Westports’  three  largest  customers  yesterday  formed  a  new  alliance called  Ocean  Three.  Pending  approval  by  the  Federal  Maritime Commission,  this  alliance is  targeted  to  be  officially  effective  by  end-2014.  It aims to  optimise port rotations and schedule reliability,  which can  translate  into  more  market  share  and  higher  throughput  for Westports.  Maintain BUY and DCF-derived FV of MYR3.29.

A  new  alliance  emerges.  Westports’  three  largest  customers  –  CMA CGM,  China  Shipping  Container  Lines  (CSCL)  (2866  HK,  NR)  and United Arab Shipping Corp (UASC) – announced yesterday that they areforming  a  new  shipping  alliance  called  Ocean  Three.  Thisagreement/alliance – a combination of vessel sharing, slot exchange and slot  charter  agreements  –  will cover the following maritime trade  routes: i)  Asia-Europe,  ii)  Asia-Mediterranean,  iii)  Transpacific  and  iv)  Asia-US East Coast.  Agreements on Transatlantic trade are being  finalised and will soon be announced. Ocean Three  is still subject to Federal Maritime Commission approval and targets to be officially effective by end-2014. 

A more sensible alliance.  According to  the  Journal of Commerce, the new alliance will have the strongest presence  in the  Europe-Asia trade (estimated  20%  market  share),  ahead  of  transpacific  trade  (13%)  and transatlantic  trade  (6%).  Ocean  Three  has  been  largely  anticipated following the termination of the P3 alliance (where CMA CGM was one of its  members)  after  it was  rejected approval by China’s  regulators.  This new  alliance  makes  more  commercial  sense,  in  our  view,  with  each member  contributing  cargo  feeds  to  transshipment  hubs  where  their respective  geographic  strength  lies.  CMA  CGM’s  dominance  is  in  the European  area  while  China  Shipping  Container  Lines  and United  Arab Shipping  Corp  are  stronger  in the  Asia  and  Middle  East/Africa  regions
respectively.  All three  members  are  Westports’  largest customers,  with CMA  CGM  contributing  36%  of  FY12  volume  while  CSCL  and  UASC contributed 11% and 9% respectively. 

Higher  volume  anticipated,  BUY  maintained.  Ocean  Three  is expected  to  optimise  the  port rotations  of  the  shipping  networks  of  the alliance members and schedule reliability. This can  translate  into higher market  share  and  throughput for W estports.  As such,  we  maintain  our BUY call and unchanged DCF-derived FV of MYR3.29.

Source: RHB