¡¡¡¡Vessel Sharing Agreements (VSAs) have been around for a long time in the shipping industry.
¡¡¡¡Early in March this year, the number-one container shipping enterprise, Maersk, made a sudden change in its long-term policy of self-reliance, joining hands with its followers MSC (Mediterranean Shipping Company) and CMA-CGM. Under a new VSA, the three parties have removed four transpacific routes (Far East - West US), and added three new ones. Dubbed the ¡®MMC-VSA¡¯ by the media, this move has aroused widespread interest throughout the global shipping industry.


 Series of measures to realize VSA

¡¡¡¡Under current circumstances where big boats are under loaded, oil prices are soaring and freight volumes remain solidly low, Maersk, however, has taken quite a creative step by allocating larger ships into the VSA. In my view, it is possible for this MMC consortium to lower the cost by 30% in a series of ways such as adopting large-scale vessels, fully-loaded bins as well as lowering speeds to save fuel.
¡¡¡¡First of all, Maersk alone struggles to put together full loads for 8,000-TEU vessels eastbound along the Far East - West US routes, which adds tremendous pressure onto operating costs. Now, after the three powers have pooled their cargo supplies, it is not only able to maintain fully those 8,000 TEU vessels, but even possible to coordinate when the actual quantity of containers is falling. At this moment when other liner companies have all started to remove routes or replace existing vessels with smaller ships, there is only the MMC consortium sending 8,000 TEU vessels into the Far East - West US routes to replace the smaller 4,200 TEU ones. Though one route less, the three new routes exceed the former four already in transportation capacity.
¡¡¡¡Secondly, it is a question of fuel economy. With soaring oil prices and high speeds designed for most container ships, fuel costs have become the largest item of expenditure. In the operating costs of a long route container ship, fuel may account for 40%, or even up to 50% of the total costs.
¡¡¡¡Will the savings from slower speeds cover the costs of managing one more vessel? In the Far East - West US routes, it is a custom that four ships are used together to play a return trip in four weeks. However, what currently MMC has announced is to run five boats simultaneously in all three lines. Compared to a four-ship fleet to berth in four to five ports, MMC five-boat fleets can be linked into six ports. Take the route from Shanghai to Los Angeles as an example, where a constant speed of 23 knots means a container ship will take 10.37 days to cover the range of 5,724 nautical miles. If that speed is reduced by 17.5% to 18.97 knots, then 12.57 days will be required, 2.2 days more for a single trip and 4.4 days more for the round trip. In addition, the slower speed required for berthing will require another 0.6 day more, totalling five more days at the slower speed. According to the weekly cycle, there are still two days left for berthing into one more port. While there may be additional expenditure, more containers will be gathered. As a result, the more container ships are loaded, the more transit costs can be reduced, then more local cargo owners will have their claims met.

¡¡¡¡Still more steps to follow?

¡¡¡¡Besides the MMC consortium itself, whether or not there will be further cooperation has been an issue drawing particular attention from the industry. There are already a number of indications this may occur.
¡¡¡¡The top three global powers joining hands is not only unprecedented in container shipping liners, but also rare in other industries. By March 10th, 2008, MMC had achieved a total capacity of up to 4.09 million TEU, while the total of the top 20 liners stood at just 9.9 million TEU. In other words, the top three took 41% of the total capacity of the first 20 altogether. If the MMC plans to march into other routes, it would seem fairly difficult for other minor parties to resist.
¡¡¡¡VSA is definitely limited. For short-term routes, 8,000 TEU ships seem too big; on the long trunk routes, such as those Asia-Europe ones, where there is a large quantity of container supply with high transport costs, major liner companies are currently operating their own 5,000-TEU, 8,000-TEU and 10,000-TEU vessels and, consequently, it is not necessary to push VSA vigorously. This condition will remain unless a time comes when several liners all have ships available, and no single party could make its own ships and cargos enough for a long trunk line. This possibility of forming VSA will again be broken once a member gets new boats and sufficient container supply in place, then each will get involved into their own independent service again. At the same time, after closing the VSA, container slots are open to be exchanged. This is because not all liners will choose to berth into one same port and even if they meet at the same, the arrival and departure cycles may vary.

¡¡¡¡Why join hands now?

¡¡¡¡Why have the top three decided to join hands at present?
¡¡¡¡Previously, Maersk¡¯s large operation scale and powerful scheduling capacity as well as container intensity mean it has been less likely to have difficulties in managing its own ships and cargos enough for a long trunk line. Even where there have been troubles, Maersk is able to solve the problem by adjusting numbers of ports to berth, vessels¡¯ speed, boat leasing, lingering on for the new boats¡¯ operation. Additionally, on the long voyage, Maersk always operate more than one route and each is able to link with various ports to assure extensive coverage. From every important port link, two or three Maersk vessels depart a week, which is a rather competitive schedule. This is the reason why Maersk used to show little interest in VSA and slot exchanges.
¡¡¡¡However, in 1999 Maersk acquired the US¡¯s largest liner - Sea-Land Service Inc., reclaimed from Transpacific Stabilisation Agreement (TSA) since 2004 - and in 2005 merged with the industry¡¯s third largest player, P&O Nedlloyd, after which it started to suffer from successive years of losses. One of the reasons may be the larger fleet with fewer customers. To that end, through a series of initiatives, Maersk has been in a bid to turn deficits into profits. But unfortunately, under the poor economic situation in the US, import and export volumes kept dropping. Los Angeles and Long Beach, two ports that used to comprise two thirds of the total west coast container volume, had their volume shrink by 8.8% in the first two months of this year. The point is that once these US routes are removed, it would seem impossible to restore them when the economy turns back up. On the other hand, the US, a major economic power, is an indispensible market for anyone who is engaged in international trade and international shipping. To tackle the increasingly serious losses in the US routes, Maersk seems to have no choice but to try VSA out.