The CMA CGM's move to buy Singapore’s Neptune Orient Lines (NOL), could lead to one of the biggest acquisitions in the shipping container industry in years.
If it goes through, NOL and CMA's merger would be the biggest container shipping deal in years. The buy-out may contribute to the consolidation of container shipping at a time when scale was more critical than ever, according to observers in the field.
A report in CNBC says that the deal is a sign of further consolidation in the global shipping industry on the back of a collapse in freight rates as growth in China slows, reducing the country's appetite for commodities just as a backlog of large vessels come into service.
"At a difficult moment of the cycle, consolidation is obviously a way for these players to gain greater market share and greater strength toward the customers."
The high cost of buying giant new container ships, coupled with fierce competition to fill them, will also kick off a round of consolidation in the shipping industry that is likely to continue.
Container shipping is critical to the world economy, carrying manufactured and semi-finished goods worldwide highlighting the consensus for many years about the need for its further consolidation.
Big ships that are as long as 400m still require only one crew to operate and their fuel requirements and construction costs have risen far more modestly than the largest vessels’ capacity, which has doubled to 19,000 twenty-foot equivalent units of containers over the past 10 years, says a report in FT.
Such ships, when operating full, should be able to make money more easily even when freight rates are low.