In a short six years, the container transport industry has condensed from 20 carriers to less than 10 lines controlling nearly 60% of the world’s container cargo. No doubt that this strategy has lifted the container transport industry’s spirits –and bottom line- but is this new scenario a fair one for shippers? With less to choose from, is it really the best deal for cargo owners to only have a handful of suppliers to cater to their needs?.
This ambition seems to know no limits. Not only are the merger-hungry carriers eating smaller companies like a Pac Man, but also they are adding capacity to an already overstocked market. To look no further, Cosco’s recent purchase of OOCL has bumped the Chinese carrier to the top 3 lines, with 2.42 million TEUs and additional 640,000 TEU on order that will give them control over nearly 12% of the global market.
The end of an era?
The merger and acquisition trend has flourished only in the past couple of years, so its not quite enough time to qualify as an ‘era’ per se. But due to the intensity of the trend, industry experts seem to agree on the term “era of consolidation”.
However, this is coming to an end, with the exception of the fragmented intra-regional carriers who the mega carriers can swallow in order to use as a feeder system for their Asia – EU / Asia-US routes, such as Africa-centric Pacific International Line (PIL) is the first likely candidate as the remaining carriers (Zim, Yang Ming, Hyundai Merchant Marine and Evergreen), which are government-financed or have some sort of government ownership or affiliation, which makes them ideal targets.
“Oligopoly: A market structure in which a small number of firms has the large majority of market share.” But, is oligopoly the right market model for the container transport industry? With so few carriers handling the world’s cargo, the temptation to fix prices could get the entire industry into trouble with regulatory offices such as the OECD and the American FBI.
Industry benchmark blog Xeneta analyzes the situation should the smaller Asian carriers be acquired by larger companies; since HMM is already tied to the 2M alliance and Evergreen into the Ocean Alliance. “Should they be acquired by any of the mega carriers, regulators might well look harshly at the resulting market share for the acquiring companies, and force lane adjustments prior to approval,” reads the analysis piece.
But the wave of mergers and acquisition isn’t the only monster at sea. The potential increase in capacity is a self-imposed menace the industry doesn’t seem to see. MSC is reported to be finalising an order for 11 ships of 22,000 TEU, which comes on the back of claims that CMA CGM is also planning to order nine 22,000 TEU ships. This has sparked fears of overcapacity in the Asia-Europe trade.
The megaships could enter the market in H2 2019, adding 105 ultra large boxships that would be live on the Asia-Europe trade that year. According to Alphaliner, this total includes 59 ships already in service and 46 units currently on order.
The problem with this excess capacity is that ships with 18,000 TEU need to command utilization rates of at least 91% to achieve cost savings… so if the trade routes are filled with 18,000 TEU ships, is it even possible to ensure 91%+ utilization? Is there enough cargo in the world for that?
TOC Asia 2018
Organiza TOC Events Worldwide