By Dominic Chopping


A group of Asian and European shipping lines have agreed to extend a vessel-sharing agreement as freight carriers continue to navigate a market beset by overcapacity and low freight rates.

China's Cosco Shipping, French CMA CGM, Taiwan's Evergreen and Hong Kong-based Orient Overseas Container Line formed the Ocean Alliance in 2017 with the current agreement set to end in 2027.

The companies have now agreed to extend the deal for at least another five years to 2032.

Shipping alliances have long been used as a way for container lines to offer broader geographic coverage while bringing costs down, and the companies said Tuesday that the deal extension will ensure they can continue to provide a stable and reliable service.

"The decision to extend our cooperation for at least 5 more years forges our commitment to meet our customers' needs and build even more secure, reliable and sustainable supply chains," said CMA CGM Chief Executive Rodolphe Saade.

The agreement comes at a time of mounting challenges for the shipping industry. After riding the wave of booming trade and record profits from a surge in demand for goods during the pandemic, freight rates have nose-dived, making many sailings across the big ocean trade loss-making and prompting shipping lines to cut sailings, cancel port calls and slow their sailing speeds to conserve fuel.

Overcapacity has also been dampening freight rates after container lines went on an ordering spree during the pandemic to move record amounts of cargo. Those ships are now entering the water, creating a supply glut.

However, the recent attacks on merchant vessels in the Red Sea is offering some reprieve to both capacity and rate concerns. Ships are being diverted thousands of miles to avoid the hostilities, tightening capacity as ships are kept busy for longer and sending freight rates higher, at least for now.

"A U.S.-led coalition and a recently launched maritime operation by the EU have been deployed with the aim to safeguard ships in the Red Sea," Niels Rasmussen, Chief Shipping Analyst at Bimco said in a note. "However, the attacks have not yet ceased, and the outlook remains uncertain."

Denmark's A.P. Moeller-Maersk said earlier this month that the Red Sea crisis has caused immediate capacity constraints and a temporary increase in rates which should benefit its topline in the first quarter, but eventually the oversupply in shipping capacity will probably return through 2024 and into 2025, leading to price pressure.

Maersk recently announced a tie-up with Germany's Hapag-Lloyd that will see them team up to form a new vessel-sharing agreement from next year. Hapag-Lloyd will leave the alliance that it currently participates in with Korea's HMM, Singapore's Ocean Network Express and Taiwan's Yang Ming at the end of January 2025.

Maersk had previously said that its 2M alliance with Mediterranean Shipping Co. would end in January 2025.

The largest shipping alliances currently operating are the 2M, Hapag-Lloyd's The Alliance and the Ocean Alliance.


Write to Dominic Chopping at dominic.chopping@wsj.com


(END) Dow Jones Newswires

02-27-24 0824ET