Following a wave of an unprecedented number liner consolidations over the past number of years, there have been indications that this trend is likely to persist in the shipping industry in 2018.
However, whether this applies to liners or other players involved in the immense ocean freight industry is debatable. According to iContainers, the mergers and acquisition activities for shipping lines are likely to lose steam and slow down this year.
“In terms of carriers, I doubt we will see anymore movements in the near future. I don’t see any major players breaking right now. Any acquisitions that were to take place now would be a purely strategic move, or if an opportunity were to present itself for one of the bigger carriers to buy up a younger or smaller one, or perhaps a niche carrier that fits their strategic plans.”
- Klaus Lysdal, Vice President of Sales & Operations at iContainers.
Due to the prolonged market downturn weighing the economy down in the past few years, many carriers have had to resort to forming alliances and setting agreements on slot purchases. These helped them gain cost-effectiveness by combining their resources without having to face debt risk. Such movements have had their effects, both negative and positive, trickle down to shippers.
“We’ve seen so many consolidation activities that there are now a lot fewer options for shippers to choose from and less flexibility with the number of carriers so dramatically reduced. But on the other hand, the good thing that has come out of all of this is some very much-needed rate increases to make the industry healthier overall.”
- Klaus Lysdal
In just the past year so, the top shipping lines have reshuffled to form new alliances. Japan’s top three lines have also announced a merger to battle the falling demand and South Korea’s top liners are also looking to emulate to avoid a repeat of Hanjin. M&A wise, we’ve seen Hapag-Lloyd’s merger with UASC, CMACGM’s takeover of APL, and more recently, COSCO Shipping’s acquisition of OOCL and not to mention Maersk’s purchase of Hamburg Süd.
But now that the market seems to be somewhat bouncing back from this turmoil, any more mergers, acquisitions, or alliances, may not entirely be a ‘do or die’ scenario but a purely beneficial union for growth.
SeaIntelligence Consulting CEO, Lars Jensen seconds that thought. On a special visit to iContainers earlier this year, the shipping veteran remarked that the limited number of supercarriers left make any further major consolidation efforts, at least among the top few liners, unlikely.
“We’re now down to only seven supercarriers. I don’t think anything is going to happen up there anymore. There might be some that want to merge. CMA, might, for example, want to merge with Hapag-Lloyd, but I’m not sure that the competition authorities are going to allow it.”
- Lars Jensen, SeaIntelligence Consulting CEO
A couple of spots down, given their ambiguous sizes, Asian carriers Yang Ming and HMM may just be threading the line. But for how long?
“Long term, Hyundai and Yang Ming are not going to be viable in their present states. They’re too large to become niche carriers and too small to become super carriers. They will transform or disappear in some way, shape, or form. Yang Ming is likely to be absorbed into Evergreen, even though Evergreen hates the idea. Hyundai will persist as long as the Korean government wants to subsidize them. And eventually, they might tire of that.”
- Lars Jensen
Having said that, Mr Jensen says that the shift may be moving down the line to the smaller carriers, where hundreds of small and medium sized carriers will be starting to stir and probably where the consolidation game will ramp up over the coming years.
“The capacity operated by these carriers have skyrocketed. And it’s not because they were operating more ships. It’s because they were redelivering smaller charter vessels and taking larger ones on. There’s no way they can all fill the ships that way. So there will be a consolidation with these small and medium sized carriers.”
- Lars Jensen
A recent Moody’s report says shipping companies who fail to participate in alliances and engage in slot purchase agreements will lack the cost-efficiency required to be competitive enough. This will probably result in an disadvantage, with the exception of regional firms with a focus on a specific market area and not compete on the main trade lanes.
Smaller carriers aside, Mr Lysdal says freight forwarders may also be mimicking the move and engaging in their own M&A activity. But their attention will be on companies with technological capabilities and/or advances in order to pursue strategic growth.
“We could see the mid- and large-ranged forwarders acquire tech-savvy companies as a shortcut into the digital market, then add additional services to their portfolio. This gives them more of a headstart and a foundation to start from rather than build their own set up from scratch.
I think we will see that the top players will be watching and observing from the sidelines for a while. Once they see someone really make a breakthrough, that’s when they make their move.”
- Klaus Lysdal
"Shippers should plan as far in advance as possible. With COVID, Brexit and the elections in USA, this season will be more unpredictable than the previous one."
Klaus Lydsal, vice president of operations at iContainers