Is it Merge or Perish Times for Shipping?



A.P. Moller-Maersk A/S, owner of the world’s largest container line, said mergers like the combination of its three main Japanese rivals provide relief to an ailing industry that has been characterized by overcapacity.

Nippon Yusen KK, Mitsui O.S.K. Lines Ltd., and Kawasaki Kisen Kaisha Ltd. said on Monday they plan to merge, giving them control of 7 percent of the world’s container shipping trade. It is the latest example of industry measures to create scale in an effort to adapt to the world in which freight rates have been under pressure since 2007.

Soren Skou, Maersk Line’s chief executive officer who also runs the Maersk group, said last month the Copenhagen-based company will stop buying new ships and instead try to expand through takeovers.

“We welcome consolidation,” Mikkel Elbek Linnet, a spokesman for Maersk Line, told Bloomberg in an e-mailed reply to questions.  “Our industry is fragmented and consolidation can help transform our business for the benefit of our customers.”  The comments come as Maersk puts its group structure under strategic review.  Management has said it wants to split the energy business off from its transport operations.

Efforts to date to consolidate have included agreements in parts of the industry to share ships, to avoid the cost of building up individual fleets.  But Maersk says that may be a less effective way to achieve scale than outright mergers.

“What we see is a consolidation wave,” Linnet said.  “How big it turns out to be, is difficult to say.  Consolidation can unlock fixed and variable cost efficiencies not possible in a Vessel Sharing Agreement.”

Maersk, which hasn’t made a large acquisition in more than a decade, is in a vessel alliance with the world’s No. 2, Mediterranean Shipping Co.  The Danish conglomerate is due to report third-quarter earnings on November 2.  Of the 29 analysts covering Maersk, only three recommend selling the shares.  Fifteen advise clients to buy the stock, while the rest are telling investors to hold on to their shares.

SEB, which has a hold rating on Maersk’s stock, said the shipping unit’s profitability “will be largely determined by cost cuts and utilization,” as results published by peers suggests the industry continues to be under pressure, according to a note.

Customers who use Maersk don’t see much relief for the industry ahead, even if consolidation continues.

“There might be a short-term increase in container rates, but it doesn’t change the structural problems,” Jens Lund, chief financial officer at DSV A/S, said by phone on Tuesday.  DSV is the world’s fourth-largest freight-forwarder, handling about 1.2 million 20-foot containers a year.

“There’s a lot of overcapacity out there and neither bankruptcies nor mergers will remove any of the world’s container ships, they just change the ownership situation,” Lund said.

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Source: Bloomberg