2M breaks up: the beginning of the end for shipping alliances?

2M alliance announces break-up

The 2M alliance was born in January 2015 after an attempt by CMA-CGM, MSC and Maersk to create P3 in 2013. However, this alliance was rejected by Chinese regulatory authorities. The alliance between the latter, called 2M, which established a vessel sharing agreement (VSA) and ensured competitive and profitable operations on the Asia-Europe, Transatlantic and Transpacific routes, did succeed. 

Specifically, the alliance allowed both to have 185 vessels on these routes, enabling Maersk Line, the container shipping arm of the group, to save USD 350 million per year. In 2015, Maersk had a market share of 15.5%, followed by MSC with 13.5%. They were first and second, respectively, in a ranking of twenty shipping lines.

To understand the context of this alliance, it should be remembered that 2015 was a difficult year for the industry. Shipping lines were at risk of bankruptcy. The Danish shipping line Copenship, for example, filed for bankruptcy after suffering losses in the dry bulk market.

Many others had to dispose of assets to stay afloat, because even as the global economy began to recover from the 2008 financial crisis, shipping was still burdened by debt resulting from heavy investments in their fleets during the boom years.  

Maersk and MSC agreed to a minimum duration of the agreement for 10 years, until 2025, when, following the recent press release, the alliance will end. This announcement happens now because  a two-year notice period was established in the event of a break-up.

The joint press release issued in January 2023 announced that:

"MSC and Maersk recognise that much has changed since the two companies signed the 10-year agreement in 2015. The discontinuation of the 2M alliance paves the way for both companies to continue pursuing their individual strategies."

Theo Notteboom, co-director of PortEconomics, writes that from its inception 2M looked pretty much like a marriage of convenience between two shipping lines with very different trajectories.

The reasons for a break-up

Stefan Verberckmoes, analyst at Alphaliner, said it is no surprise that 2M will end. “That was really a forced marriage, because at that time, economies of scale were very important, everybody wanted to have large vessels, and the only way to fill them was to cooperate. Now times are completely different. MSC is now able to fly on its own wings.”

Sea-Intelligence CEO Alan Murphy said in an interview with American Shipper that the strategic approaches of the two shipping lines have been completely at odds: 

“Maersk has staked everything on being an end-to-end logistics integrator. Ocean transport becomes just a cog in a big machine. That cog just needs to work. You don’t need to necessarily make money on it because you’re making money on end-to-end logistics.”

“But MSC’s focus has seemingly been: We need to make money as a vessel operator. These two strategies have led to friction within the alliance. I wouldn’t say anybody is wrong here. It’s just that they don’t seem to be a good match.”

Moreover, international regulators have never lost sight of the effects of these alliances on the market. 2M, The Alliance and Ocean Alliance control 84% of the trade on the Asia-North America route, according to Unctad. 

In 2020, the US Federal Maritime Commission (FMC) asked these three alliances to start submitting their global trade data monthly instead of quarterly to increase monitoring of their activity.

In Europe, the Block Exemption Regulation, the regulation governing shipping alliances, has been extended until 2024. This means that at least until 2024 shipping alliances for the joint provision of services  will continue without infringing EU competition rules, not without controversy.

Potential market consequences

• Increased competition could lead to lower rates. Once the alliance is concluded, shippers will be able to choose between Maersk, MSC or another carrier, which could push a fight for customers.
  “In the short term (i.e. 2023) this will mean increased competitive pressure between the carriers which all else equal results in rates that are lower than they otherwise would have been,” says Lars Jensen, CEO of Vespucci Maritime. 

• However, this drop in rates could come at the expense of a more volatile service and a higher number of blank sailings, Jensen added. This means less reliable shipping 

• With demand subdued against a gloomy economic backdrop, some analysts have warned that the industry faces a significant oversupply of vessels, something that alliances have helped to manage.
  With the break-up of the 2M alliance, the industry "goes from three to four big players," says Alex Irving, logistics industry analyst at Bernstein. “Is that going to make it harder to find capacity discipline? Potentially. Is that going to put further pressure on ocean rates? It’s more likely that happens,” he added.