How ocean alliances have shaped the shipping industry

 

When one of the World's largest cargo vessel Mv Poseidon sailed through the Likoni channel in the Indian Ocean waters of Mombasa on Feb 26, 2015. [File, Standard]

In February 2025, one of the most formidable ocean alliances between the Mediterranean Shipping Company (MSC) and Maersk will come to an end.

The alliance was mooted in 2015, and has seen both liners benefit from economies of scale; using only a single ship to ferry their containers, cutting on fuel costs and taxes among others.

Importers also benefited since the cost of shipping went down. Now the alliance is s coming to an end both liners will renew their competition.

Proponents of the alliance say it brought the cost of shipping down while opponents say it led to job losses. Those who are pushing for the renewal of the alliance press that it will increase the competitiveness of Mombasa, and position it as a transhipment hub – an intermediate destination for cargo headed to feeder ports.

They argue that although Mombasa has dominated cargo business in Uganda, Rwanda, Burundi, and South Sudan, it has struggled in transshipment traffic which is projected to hit 480,241 TEUs by the end of this year.

Institute of Chartered Shipbrokers East African (ICSEA) said liners hope to achieve economies of scale, optimise capacity, enhance service, and reduce operational costs through these alliances.

“In these agreements, liners (shipping lines) share vessels, ports, and trade routes. This will contribute to Mombasa’s links to major global trading routes and hubs,” said ICSEA chairman Elijah Mbaru.

The Ocean Alliance is the largest operational deal made between shipping companies with a vast network that offers 40 maritime services to over 100 ports worldwide.

One of the instruments the shipping industry uses to measure ports’ attractiveness is the Liner Shipping Connectivity Index(LSCI) developed in 2004 by UNCTAD.

It analyses among other variables the number of shipping companies that provide direct services between countries and the total deployed carrying capacity.

This means that if a country is connected to major global shipping routes, it’s served by large container ships exceeding 8,000 Twenty Equivalent Units (TEUs), which makes a good business case for shipping companies due to economies of scale that tend to reduce operational costs.

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In Africa, Tanger Med in Morocco has for the last three years been named the best-connected port with 137 direct connections as of 2020.

Mombasa on the other hand ranks sixth in terms of the best container port in Africa according to the 2020 Lloyd’s Port list coming behind countries such as Morocco, Egypt, and South Africa.

Logistics experts say Ocean Alliance will improve Mombasa’s competitiveness following years of expansion and modernisation that has improved vessel dwell time at the port.

East African Shippers Council Chief Executive Agayo Ogambi says alliances are good for shippers as they accord them opportunities to source cargo from different marks.

Mr Ogambi said small-scale shippers with less cargo will get the opportunity as it will end the current dominance from big importers in the allocation of slots by ship agents.

“It is a good move since it helps individuals with cargo which does not require a bulky ship for transhipment of their goods at a fair freight rate,” said Ogambi.

In what has come to be labelled the 2M alliance, Maersk Line which controls 28 per cent of Mombasa business, and Mediterranean Shipping Company (MSC), signed the alliance in 2015.

Last year, the two giants announced that the 2M alliance would end in February 2025 largely due to fierce rivalry. The two are now seeking new alliances.

In Kenya, MSC, a Swiss shipping line, has raised its stake in the Kenya National Shipping Line (KNSL) to 47 per cent. It runs the Sh32 billion CT2 at the Port of Mombasa through KNSL.

George Monari, a customs agent in Mombasa said that although it was not clear how KNSL would benefit, it was clear that it would increase its cargo consolidation business.

KNSL remains without a vessel, and for years, it has acted as a cargo or freight consolidator – looking for cargo from smaller shippers using a single container for delivery to a destination

“Interestingly, the alliances did not decrease competition among the shipping lines. They increased it because they focused on operational cooperation rather than commercial agreements,” said Mbaru.

Other alliances include the Sea-Land with the Maersk line in 1996. NYK Line/TSK merged into ONE shipping Lines. MOL Line also merged into one Line. Nelloyd and P&O were also later acquired by Maersk Lines.

As other shipping lines merged, new ones like Zim Shipping lines were formed.  Hapag Lloyd and APL were acquired by the CMA-CGM shipping Line.  Yang Ming and OOCL became the COSCO Shipping Line.

However, the mergers have also led to job losses and most of the liners have declared employees redundant. Maersk has in the last three years laid off over 16000 workers including some in Kenya.

Mbaru says Maersk Line has allied with Hapag Gemini cooperation to cover Asia and the US. Yang Ming and HMM ONE to form premier Alliance opera CMA, Cosco, Evergreen OOCl- Ocean Alliance to cover the East and West route while MSC will remain independent.

Mbaru explains that this strategy to pool their vessels and share port facilities along trade routes will reduce costs like taxes and bunkers.