2016 will be remembered in liner shipping as a year of unprecedented consolidation and the biggest ocean carrier bankruptcy for 30 years.
Key container line names such as APL, China Shipping, ‘K’Line, MOL, NYK and UASC will eventually disappear into their new organisations; the brands consigned to the history books or Wikipedia.
Ironically, the infamous name of bankrupt Hanjin Shipping will linger on for much longer, given the myriad of legal action that will extend for years – whether or not the South Korean carrier is eventually rehabilitated as an intra-Asia niche player.
Following the completion of Hapag-Lloyd’s merger with UASC, expected by early 2017, and the merging of the three Japanese container lines into one business unit by April 2018, the top seven carriers will control over 65 per cent of global capacity, according to analyst Alphaliner.
And the recent bout of M&A activity is bound to exert more pressure on the midsized carriers such as OOCL, Hamburg Sud, Yang Ming and Zim.
They must somehow compete in the market place with the boxship big boys, who have the advantage of scale and thus lower unit costs, and survive to tell the tale, unlike the South Korean carrier.
Indeed, OOCL’s third quarter operational statement highlighted the damage inflicted on the Hong Kong-headquartered carrier’s P&L account by the blinkered race-to-the-bottom mentality of liner shipping over the past few years.
The carrier often held up as a template for other in being able to turn a profit in bad times as well as in good, increase its liftings in every trade lane during the period, compared to Q3 2015, but at the same time its earnings on all routes declined – on some routes significantly.
Thus for OOCL there will be more pain for its shareholders and questions asked as to when the corner will be turned, or if that corner is even in sight.
The container carriers had a disastrous year: according to some analyst estimates the industry finished 2016 having collectively lost a massive $10bn.
Effectively carriers have subsidised thousands of containers that they transported on their ultra-large state-of-the-art ships this year.
As incredible as it might seem on too many weeks those shiny fully-laden behemoth vessels arriving in Europe from Asia lost money on the voyage.
But even a charity has to balance its books, and the day of reckoning has caught up with the liner industry. Its investors have had enough and are demanding action, and if that means merging with another carrier, then so be it.
The carriers have nobody to blame but themselves for their current predicament.
They now must take their medicine; to quote the First American President, Benjamin Franklin: “There are no gains without pains.”
And what it means for shippers is that the choice of some 20 global carriers on major trade lanes 10 years ago will have halved come 2018.
But on the upside the pricing volatility and the risk to the supply chain form service disruptions could be coming to an end.
“The industry is moving towards fewer but stronger (and in time more stable) carriers,” said analyst Drewry reassuringly.
~ Source: Voice of the Independent, November 2016, No 059
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This post was written by Ilse Venter