Rivals of Maersk sign a major partnership agreement

Bloomberg’s take on the partnership in between Mediterranean Shipping Co. and CMA CGM SA, the world’s number 2 and 3 companies in container shipping, is that they are aggressively aiming to take on the number 1, namely Denmark’s Maersk Line of A.P. Moeller-Maersk A/S ((OMX: MAERSK A, OMX: MAERSK B) ). The two family owned companies from Switzerland and France agreed on vessel sharing in key routes. Maersk had itself introduced a new service concept called ”Daily Maersk” a while ago, with daily departures between four main ports in Asia and three in Europe.

Maersk Line has also changed its short term market strategy, preparing to reduce prices in order to aggressively try to maintain market share and to drive out smaller competitors in the tough operating environment. Such a tactic is normally succesfull only for a clear cost leader that also has muscle behind it, or for a group of key players working towards a common goal. Maersk Line has an aim to reach EBIT-margin 5% point above peers

No matter the initial catalyst behind the strategic behaviour, a pricing war is always hard on all the companies in the short term and with years of overcapacity still looming for shipping industry, smaller players ought to be in trouble. Should the full brunt of the cooperation of MSC and CMA CGM be directed against Maersk, it will surely feel the impacts from that too, as together the two companies have more than 20% of the global market share, toppling over Maersk at under 16%. If the main impact is felt by the smaller companies, all three might benefit.

Container Shipping and related activities is the biggest sector for global conglomerate A.P. Moeller-Maersk A/S and since those activities now expect to post a loss for 2011, it is no wonder that share price is down over 25% for the year. In the current short term oriented stock market, that can easily persist for a quite while.