Swim-or-sink outlook builds merger pressure for Asian shippers
SWIM or sink: That’s the message shipping executives in Asia are taking into the new year.
Faced with a prolonged trade slowdown and depressed freight rates, the region’s container lines are set for further consolidation after a year that’s seen the collapse of South Korea’s Hanjin Shipping Co., a mega merger among Japanese rivals and the sale of Singapore’s shipping flagship. With capacity in excess, firms will continue joining forces to cut costs and improve efficiency, according to the heads of A.P. Moller-Maersk and Hyundai Merchant Marine Co.
“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 and government support.”
An overly optimistic outlook of trade recovery following the 2008 to 2009 global financial crisis prompted shipping companies to order ever-larger vessels, with some stretching longer than the Eiffel Tower. As capacity piled up, the companies tried to underbid each other on freight rates to lure clients, causing levies to drop to unprofitable levels and sinking the global containershipping industry into losses.
“The old model of growth through acquiring new capacity, building new ships is not working any longer,” Soren Skou, chief executive officer of Copenhagenbased market leader Maersk, said in a Bloomberg Television interview in December. “There are a number of players in our industry that have not been profitable for a long stretch. So I see consolidation continuing.”
Pointing to an imbalance in supply and demand that has destabilised the industry and created an environment which is “adverse to container line profitability,” Nippon Yusen, Mitsui O. S.K. Lines and Kawasaki Kisen Kaisha, Japan’s biggest shipping companies, agreed in October to combine their containermoving businesses, with the joint operation targeted to begin in April 2018.
CMA CGM, the world’s thirdlargest container- shipping company, bought Singapore’s Neptune Orient Lines Ltd. in early 2016. China merged its two shipping groups – China Ocean Shipping Group and China Shipping Group – in late 2015, forming China Cosco Shipping Corp., Asia’s biggest container line.
Nippon Yusen rose 6.5 per cent, the biggest gain since Nov 14, at the close of trading in Tokyo Wednesday. Kawasaki Kisen advanced 4.5 percent, the most since Aug. 4, and Mitsui O.S.K. rose 5.6 per cent, the most since Nov 10.
Shares of Hanjin surged by a record 30 per cent, the daily limit in Seoul trading, after a local media report that the sale of its US – Asia assets may be concluded as early as next week. Hyundai Merchant jumped eight per cent, compared with a 1.1 per cent gain for the MSCI Asia Pacific Index.
Hanjin, once the world’s seventh-biggest containershipping company, sought court receivership last year after creditors ended all funding support and the government decided not to intervene. Korean rival Hyundai Merchant was taken over by lenderbanks as part of a creditor-led restructuring.
Hapag-Lloyd, Germany’s biggest container shipping line, plans to complete its merger with United Arab Shipping Co. “in the weeks ahead,” Chief Commercial Officer Thorsten Haeser said in a Jan 2 note to clients.
Topping a year of mega mergers, Maersk agreed in December to buy Hamburg Sud. Maersk will focus on integrating the German company before looking at other deals, CEO Skou said at the time.
Industry spotlight will turn to a possible merger between Taiwanese shipping companies such as Evergreen Marine Corp. and Yang Ming Marine Transport Corp., or a buyout of Hyundai Merchant, according to Kim Tae-il, a research analyst at the Korea Maritime Institute. — WP-Bloomberg