Cosmic Changes
The Liner Shipping Industry is arguably, undergoing the biggest period of changes in it's history. The larger carriers get larger, the smaller carriers become more niche carriers and then there are those stuck in the middle.
Think of the Container Industry a bit like our early solar system. In the beginning there was nothing but dust. Out of this dust, rocks began to be formed and would clump together. The larger the rocks grew, the greater their gravitational pull became, and the easier it became for them to grow. Eventually we were left with planets and moons. The planets can be considered the large and mid-sized carriers, the moons are the niche carriers.
The problem with a mid-sized planet is that every once in a while, one will collide and be absorbed by a larger planet. Thus making the larger carrier even bigger and increasing it's gravitational pull.
Analogies aside, we see this pattern being mirrored in the shipping industry. We have the top 6 carriers (Maersk, MSC, CMA CGM, COSCO, Hapag-Lloyd and Evergreen), the mid-sized carriers (OOCL, Yang Ming, MOL, NYK, PIL, ZIM, Hyundai, K Line) and then the smaller niche carriers or feeder companies.
With CMA CGM taking on APL, COSCO about to swallow up OOCL and Maersk Line completing its' acquisition of Hamburg Sud, the bigger players continue to get bigger. COSCO's appetite for buying up the competition doesn't show any signs of abating and it's that middle ground where the feeding frenzy is going to take place.
Alliances have been existence for decades but it has come to a point where even the top 2 carriers, Maersk Line and MSC, had to team up. Maersk, in particular, is having to face up to the fact that the era of operating alone has come to an end.
For the Japanese, the unthinkable has happened and their 3 main carriers, NYK, MOL and K-Line are being forced together as the Ocean Network Express (ONE) just to give them a chance of survival.
So what are we left with? Yang Ming Line, PIL, Zim Line and Hyundai. Aside from PIL, none of these are particularly attractive propositions. The only reason for one of the larger carriers to look to buy would be to increase market share. There is a battle going on to be the top 3 or 4 carriers but the options for increasing capacity are diminishing.
Both MSC and CMA CGM have announced orders for 22,000 TEU vessels, one wonders whether Maersk will make some design changes and then roll out the 3rd generation of Triple E vessels. COSCO appears more inclined to buy other companies since this is much faster than building vessels.
The big question here is, do any of the Top 4 carriers have the appetite and the cash to acquire one of the Top 4? CMA CGM has been stretched with their purchase of NOL. Maersk Line has the same issue with Hamburg Sud and MSC continues to grow organically, as it has always done. The other big question would be whether the owners of those lines would be prepared to sell.
How much value does Mr Aponte of MSC and Mr Saade of CMA CGM place on their own companies and are they anywhere near the point of considering a sale to either COSCO or Maersk?
Whatever happens at the top, we firmly believe that over the next few years we will see a distinct split in the industry. There is no room for mid-sized carriers. the more of them go bankrupt or are acquired, the harder it will be for the remaining players to compete, even in alliance. The feeder carriers don't have too much to worry about and the niche carriers can continue to defend their territory. One only needs to look at Alphaliners Top 30 to see that there is a precipitous drop in market share percentage once you get down to Evergreen (No. 6 on the list with 5% of the market).
Things will eventually settle down, just as they have within our own Solar System, but there will still be the rogue asteroid out there to unbalance the table for a while.
#2M #THEALLIANCE #CMACGM #Maersk #COSCO #MSC #Acquisitions #Mergers
