In International Shipping News 08/09/2016
Recent news of Hanjin going under casts a seemingly darker cloud upon the shipping industry. The veritable arms race between ocean carriers to build bigger and seemingly more efficient ships has been met with devastatingly low demand, creating a serious issue for carriers. As more and more capacity continued to hit the seas in spite of continually dropping demand, carriers have been scrambling to find a solution.
Many carriers have resorted to stop gap measures as a means of combating the failing profit margins. These short lived measures have included numerous bouts of general rate increases (GRIs), slow steaming as well as “voided” sailings, where carriers have cancelled voyages in the hopes of maximizing capacity efficiency.
Although, the current trend is that rates are indeed on the rise, slowly but surely, the measures above haven’t caused a major kick start to the recovery of the market; though they for sure have helped.
Mergers & Acquisitions
Reaching critical mass, and forced with making a decision, carriers have finally resorted to what many industry analysts have predicted since the start of the capacity / demand imbalance. With some alarming acceleration, many major carrier lines are either merging with other companies and entering into VSAs or simply buying out smaller companies to expand their resources and market shares.
Logistics Management, a digital news source, reported on the situation, following the wake of the newly opened expansions of the Panama Canal.
Will Joining Forces Help?
“Hot on the heels of this development came the grouping known as the Ocean Alliance, bringing together France’s CMA CGM SA and China’s COSCO Group, the third-largest and fourth-largest shipping lines respectively. Tagging along beside them were Hong Kong’s Orient Overseas Container Line and Taiwan’s Evergreen Marine Corp. Once the Ocean Alliance begins operations next February, analysts believe that it will control about 26% of Asia-EU share,” according to Patrick Burnson, executive editor for Logistics Management and Supply Chain Management Review magazines and websites, armed with information from AlixPartners, an industry analyst firm based out of New York.
In fact, the ever growing alliances and reorganization of the carrier hierarchy as a whole is happening so fast that even industry analysts are finding it difficult to keep track of, especially when you consider that there are only five independent carriers left. – To stay abreast of the current alliances and the reorganizations, we have put together a convenient infographic illustrating who’s working with who as the industry continues to undergo a massive reshuffling.
Rationalizing Hindsight
With the maritime industry becoming a feeding frenzy, as bigger companies gobble up smaller ones in the attempt to capture and hold enough of the market share to stay afloat, the industry as a whole will now have to answer to their decision for the mass merging as well as the investment in larger ships, a contributing factor to the current predicament.
“The onus is on the industry to demonstrate that the bigger ships and alliance business model is the best response to the economic and financial challenges faced by carriers, but also adds value to customers,” says Chris Welsh, secretary general of the Global Shippers Forum (GSF). “We believe cooperation between the main international stakeholders in a new maritime industries forum would enable the wider maritime supply chain to develop solutions to the problems presented by bigger ships and alliances in a constructive and consensual manner.”
The GSF is looking to establish a “Maritime Industries Supply Chain Forum” on an international level, to bring the industry as a whole together to explore, address and ultimately correct the issues plaguing the industry.
However, while the maritime industry is looking at steps for self preservation will these mergers be enough to shelter the industry from the abysmal predictions for 2016, or will these also prove to be yet another arbitrary attempt to circumvent the coming storm?
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Source: Xeneta
