In the past year (2016), the container shipping sector has been challenged on many fronts. Falling freight rates – which have been under pressure since 2007 – coupled with years of struggling with over capacity, have weighed heavily on all of the industry’s participants.
From shipping ports and container terminals to box carriers big and small, 2016 was characterized by mergers, alliances, and bankruptcy.
Mergers and Acquisitions
Japan’s three largest container lines – Nippon Yusen Kaisha, Mitsui OSK Lines Ltd. and Kawasaki Kisen Kaisha Ltd. – announced late in November of 2016 that they planned to merge their operations. This consolidation gave them control of 7 percent of the world’s container shipping trade.
Earlier in 2016 also saw the merger of China’s top two carriers, Cosco and China Shipping Container Lines.
We welcome consolidation. Our industry is fragmented and consolidation can help transform our business for the benefit of our customers. – Spokesman For Maersk Line
Hapag-Lloyd AG was very active in container liner acquisitions in 2016. Following the German container shipper’s purchase of CSAV, the company invested in the United Arab Shipping Company (UASC). This investment gave Hapag-Lloyd access to UASC’s six 18,800 TEU container ships, as well as a larger market share. This moved the company from the sixth-ranked container line, to fifth globally.
The popular French carrier CMA CGM acquired Neptune Orient Lines, the Singapore-based owner of APL.
Alliances and Partnerships
The OECD reports that currently almost all of the world’s major container lines are part of a global alliance. On certain routes such as Asia-North Europe, the vast majority of services – 21 out of 22 – are offered by the major container shipping alliances.
Consolidation is one of the remedies to cure the horrible market – Peter Sand, Analyst at BIMCO
The three Japanese liners (mentioned above) that merged in November of 2016 are part of a vessel-sharing group with Hapag-Lloyd AG, known as the Alliance.
Beginning in 2007 an excess of container shipping vessels, coupled with weakening trade growth, drove container lines to try to underbid each other’s freight rates. This ultra-competitive environment proved to be crippling for some industry leaders. South Korea’s biggest container shipping line, Hanjin Shipping Co., became the first victim of the price war; filing for bankruptcy protection in August of 2016.
Looking Ahead To 2017
Analysts and industry leaders agree that freight rates have likely hit bottom. This means that there is nowhere to go but upward and back to profitability. This improvement, coupled with the reduction in competition resulting from the year’s mergers, acquisitions, and bankruptcy, means that investors in the shipping industry can expect a much more favorable market in 2017.