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Expert Column The Impact of Maersk and Hapag-Lloyd's New Partnership “Gemini Cooperation” on the Shipping Industry

Registration dateMAR 21, 2024

The Impact of Maersk and Hapag-Lloyd's New Partnership “Gemini Cooperation” on the Shipping Industry
On January 17 2024, Maersk and Hapag-Lloyd agreed to forge a new partnership called “Gemini Cooperation,” starting in February 2025. The new partnership is expected to continue for up to four years until January 2029.

In 2023, Maersk, currently under the 2M alliance, announced that it would continue its vessel sharing agreement (VSA) with MSC only until January 2025. As MSC was expected to go to independent route with a fleet of over 5.6 million TEUs, it seemed plausible that Maersk with a fleet of 4.1 million TEUs would search for a new partner. However, the fact that the new partner was Hapag-Lloyd shook the entire shipping market. In terms of long-term strategy, Maersk aims to expand its business scope from shipping to logistics market as a whole, whereas Hapag-Lloyd focuses more on ocean transportation rather than logistics market as a whole, which is why few experts expected the two carriers to collaborate. Some believe that the Gemini Corporation would be limited to a VSA, which is a lower level of cooperation than an alliance.

THE Alliance's Hapag-Lloyd, which had agreed to cooperate with ONE, HMM, and Yangming until March 2030, will only remain in the alliance until January 2025 before joining Gemini. With the launch of Gemini Corporation in February 2025, the existing three-alliance system (2M, Ocean, THE) will be transformed into a three-alliance system (Ocean, THE, Gemini) and MSC.

Starting in February 2025, Gemini will deploy a fleet of 290 vessels, representing approximately 3.4 million TEUs, in 26 main services and 32 feeder services. Maersk will contribute 60% of the fleet and Hapag-Lloyd will contribute 40%, an increase of 20-60% compared to the current fleet deployed by Maersk and Hapag-Lloyd to their respective alliances.

The 26 main services will be comprised of Asia-Europe (4), Asia-Mediterranean (3), Asia-Middle East (1), India/Middle East-Europe (4), Atlantic (5), and Asia-North America (9) routes, which are expected to have a reduced coverage and frequency compared to the services currently offered by 2M, including Asia-Europe (5) and Asia-Mediterranean (4) routes. The 32 feeder services will consist of Europe (14), Middle East (4), Asia (13) and U.S. Gulf Coast (1) route(s), with the exception of the U.S. Gulf Coast service, which will be operated by Panamax-class and larger vessels.
[Gemini Cooperation Service Plan] Gemini Cooperation Service Plan (Source: Hapag-Lloyd Website(www.hapag-lloyd.com))
1. Improvement of reliability The core of Maersk and Hapag-Lloyd’s joint action is the improvement of reliability, with Gemini announcing that it will improve reliability from the current 50-70% to over 90%. Since 2011, container service reliability has never exceeded 86% and averaged 69%; therefore, achieving 90% reliability is a new challenge for the carrier. To achieve this, the carrier will not only minimize the number of port calls per service, but will also establish a hub-and-spoke system, calling at only 85 ports including 12 hub ports. Hub & Spoke is a method of shipping cargo in bulk from hub ports and distributing it to smaller and medium-sized ports.

The 12 hub ports include the Port of Singapore, Tanjung Pelepas in Malaysia, Salalah in Oman, Port Said and Damietta in Egypt, Tanger Med in Morocco, Algeciras in Spain, Rotterdam in the Netherlands, Bremerhaven and Wilhemshaven in Germany, Lazaro Cardenas in Mexico, and Cartagena in Colombo. Of these ports, the Port of Singapore and Port of Tanjung Pelepas are expected to handle Asia-to-Europe cargo, while the Port of Tanjung Pelepas will handle Europe-to-Asia cargo, allowing the decentralized handling of full and empty containers.

As of 2022, Maersk owns and operates 59 terminals in 36 countries, while Hapag-Lloyd owns or operates 12 terminals, having invested in terminals such as JM Baxi in India, SAAM in South America, and Wilhelmshaven in Germany over the past two years. Both carriers have been expanding their terminals, a strategy seen as a way to improve reliability by minimizing port congestion, as extreme port congestion during the pandemic has impacted vessel turnover. Maersk and Hapag-Lloyd operate or have stakes in container terminals at 10 out of the 12 hub ports, excluding the Port of Singapore and Damietta, which is expected to minimize vessel congestion.
[Maersk (APM)’s Terminal Operation and Owned Terminal Status] Maersk (APM)’s Terminal Operation and Owned Terminal Status (Source: Drewry(2022))
2. Cooperation on Decarbonization Maersk and Hapag-Lloyd are also expected to collaborate on decarbonization drive. The two carriers are aiming to achieve zero-carbon emissions by 2040 and 2045 respectively, and are ordering eco-friendly vessels to achieve this target. In particular, 36 methanol-powered ships have been renovated and ordered by Maersk and 15 by Hapag-Lloyd. Currently, Maersk has signed green methanol supply contracts with 10 companies, including CIMC and SunGas, and has also signed a General Protocol For Collaboration with the Spanish government to build methanol bunkering on each continent. As Maersk is likely to have its green methanol supply chain in full operation after 2025, Hapag-Lloyd is expected to push for cooperation with Maersk.
[Maersk’s Methanol Supply Partners and Production Volume] Maersk’s Methanol Supply Partners and Production Volume (Source: https://fathom.world/maersk-buys-upgreen-methanol-production/, Added by the author)
3. Changes in the shipping market following the launch of Gemini Cooperation With the launch of the Gemini Cooperation, the largest fleet held by the existing alliances will change from 2M (about 9.65 million TEUs) to Ocean Alliance (about 8.24 million TEUs), with Gemini at 6.11 million TEUs, MSC at 5.51 million TEUs, and THE Alliance at 3.25 million TEUs. As of January 2024, the number of vessels actually deployed for joint operation is 4.25 million TEUs for Ocean Alliance, 3.4 million TEUs for Maersk, and 2.3 million TEUs for THE Alliance. In terms of future fleet expansion, the orderbook is expected to increase further, with Ocean Alliance carriers' vessel orderbook reaching approximately 2.8 million TEUs, Gemini's approximately 700,000 TEUs, and THE Alliance's approximately 740,000 TEUs, further increasing Ocean Alliance's share of the fleet.
[Comparison of Alliance Fleet Share Before and After Gemini Cooperation] Comparison of Alliance Fleet Share Before and After Gemini Cooperation (Source: Alphaliner (2023), Calculated by the author)
Hapag-Lloyd’s departure from THE Alliance is expected to impact THE Alliance's services from 2025 onwards. Additional vessels will be required to prevent service reductions, particularly on the South America, Asia-Europe, Mediterranean and Atlantic services, where Hapag-Lloyd's fleet is heavily deployed. THE Alliance's HMM and ONE are expected to take delivery of more than 20 vessels by the end of 2024, and the majority of these vessels fall under the 7,000 TEU to 15,000 TEU range and are capable of ocean-going services, which could help fill some of the gap left by Hapag-Lloyd's departure. Some observers are eyeing the possibility of a reorganization of THE Alliance into a new alliance with Zim and Wanhai. In particular, the expiration of the European Commission's (EC) Consortia Block Exemption Regulation (CBER) in April 2024 could place a burden for Ocean Alliance, which already has a market share of more than 30% on some routes, and could lead to future alliance reorganization.
[Hapag-Lloyd’s Fleet Deployment Status by Service Route] Hapag-Lloyd’s Fleet Deployment Status by Service Route (Source: Alphaliner (2023), Calculated by the author)
The change from the three major alliances (2M, Ocean, THE) to Gemini, MSC Ocean, and THE Alliance after February 2025 is expected to reduce market concentration (HHI), which could lead to more competition in the shipping market. Market concentration is an indicator of whether a market is competitive or oligopolistic, using the share of market share held by companies in an industry. However, more important than the increase in market competition is how the new initiatives promoted by Gemini are accepted by the market. Prior to the pandemic, freight rates were the most important factor for shippers in choosing a shipping service, except for special events, as reliability rate remained around 70%. However, in the post-pandemic era, with various port risks such as port strikes, weather disasters, and wars constraining the shipping supply chain, it will be interesting to see how the differentiation strategy of ensuring reliability will be accepted by shippers and competing carriers. It will also be interesting to see if Gemini's new hub-and-spoke model can lead to successful results. A concern remains that the service that Gemini will launch next year to improve reliability may minimize the number of ports of call on long-distance routes, leading to frequent transshipment.

For example, if a cargo is transported from Busan Port to a small or medium-sized port in Europe, there will be at least two transshipment, which has both advantages and disadvantages. Minimizing the number of ports of call in accordance with the IMO's decarbonization regulations has the advantage of lowering the Carbon Intensity Indicator (CII) of the route, as well as reducing the size of fuel tanks, which is one of the biggest problems for carbon-free ships, such as methanol and ammonia. The downside, however, is the increased cost of transshipment and the additional carbon emissions it creates.
[Change in Herfindahl-Hirschman Index (HHI) After Gemini Cooperation] Change in Herfindahl-Hirschman Index (HHI) After Gemini Cooperation (Source: Alphaliner (2023), Calculated by the author)
The shipping market in 2025 is expected to undergo many changes due to the reorganization of alliances among global shipping lines, but it may be accompanied by efforts to improve the quality of service and increase the convenience of users. However, there are concerns that it may intensify competition in the container shipping market, calling for proper analysis of and response to the possible side effects of carriers’ reorganization behavior. # References [1] Alphaliner(2024), monthly monitor, no.1, pp.1-46
[2] Hapag-Lloyd Website(www.hapag-lloyd.com)
[3] https://fathom.world/maersk-buys-upgreen-methanol-production/
[4] Drewry(2023), Global Container Operatior, pp.1-344

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Gun Woo Choi Associate Researcher/ General ManagerGun Woo Choi Associate Researcher/ General Manager