AN extended slowdown in trade and depressed freight rates will spur more consolidation in Asia’s container shipping sector, the heads of AP Möller-Maersk and Hyundai Merchant Marine Co. told their companies in their traditional New Year’s speeches to employees.
Even though 2016 saw the collapse of South Korea’s Hanjin Shipping, an unprecedented three-way merger of Japan’s three biggest lines, and the sale of Singapore’s major shipper Neptune Orient Lines, firms will continue to join forces in an effort to cut costs, the two executives said.
“It will be another difficult year,” Hyundai Merchant Chief Executive Officer Yoo Chang-keun said in his New Year’s speech to employees. “Global shipping companies are preparing for the long battle in the shipping industry through M&As [mergers and acquisitions]and government support.”
Soren Skou, CEO of the Danish giant Maersk said,“The old model of growth through acquiring new capacity, building new ships is not working any longer. There are a number of players in our industry that have not been profitable for a long stretch. So I see consolidation continuing.”
Year of consolidation
Consolidation was widespread in the industry in 2016, as shipping lines cut rates to try to keep ever-larger ships full. The year began with the merger (actually begun in late 2015) of China’s two biggest shipping groups to form what is now Asia’s biggest container line, China Cosco Shipping. The world’s third-largest shipper CMA CGM bought Neptune Orient early in 2016.
Hanjin, which at one time was the world’s seventh-largest shipper, filed for court receivership at the end of Augus after the government and creditors rejected the company’s restructuring plan. Meanwhile, Hanjin rival Hyundai Merchant Marine was taken over by creditors as part of its own restructuring plan.
Nippon Yusen KK, Mitsui OSK Lines Ltd., and Kawasaki Kisen Kaisha Ltd. (K-Line), Japan’s biggest shipping companies, agreed in October to combine their container businesses, citing an imbalance in supply and demand that created “an environment which is adverse to container line profitability,” the companies said in a joint statement announcing the merger.
Finally, in December Maersk announced it would buy German shipper Hamburg Sud, although Skou in an investors’ note at the time said that the company would focus on integration before pursuing any more deals.
The likely first big merger of 2017 will be the acquisition of United Arab Shipping Co. by Hapag-Lloyd AG, Germany’s biggest container line. In a statement on January 2, Hapag-Lloyd’s Chief Commercial Officer
Thorsten Haeser told shareholders that the merger would be completed “in the weeks ahead.”
Analysts are also watching for a possible merger of Taiwan-based Yang Ming Marine Transport Corp. with larger Taiwanese rival Evergreen Marine Corp., according to Korean Maritime Institute analyst Kim Tae-il.
“Hanjin’s demise brought forth the urgent need for industry restructuring,” Kim said. “Through mergers and acquisitions, there will be fewer players and they can stop trying to undercut each other.”
In a report by Bloomberg, however, Yang Ming said it has no plans to merge with Evergreen. Executive Vice President Winsor Huang was quoted as saying the troubled company had been given shareholder approval to cancel some stock and issue new shares, along with other initiatives to cut costs and improve efficiency.
“There will be a lot of changes in the global shipping industry as challenging times continue,” Hyundai Merchant CEO Yoo said in his January 2 speech. “While we could see some improvements, it’s not easy to predict when there will be any meaningful recovery.”