Report Calls for Shipping Liners to Consolidate

By Aiswarya Lakshmi
Tuesday, March 01, 2016
Image: Maersk Line

 The need of the hour is consolidation of container ship lines order to regain profitability and to overcome financial struggles, consulting firm AlixPartners says in a new report. 

 
The report says that an increased supply of vessels, coupled with the introduction of giant ships, had met with a dwindling demand in the second half of last year resulting to overcapacity, low profitability and reduced cash flow.
 
The shippers with “M&A on their minds need to be proactive” if they hope to reap the kind of rewards winners in consolidated industries enjoy—or to prevent becoming acquisition targets themselves, the consultants suggested, pointing to the successful consolidation of the US airline industry as a possible template to follow.
 
"For the first time in recent memory, the container-shipping industry is seeing the beginnings of the kind of consolidation that has brought increased and sustained profitability to winning players in other industries for years," said Foster Finley, managing director at AlixPartners and co-head of the firm's maritime practice. 
 
Foster said: "However, further consolidation and operational overhauls will be necessary if players in this industry, which as a whole remains deeply troubled, wish to reap the kind of benefits enjoyed in other industries. In addition, these uncertain market conditions are casting a long shadow over the annual rate-negotiation cycle kicking off between major importers and their carrier bases."
 
According to the report, in part due to the continued introduction of megaships—vessels capable of carrying more than 18,000 twenty-foot-equivalent container units (TEUs)—industry capacity globally is expected to jump by 4.5% in 2016 and another 5.6% in 2017, while demand is expected to increase just 1% to 3% this year. 
 
Ironically, says the study, the resulting overcapacity—and corresponding negative effect on profits—is in part the result of the industry's drive in recent years to correct its chronic supply-and-demand imbalance by building these more-efficient but mammoth ships. 
 
Moreover, says the report, this new capacity in major trade lanes is likely to continue to distort the supply-and-demand balance globally, as the slate of vessel deliveries scheduled for 2016 and 2017 remains robust while vessel-scrapping activities remain muted.
 
Given the already-challenged state of the industry and the turn for the worse of late of several key industry barometers, the AlixPartners study forecasts continued poor financial results for at least the remainder of 2016. However, it also provides a possible consolidation template for industry companies not willing to live with what the study calls a "new normal" of anemic results.
 
According to the study, recent multibillion-dollar mergers such as Hapag-Lloyd A.G.'s acquisition of Compania Sud Americana de Vapores S.A. (CSAV), CMA CGM S.A.'s purchase of Neptune Orient Lines Ltd. and the combination of China Shipping Container Lines Ltd. and China Ocean Shipping Co. (COSCO) are signs that, after a decade of muted M &A inactivity, the container-shipping industry could be ripe for a long-deferred consolidation—something, says the study, that could greatly benefit ambitious carriers and financial sponsors.
 
As a possible model, the study points to the consolidation of the U.S. airline industry, also an asset-intensive industry once plagued by rampant overcapacity, cut-throat pricing pressures, complex alliances, disparate fleets and hubs, and persistent financial losses—until individual companies and financial backers finally took consolidation actions, resulting in a much stronger industry today.
 

Maritime Today


The Maritime Industry's original and most viewed E-News Service

Maritime Reporter May 2016 Digital Edition
FREE Maritime Reporter Subscription
Latest Maritime News    rss feeds

Finance

North P&I Club Repots Positive Financial Performance

North P&I Club reports that an exceptionally low year for claims has helped it increase its free reserves by $90 million to $428 million and deliver a combined ratio of 73.

DONG Energy Listing to Value Group at up to $16 Bln

DONG Energy's has set a potential $16 billion price tag on its stock market debut, giving investors a chance to buy into the growth in offshore wind power, but

WSS: Post-combustion Fuel Treatment Cuts Vessel Costs, Risk

Wilhelmsen Ships Service, a provider of products and services to the shipping industry, is advising vessel operators to wage war on soot. According to WSS, soot

Logistics

Lower Large Dry Bulk Rates drag Baltic Index

The Baltic Exchange's main sea freight index, tracking rates for ships carrying dry bulk commodities, fell on Thursday dragged down by lower demand for larger vessel segments.

EGAS: Egypt to tender for 10 LNG Cargoes

Egypt will tender next week to import 10 cargoes of liquefied natural gas (LNG) for delivery in July and August, an official from the state gas company, EGAS, said on Thursday.

Asia Dry Bulk-Capesize Rates Could Climb

More coal cargoes, rising oil prices could support rates. Freight rates for large capesize dry cargo ships on key Asian routes are likely to rise next week on

Mergers & Acquisitions

Tideland Signal Acquires Julius Signal

Tideland Signal Corporation, now part of Xylem, has entered into a definitive agreement to acquire certain assets of Julius Signal, extending the company’s portfolio

FedEx Completes Takeover of TNT Express

US-based FedEx Corp. completed its €4.4 billion ($4.9 billion) acquisition of Dutch TNT Express, , with integration of the companies to start immediately.   The

CMA CGM Proceeds with NOL Takeover after China Okay

CMA CGM, the world's third-largest container shipping firm, is to go ahead with its planned acquisition of Singapore's Neptune Orient Lines (NOL) after receiving regulatory clearance from China,

 
 
Maritime Careers / Shipboard Positions Maritime Security Maritime Standards Navigation Offshore Oil Pipelines Pod Propulsion Ship Repair Shipbuilding / Vessel Construction Winch
rss | archive | history | articles | privacy | contributors | top maritime news | about us | copyright | maritime magazines
maritime security news | shipbuilding news | maritime industry | shipping news | maritime reporting | workboats news | ship design | maritime business

Time taken: 0.0732 sec (14 req/sec)