Up for Sale? Who is next

The container-shipping industry has been highly unprofitable over the past five years. Making things worse, earnings have been exceptionally volatile. Several factors are responsible, notably trade’s spotty recovery from the global financial crisis, and redoubled efforts by corporate customers to control costs. Some of the pain is self-inflicted: as in past cycles, the industry extrapolated the good times and foresaw an unsustainable rise in demand. It is now building capacity that appears will be unneeded.

These problems are real and significant, and largely beyond the power of any one company to address. But shipping companies cannot afford to throw up their hands and accept their fate.

These developments are leading to alliances, mergers, acquisitions & sale!

Latest in the race is Hamburg Süd. The owners of Hamburg Süd are tipped to opt for an outright sale rather than a merger. A sale of the Hamburg Süd by the family owners Oetker conglomerate, which runs the gamut from pizza and beer to financial services and shipping, would accelerate the consolidation that has significantly reshaped the financially troubled industry this year.

Who are the buyers?
On 1st December 2016 - Maersk Line and the Oetker Group have reached an agreement for Maersk Line to acquire Hamburg Süd, the German container shipping line. The acquisition is subject to final agreement and regulatory approvals.

Maersk CEO Soren Skou confirmed in September that Maersk Line is mulling acquisitions in its bid to grow in line with the market when he unveiled the group’s new strategy that will split its shipping, ports, and logistics operations from its energy division.

One company's loss is Another company's gain!

Hamburg-Süd has twice held merger talks with Hapag-Lloyd, most recently in 2012 and 2013, but the companies failed to agree on shares in an enlarged carrier. Hapag-Lloyd last week secured approval from the European Union for its takeover of United Arab Shipping Company.

Up for sale? Who is next?

Hamburg Süd, along with Orient Overseas Container Line, Yang Ming Line, Hyundai Merchant Marine, and Zim Integrated Shipping Services, are coming under increasing pressure to consolidate following a spate of merger and acquisition deals that have seen the market leaders pull ahead of mid-ranked carriers.

Hamburg Süd – as a line

Hamburg Süd has focused on north-south routes, particularly Latin America, where it strengthened its position with the $160 million acquisition of the container line services of Chile’s CCNI in 2015, and recently moved into the east-west market through a cooperation agreement with UASC.

The carrier operates a fleet of 116 ships — 44 owned and 72 chartered — with an aggregate capacity of 600,344 twenty-foot-equivalent units and a market share of 2.9 percent, according to industry analyst Alphaliner. It has eight ships of 30,400 TEUs on order.

The Hamburg-based line, which is also involved in bulk shipping and product tankers, boosted revenue by almost 17 percent in 2015 to just over 6 billion euros ($6.4 billion) driven by the acquisition of CCNI and its debut on the east-west liner trades. Container traffic last year was up 21.5 percent at 4.1 million TEUs.

Unlike the majority of its competitors, Hamburg Süd is not a member of an alliance. The company does not publish profit and loss figures.

J3 for shipping - from land of the rising sun

Japan’s big three shipping majors – NYK, K Line, have decided to end decades of fierce rivalry and merge their container shipping businesses into a new line ( a new joint-venture company ) with a total capacity of 1.4m TEUs , which would rank as the sixth largest in the world and have a global market share of approximately 7%.

J3 - Stronger together

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When will J3 be operational?

The deal was subject to shareholders’ agreement and regulatory approval with a planned establishment of the new company scheduled for 1 July 2017, and the target for business commencement set for 1 April 2018.

What is in it for the shipping trade?

·         “J-3” will become the world’s sixth-largest container line, with the top seven lines controlling around 65 percent of the global liner capacity by 2018.

·         The J3 will operate a combined fleet of some 1.4million twenty-foot-equivalent units with a global market share of about 6.6 percent, based

·         J3’s JOINT order book totals 358,000 TEUs

Before J3 & After J3

According to vesselsvalue.com, NYK owns the largest container fleet, with 68 vessels providing a total capacity 507,046 teu, valued at $2.33bn; followed MOL, with 35 ships for 307,449 teu, valued at $1.7bn, and third K Line, which owns 31 containerships with a capacity of 240,440 teu and a value of $1.2bn.

It has been agreed that the shareholding of the container line joint venture will be: K Line 31%, MOL 31% and NYK 38%, with a total contribution of Y300bn, including fleets and share of terminals, but will exclude terminal operating business in Japan.

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Why go for J3?
We will look at the reasons for J3 :

1.    Stability : The three Japanese companies have made efforts to cut cost and restructure their business, but there are limits to what can be accomplished individually. Under such circumstances, the 3 carriers have decided to integrate their container shipping business so that they can continue to deliver stably high quality and customer focused products to the market place.

In the past few years container liner shipping has been a problem child for all three of the Japanese trio as they have found themselves increasingly unable to match the economy of scale unit benefits enjoyed by the big three of Maersk Line, MSC and CMA CGM.

2.   J3 is part of THE Alliance: A factor in the decision to merge their container activities is that the Japanese carriers will all be members of the new THE Alliance east-west vessel sharing grouping from April next year, which makes the integration significantly less complex.

After the bankruptcy of Hanjin Shipping and the merging of the Japanese trio - THE Alliance will be streamlined into three carriers: Hapag-Lloyd, Yang Ming and the new Japan carrier J3 , thus overcoming the “too many cooks” criticism that has previously been levelled by analysts at the grouping.

3.     Japanese shipping majors share a Common corporate culture : Moreover, the Japanese shipping groups have a close relationship that stems from their “common corporate culture” with senior executives and operational management naturally familiar with their counterparts at the other companies.

4.      Competition’s M&A activity:  The container shipping industry witnessed a flurry of M&A activity in the past year – with of CMA CGM’s acquisition of NOL, Hapag-Lloyd’s merger with UASC, and the merging of the two Chinese state-owned lines – has widened the gap in this sector and proved a drag on consolidated group results for the Japanese companies.

According to Alphaliner data the merger of Hapag-Lloyd and UASC will lift the German carrier to fifth in the world rankings at 1,479,968 teu capacity, behind the merged Cosco and CSCL at 1,560,999 teu, with the proposed Japanese grouping taking the sixth spot with 1,369,728 teu.

Top Lines - in 2018?

Other facts: The three companies all operate portfolios of diversified enterprises that include: bulk shipping, car transportation, LNG, tankers, offshore, energy heavy lift and air cargo transportation.The three japanese majors have significant overlapping interests in terminals worldwide which may need to be rationalized.

3D Printing / Additive Manufacturing : Its Disruptive Impact on Supply Chain

Picture phones and hand-held mapping devices were once devices of the imagination until technology made them real. Now, we can add 3D printers to this list of inventions. 3D printers have a huge potential to bring revolutionary changes. 

3D printers have been around as huge, costly machines for three+ decades, advances in digital scanners and software now make 3D printers accessible tools that can design and create products that once required a factory and dozens of parts. In fact, 3D printers can make items that even traditional factories can’t. With 3D printing, it’s a whole new game. 

What Can 3D Printers DO for YOU?

We are just starting to see the worldwide impact of 3D printing which is also known as Additive Manufacturing. What could previously only be imagined can now be made in minutes. Need a car 3D printed - Yes you can do it! Need a custom-fitted prosthetic hand or hearing aid? Print it on a 3D printer. Stuck on a freighter in the middle of the ocean with a broken engine valve? Print a new one. Have an idea for a cool new product? There’s no need to raise capital and have it manufactured – just design it yourself and print it on your 3D printer. The possibilities seem endless. 

3D-printed products will be made of advanced materials that are stronger, longer-lasting and multi-purpose – like bandages that help wounds heal. And because they can be manufactured in small runs, products like personalized replacement knees and hips are already being customized for individual patients. 

Even the U.S. Army is exploring the use of 3D printers to produce battlefield rations with nutrients customized to a soldier’s individual needs. 

3D Printing: A look at the Trends

3D printing is a hot topic; President Obama even gave it a plug in his 2012 State of the Union Address, saying, “3D printing . . . has the potential to revolutionize the way we make almost everything.” 

Elon Musk, CEO and CTO of Space Exploration Technologies Corp., or SpaceX, said that with 3D printers, “I believe we are on the verge of a major breakthrough in design and manufacturing . . . it’s going to revolutionize design and manufacturing in the 21stCentury.” 

The 3D printing market is growing fast. Estimates by Wohlers Associates, a consulting firm that reports on 3D printing trends, indicate annual industry growth of 20% to 30% as major manufacturers adopt the technology, such as GE Aviation which makes fuel nozzles used in its jet engines through 3D printing. 

Technology research and analysis company Canalys projects the global 3D printing market will go from $2.5 billion in 2013 to $16.2 billion in 2018. 

3D Printers and the Supply Chain

As technology made the world contract, companies expanded overseas and even local firms partnered with suppliers across the globe, leading to the rise of the global supply chain. In the not-so-distant future, 3D printers could transform it to a globally connected, yet totally local supply chain. 

Because 3D printers inherently create a close relationship between design, engineering, marketing and manufacturing, their use holds the potential to shift some manufacturing away from low-wage countries and closer to the customer base, so companies can more quickly respond to consumer demand. 

Factories could be affected, too. Additive manufacturing eliminates repetitive production tasks, so workers would need a higher level of skills to make more sophisticated goods. Factory jobs could dwindle as the focus shifts to design and engineering, logistics and IT. 

Here are ways in which 3D printers could alter the supply chain:

• Manufacturing lead times will be substantially reduced (think minutes, not days).
• New designs will have a shorter time to market.
• Customer demand will be met more quickly.
• Materials will be used more efficiently, as leftover substrate powder can be repurposed for the next project.
• Logistics will adjust to print-on-demand, eliminating the need to carry inventory. 

3D Printing ! Disruptive technology which will disrupt manufacturing and supply chains

The rise of 3D printing will greatly affect manufacturing and the supply chain. Its value in creating complex items that were once made on assembly lines has the potential to eliminate the need for high volume production from a traditional factory, as well as the factory workers. 

We can also expect the supply chain will become more efficient, more LOCAL and yet globally connected !

Today’s supply chains suffer from global sprawl, with months required to design and source components, and then assemble them into a finished product. Much of the time and expense in supply chains derives from the need to negotiate with and monitor suppliers. All this is made worthwhile due to the benefits of accessing specialization and competitive advantages from around the world.

The specialization and economic benefits of globalization become outdated in a world where a 3D printer and some spools of wire or other generic inputs can make nearly any desired product relatively quickly. Generic inputs require far less negotiation and planning. They also do not become obsolete and the quality is standardized, meaning that there’s less need to monitor supplier performance. Since nearly all value is added by the 3D printer and inputs are relatively low value, standardized commodities, Just in Time Inventory (JIT) and other inventory reduction approaches will be needed less.

Plan: The Consumer Takes Charge : 3D printing’s most amazing impact will be how it puts consumers in charge of the supply chain—and most companies are not ready. The old supply chain reference models put the company in charge of nearly the entire supply chain: developing new product offerings, sourcing all components, overseeing manufacturing and assembly, and finally distributing products to the retail level. The customer only gets to order the product after all the work is done, choosing among available offerings. In this model, companies take a huge gamble on whether and how many of a product they will sell, leading to waste and diminished profitability.

3D printing means a greatly simplified, highly responsive, and infinitely flexible supply chain fulfills the order. In the future supply chain, the customer places the order first, and then a local, highly automated 3D printing shop produces the finished product and then delivers it, often via drones. Rather than plan, source, make, deliver, and return, a future supply chain model will start with the consumer order which will initiate make, deliver and return.

The demand economy is disrupting every sector...
When demand economy is paired with the advent of 3D printing, is a true game changer for the manufacturing industry. It should be a warning sign for companies that if they don’t innovate their supply chains, they may become irrelevant as consumers will have more control of the production of their own products.

The specialization and economic benefits of globalization become outdated in a world where a 3D printer and some spools of wire or other generic inputs can make nearly any desired product relatively quickly. Generic inputs require far less negotiation and planning. They also do not become obsolete and the quality is standardized, meaning that there’s less need to monitor supplier performance. Since nearly all value is added by the 3D printer and inputs are relatively low value, standardized commodities, Just in Time Inventory (JIT) and other inventory reduction approaches will be needed less.

To Summarize: 3D Printing will tear up the global supply chain apart and re-assembles it as a new, local system.

The traditional supply chain model is, of course, founded on traditional constraints of the industry, the efficiencies of mass production, the need for low-cost, high-volume assembly workers, real estate to house each stage of the process and so on.

3D Printing / additive manufacturing bypasses those constraints. 3-D printing finds its value in the printing of low volume, customer-specific items, items that are capable of much greater complexity than is possible through traditional means. This includes hollow structures like GE's fuel nozzles that would normally be manufactured in pieces for later assembly.

This at once eliminates the need for both high volume production facilities and low level assembly workers, thereby cutting out at least half of the supply chain in a single blow.

From there, the efficiencies of that traditional model stop making sense, it is no longer financially efficient to send products zipping across the globe to get to the customer when manufacturing can take place almost anywhere at the same cost. The raw materials today are digital files and the machines that make them are wired and connected, faster and more efficient than ever. And that demands a new model—a need to go local, globally.

Logistics Must Change to Meet Holiday Retail Needs

Logistics companies and retail supply chains will need to adapt to meet high delivery volumes expected this holiday season due to very strong e-commerce sales.  But How?

Like most other industries, transportation and logistics (T&L) is currently confronting immense change; and like all change, this brings both risk and opportunity. There are many ways the sector could evolve to meet these challenges, some evolutionary, others more revolutionary.

Expectations surrounding e-commerce sales have changed and are now part of the logistic equation.  

“It wasn’t too long ago, relatively speaking, that free delivery and returns felt like a special added-bonus,” says Andrew Schmahl, principal, PwC’s Strategy &. “Now, 60% of retailers surveyed say they will offer both this holiday season. Likewise, while same-day delivery is a commonplace option in large urban areas, it isn’t always feasible nationally, despite the increasing prevalence of regional and local distribution hubs. So, now, savvy consumers are working the system. Opting for curbside pickup or alternative drop-off locations can shave a few days off of delivery and save on shipping fees, especially since orders are ready for pickup in 24 hours almost 90% of the time.”

These realities along with some systemic changes are discussed in In PwC’s latest report, the “Future of the Logistics Industry.”

Individual and businesses expect to get goods faster, and more flexibly and at low or no cost delivery. Manufacturing is becoming more and more customized, which is good for customers but hard work for the logistics industry.  It can only hope to do this by making maximum and intelligent use of technology, from data analytics to automation to the 'Physical Internet. This promises lower costs, improved efficiency and the opportunity to make genuine breakthroughs in the way the industry works. But 'digital fitness" is a challenge for the sector, which is currently lagging many of its customers in this respect.

The report offers predictions as to what the logistics marketplace will look like in 5 to 10 years.  Here are some trends:

 -- Sharing the PI(e) -- The dominant theme in this scenario is the growth of collaborative working, which allows the current market leaders to retain their dominance. This could for example see a great use of the Physical Internet (PI) solutions, based on a move towards more standardized shipment size, labeling and systems.

--Start-up, shake up: In this scenario new entrants in the form of start-ups make a bigger impact. The most challenging and costly last mile of delivery will become more fragmented, exploiting new technologies like platform and crowd-sharing solutions. Theses start-ups collaborate with incumbents and complement their service offers.

--Complex competition: Here the competitive set evolves in a different direction, as large industrial or retail customers and suppliers become players in the logistics market themselves, not just managing their own logistics but turning that expertise into a profitable business model.

--Scale matters: The current market leaders compete for a dominant market position by acquiring smaller players, achieving scale through consolidation and innovation through the acquisition of smaller entrepreneurial start-ups.

Source: PWC