The container shipping industry is
facing testing times ahead…!
The
container shipping industry has been witnessing a wave of mergers and
acquisitions - a phase of consolidation among top lines. We can also
expect that there will be major changes in the alliances.
Realignment
of major global alliances can now be expected considering
1. merger of the
container fleets of Cosco and China Shipping
2. CMA CGM’s acquisition
of APL.
Alliances which can undergo changes
will be
1. CKYHE Alliance - as
Cosco is part of the CKYHE Alliance,
2. O3 alliance as China
Shipping is part of the Ocean 3 Alliance
3. G6 APL is part of the
G6 Alliance.
New alliance structure could be:
1. 2M (Maersk, MSC) –
this alliance hopefully will be strong as it had been signed for next 10 years!
2. G6 (OOCL,
Hapag-Lloyd, NYK, Hyundai, MOL, Hamburg Sud);
3. KYHE (“K” Line, Yang
Ming, Evergreen, Hanjin);
4. O5 (CMA CGM, CSCL,
UASC, APL, Cosco) which will be called O3
As
a result, all three of these alliances will undergo some kind of
reconfiguration as carriers switch in and out of them over the next year or
more.
Why consolidation?
1. Consolidation should
help in having the required fleet size to remain competitive
2. Overcapacity which
has brought the freight rates down to 1/3 rd of previous year 2015.
As
per Drewry, we can expect 1.3 million twenty-foot-equivalent units of capacity
to hit the water by 2017,
Also
1.60 million TEUs of new capacity would be added to the fleet in 2016,
which is a 7 % growth. Overcapacity is a serious issue and this is leading to savage rate wars leading to consecutive losses for major shipping lines between 2010 - 2015.
Drewry’s
Global Supply/Demand Index — a measure of the relative balance of vessel
capacity and cargo demand in the market where 100 equals equilibrium — now has
a reading of 91 in 2015, its lowest level since the recession-ravaged year of
2009.
Impact on shippers: Highest uncertainty!
News regarding alliances & consolidations will not be good for shippers as
they will be facing changes in liner services owing to change in routing and
schedules.
Fewer
players would also lead to higher freight rates in the long term.
Impact on jobs:
Maersk Line which is the largest container shipping line has had a lower
profit of $264 million (60% less) in the third quarter.
Shipping
majors like Maersk Line would eliminate 4000 shore based jobs by 2017
Impact on networks: We can expect
shipping lines to postpone or cancel orders for new ships & also look at
idling of existing ships / blank voyages .
To summarize : Consolidation has been a slow and
gradual process within the container shipping industry with various mergers and
acquisitions and also strategic alliances.
The top 5 carriers in terms of deployed capacity control 47
percent of industry capacity in 2016 versus 41 percent in 2010, Source:
Alphaliner, JOC.COM
The author is a Shipping & logistics professional and can be reached on
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