing from Asia to Europe. The new partnership will be the second-largest shipping alliance, representing 22% of the global shipping market.

The biggest shipping partnership, called the Ocean Alliance, includes France's CMA CGM, China's Cosco Shipping and Taiwan's Evergreen Marine. That group will continue to represent around 29% of the shipping market.

Gemini is expected to come under scrutiny by global regulators, such as the U.S. Federal Maritime Commission, which will monitor the partnership for price fixing or other anticompetitive practices.

The commission's chairman, Daniel Maffei, said he has asked his staff "to engage in immediate and ongoing rigorous monitoring of the Gemini Cooperation Agreement to ensure that it doesn't illegally impact U.S. importers, exporters, covered service providers, and consumers." [1]

1. Two Shippers Aim to Speed Cargo --- Hapag-Lloyd and Maersk, in new alliance, plan bigger ships, fewer stops. Paris, Costas.  Wall Street Journal, Eastern edition; New York, N.Y.. 21 Oct 2024: B.1.