I have been involved in the liner shipping industry, on the operational side of the business, for almost 20 years now. I think it would be fair to say that we are currently going through one of the most interesting periods of time in the history of the industry. Change is a painful thing, but container shipping is way past the point where it needs to change.
It’s long been known that carriers are not particularly profitable, there is too much capacity in the market and consolidation is desperately needed for the industry to turn itself around. This has run through numerous cycles of incredible profitability, carriers ordering new, and ever larger vessels, followed by a complete collapse of the market. Until now, shareholders, banks and governments have propped up these unprofitable carriers and so the industry has remained largely unchanged for the last decade.
Something changed in the last 12 months and we have started to see the long needed consolidation of the key players. CMA CGM completed to acquisition of NOL (APL) earlier in the year, China Shipping and COSCO merged into COSCON (even though they were already had the same owner), Hapag Lloyd and UASC have had their merger approved, we are currently witnessing the slow and painful death of Hanjin Shipping and Maersk has not only decided to split the group into two, (“Transport & Logistics”, comprising of Maersk Line, APMT and DAMCO and “Energy”, comprising of Maersk Tankers, Maersk Drilling, Maersk Oil and Maersk Supply Service) declared that they will not build any more tonnage (to avoid adding even more capacity to the market).
Maersk will, instead, focus their attention on the purchase of smaller carriers. Whilst Maersk hasn’t given any indication of which lines it would target, there are many rumours flying around the industry regarding buying up Hanjin and/or Hyundai. I think it is unlikely that Hanjin will ever be up for sale, as is. The South Korean government is much more likely to give Hyundai Merchant Marine (HMM) first pick at what’s left over. That said, this could make Hyundai a much more attractive proposition for Maersk Line to target.
The thing you need to understand about Maersk Line is that there is one thing that matters more to them than anything else, even profitability. That thing is market share. There is an emotional reflex ingrained so deeply into the DNA of Maersk Line that they absolutely cannot be overtaken, in terms of market share, by anyone. They will fight to stay as the largest carrier, no matter what it costs.
This was clearly shown during the last major crisis when Maersk Line went to war over pricing with MSC. The strategy behind this was that Maersk Line had deeper pockets than anyone else and so could ride out the rough seas and would emerge on the other side with many of the smaller carriers in the Top 20 being driven out. It was only at the point where Maersk Line was losing $9 million USD per DAY and no carriers had gone out of business that they decided this “game of chicken” was not going to work. The price war stopped, freight rates recovered (to some degree) and the market remained the same.
What is interesting, and different, this time is that South Korea has chosen not to intervene in Hanjin and is allowing the collapse. Contrast this with a few months back where they injected capital in HMM to avoid it meeting the same fate. The cynic in me would say that is because HMM employed far more people in South Korea than Hanjin does. No matter, when one domino falls over, it’s a fairly safe bet that other will follow.
Another carrier that continues to intrigue me is ZIM Line, of Israel. Their main purpose is to ensure a continuous and unbroken supply chain to Israel. When the politics turns to fighting, the other carriers pull their Israeli port calls. ZIM line does not. Cash has been continuously injected into ZIM Line by the Israel Corp, just to keep them going. If I was to be asked for advice regarding ZIM Line, my message would be pretty simple. Stop trying to be a global carrier and competing with companies that are just way too big for them. Establish a couple of hub ports in the Mediterranean, do some deals with the bigger carriers and then just operate as a feeder service into Israel. Yes, the shareholders are going to have to swallow a lot of debt, but at least this could guarantee a more secure future of the carrier.