In the past 12 months, we have seen how mergers and acquisitions (M&A) are changing shipping industry’s face. Four major deals have taken place between several shipping lines worldwide.
As market conditions are getting worse and rates keep falling, these consolidations seem to be the best alternative to survive, allowing shipping lines to join forces and reduce costs. On its report Liner Industry Consolidation, Drewry estimates that container shipping sector returns have been 30% lower than MSCI Global Index since 2010.
Drewry also expects that financial results for lines will not improve in 2017, which will create the perfect scenario for more industry consolidation. “Carriers with weak financials will be forced to address their cost structures in the absence of growth,” says the paper.
2M Alliance: In July 2014, Maersk Line and MSC signed a long-term Vessel Sharing Agreement (VSA) called 2M alliance, holding about the 28% of world’s container ship capacity according to Alphaliner.
Recently, Hyundai Merchant Marine Co, one of the biggest South Korea’s biggest shipping lines announced its join to this group by 2017.
Ocean Alliance: On April 2016, CMA-CGM, COSCO, OOCL and Evergreen formed the Ocean Alliance allowing them to offer competitive products connecting markets in Asia, Europe and US with a fleet of over 350 containerships.
The Ocean Alliance also expects to increase its US East and Gulf Coast services starting from April 2017.
THE Alliance: In May 2016, some of the biggest Asian and European shipping lines gathered to sign a new vessel-sharing alliance, including Germany’s top container line, Hapag-Lloyd and five Asian Carriers: Kawasaki Kisen Kaisha Ltd., Mitsui OSK Lines Ltd., Nippon Yusen KK, Hanjin Shipping Co. and Yang Ming Marine Transport Corp. THE Alliance will control 18% of world’s container shipping fleet with more than 620 vessels.
After several months of discussions, Hapag-Lloyd finally announced its merger with UASC, helping to increase the group’s capacity by 4 million TEU, starting by April 2017.
Drewry says on its report that, as the advantages of alliances are clear, there are also many risks to take into count. For example, because of the complexity of today’s alliance structures, many of the members would need to continue to work in two parallel arrangements for some time.
Keeping the customer base and market share will be another challenge for new alliances. Changes in the services provided, the IT infrastructure or the customer service personnel could lead to the loss of one or many customers.
The integration of two or more companies, with different organization, languages and culture, management and remuneration are, according to Drewry, some other associated risks during transition period that cannot be ignored.
Here an infographic by Xeneta: