It has been reported that by the end of 2016, there will be four fewer container lines than at the start of the year after one of the most unrestrained years in the history of containerization.
But that is just the start, with the three Japanese lines finally agreeing to integrate their container businesses from 2018 after struggling with mounting losses.
Shareholders woes:
Shareholder patience finally cracked and usually deep-pocketed, state-backed investors decided they had had enough of bailing out carriers, with the prospect of facing several more years of losses before any recovery.
Keep up to date with the latest developments on the joint venture of NYK, MOL and Kline along with other key industry events
Consequently, three powerful European families have strengthened their grip on the industry, but it has not been an easy year even for them.
Scale matters:
What is clear, though, is that scale matters and it is those lines with a reasonable market share that look set to be the real survivors of this unprecedented clear-out.
For the past decade, indeed ever since Maersk’s acquisition of P&O Nedlloyd and Hapag-Lloyd’s takeover of CP Ships in 2005, industry leaders have kept on saying that more consolidation was necessary for a highly fragmented industry.
And yet very little happened until 2015, when Hamburg Süd bought Chilean operator Chilena de Navegación Interoceánica, Hapag-Lloyd merged with the container arm of CSAV, and CMA CGM bought German shortsea operator OPDR.
But the real action kicked off later in the year when Singapore’s Temasek put Neptune Orient Lines up for sale as its liner shipping arm APL continued to underperform.
Both CMA CGM and Maersk made offers, but it was the French line whose bid was accepted, with that deal finalized in mid-2016, so removing previously 12th-placed APL from the latest rankings.
Next to go was China Shipping Container Line, which in 2015 operated the world’s sixth-largest containership fleet.
Influence of Chinese:
The Chinese authorities came to the conclusion that it was much more efficient to combine the country’s two deep-sea container lines into a single entity. The newly created Cosco Shipping has consolidated its position among the world’s heavyweights, with the former Cosco Container Lines and CSCL now forming the world’s fifth-biggest line.
United Arab Shipping Co, one of the first lines in the world to order 18,000 teu-class ships, is still an independent carrier at the moment and ranked number 10 in terms of fleet capacity. But it will soon disappear as an independent entity once the deal to merge with Hapag-Lloyd is finalized. Once the Dubai-headquartered carrier owned by six Arab states becomes a shareholder in Germany’s largest line, that deal will push Hapag-Lloyd into the top five.
Bankruptcy woes:
But the biggest story of the year was the bankruptcy of Hanjin Shipping at the end of August after creditors failed to come to an agreement on how to reschedule the South Korean line’s huge debts.
At the time of its receivership, Hanjin was ranked number seven in the world, but a month later its position had slumped to 13th and was still falling as chartered tonnage was returned. By early October, Hanjin’s market share in terms of fleet capacity had dropped to 1.7%, according to Alphaliner.
Hanjin’s market share in terms of fleet capacity had dropped to 1.7%, according to Alphaliner.
With shippers voting with their feet, most observers think there will be no comeback for Hanjin, except just maybe as a small regional line.
Division of opinion:
Opinion is divided about whether there will be another bankruptcy in the industry, whose collective losses could be as much as $10bn this year, SeaIntel estimates. A more likely scenario, though, is further merger and acquisition activity in a business where other stakeholders may now decide to follow NOL’s controlling shareholder Temasek and the six Arab nations that owned UASC and cut their losses.
Market share:
Attention has now swung to Maersk Line, which has put acquisitions back on the agenda as it seeks to expand market share at a time when there is very little organic growth.
The Danish line is also caught up in a big internal shake-up as parent company AP Moller-Maersk, controlled by the Mc-Kinney Moller family, splits into two: a transport and logistics business encompassing container shipping, ports and forwarding; and an energy division.
Maersk as the forerunner:
While Maersk is now the frontrunner in further takeover activity, its 2M partner Mediterranean Shipping Co, owned by the Aponte family, seems unlikely to change its strategy, which has been predicated on organic growth.
Attention has now swung to Maersk Line, which has put acquisitions back on the agenda as it seeks to expand market share at a time when there is very little organic growth
The Saadé family-controlled CMA CGM, now the world number three after buying APL, has also more or less ruled itself out of further acquisitions, at least for now, as it absorbs the Singapore line.
Nevertheless, the broad consensus is that this shakeout is far from over, with the industry still very fragmented with too many lines that have market shares of less than 3%.
Independent players:
Not all of these are takeover candidates. Taiwan’s Wan Hai, ranked number 16 in the world, with a fleet capacity of around 220,000 teu and a market share of 1.1%, consistently performs well in terms of financial results — clear proof that there is room in the industry for strong regional players.
Other examples include Singapore’s PIL, Turkey’s Arkas, US Jones Act carrier Matson, and larger feeder operators such as X-Press Feeders or Unifeeder. Another success story is Italian group Grimaldi, which has a very different business model. Its multipurpose ships can take containers, cars, and ro-ro cargo, and are deployed on the Atlantic and Mediterranean trades with no presence in the cut-throat east-west liner markets.
The latest Top 30 rankings show little change over the year among the industry leaders, with Maersk still number one with a fleet capacity at the beginning of October of almost 3.2m teu, according to Alphaliner, and a market share of 15.3% after modest growth over the year.
Once again, MSC is in second place with a fleet of 2.8m teu, equating to a market share of 13.5%. CMA CGM is in the third spot, but with considerable growth over the year following the takeover of APL bringing its fleet to 2.2m teu, or just over 10% of the total, compared with 1.8m teu a year earlier.
The biggest Asian line is now Cosco Shipping, with the merged Chinese carriers operating a fleet of 1.5m teu, according to latest Alphaliner figures, giving a market share of 7.5% and pushing Evergreen, once the world number one, to fifth place with a fleet of just under 1m teu.
But soon the Taiwanese line, now in the hands of the late Chang Yung fa’s three older sons, will be relegated to the number six spot once the merger of Hapag-Lloyd and UASC is completed.
Then come many lines with a relatively small market share, led by Germany’s Hamburg Süd, which had aspirations to enter the east-west trades and signed a global cooperation agreement with UASC, which is about to end.
In eighth place is OOCL, which is preparing to quit the G6 group to join the new Ocean Alliance from next April
The German north-south specialist is not a member of any of the big global alliances that are set to reshape the container trades.
In eighth place is OOCL, which is preparing to quit the G6 group to join the new Ocean Alliance from next April, alongside CMA-CGM, Cosco, and Evergreen in a vessel-sharing alliance with a strong Chinese bent.
Just inside the Top 10 is Yang Ming, whose future has been the source of speculation ever since senior Evergreen executive Bronson Hsieh quit earlier in the year to join the smaller Taiwanese line as chairman.
With 10th-ranked UASC soon to disappear from the listings, others will move up the global league table, but those with market shares of just a few percent face an uncertain future unless they have forged out a place as a large regional or niche carrier.
Plans unveiled:
Those with global aspirations are in the weakest position, and questions continued to be asked about why Japan has three container lines, MOL, NYK and K-Line, although all are members of much larger shipping groups that afford them with some protection.
The answer came this week when the trio unveiled plans to integrate their container businesses from next July, with joint operations to begin in April 2018.
South Korea’s smaller line, Hyundai Merchant Marine, was able to restructure its debt although its operational results have been worse than those of Hanjin. It is in talks to join the 2M alliance alongside Maersk and MSC although that is yet to be agreed.
Should 2M accept a new member, that will weaken The Alliance, a new group being set up by Hapag-Lloyd, the three Japanese lines, and Yang Ming, with HMM originally planning to be a member before it set its sights on 2M.
Another Top 20 line is Zim, which has withdrawn from some major east-west trades to concentrate on those where it already has a strong presence, but the Israeli line has just had to restructure debt and has not joined any of the big three alliances.
The global fleet now consists of just over 6,000 vessels of almost 21m teu, Alphaliner estimates.
It is that capacity that has created so much chaos in the container trades, with ships ordered in expectation of trade growth that simply has not materialized.
The industry is now in the throes of the biggest round of consolidation it has ever experienced and most reckon there is more to come.
Tonnage providers face particularly hard times as chartered vessels are returned to their owners.
At the same time, ships that are still relatively young may face the breakers as owners and operators try to bring supply and demand back into balance.
Tough year ahead:
This year looks like being one of the toughest ever for the container shipping industry, but there is little sign of a recovery in the coming 12 months.
Indeed, it may be another two or three years before container shipping starts to produce some decent financial returns, say most analysts and industry insiders, with those struggling to cope having to decide whether to give up the fight rather than sink even deeper into the red.
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Source: Lloyd’s List
