How Mergers Could Impact the Future of Shipping

In an effort to shore up the struggling global shipping economy, several of the major international shipping and logistics players are forming strategic alliances with one another. The Wall Street Journal announced recently that Chinese container operators China Ocean Shipping Co. (COSCO) and China Shipping Group Co. have recently merged and are currently in the process of getting approval from the European Union and U.S. regulators to operate internationally.

“Chances are that the alliances you see today will change significantly over the next two weeks,” William Doyle, a U.S. Federal Maritime Commissioner was quoted as saying in WSJ. “The alliances have in fact changed already because of the recent consolidation among four major carriers. We are expecting their proposals for regulatory approvals.”

As Goes China, So Goes the World

With China’s economic slowdown a potentially unsettling global indicator, many within the world of shipping and logistics have turned their attention to consolidation amongst the major players. With the approval of the merger, the new shipping entity may soon join China Shipping Group in the Ocean Three alliance, which also includes Dubai-based United Arab Shipping Co.

The group as it stands is already a powerful force, controlling a nearly 22 percent market share of all cargo moved between Asia and Europe. By integrating the new entity, the shipping line could rival or even exceed the 34 percent market share of the powerful 2M alliance comprised of Denmark-based A.P. Møller-Maersk A/S and Geneva-based Mediterranean Shipping Co.

Europe and Beyond

Outside of the Asia-Pacific region, the impact of slowed shipping rates has been acutely felt as well. Norway has found itself dealing with massive cutbacks in demand for their oil and dry cargo vessels.

“The downturn is deep and lengthy,” Kristian Siem, founder and director of the Siem Industries group, told newspaper Dagens Næringsliv. “There are no quick solutions for the industry. We have to adjust to a bad market for several more years.”

Shuffling the Cards

Indeed, mergers have found their way onto the agenda in Europe as well as in Asia. France’s CMA CGM SA is itself seeking approval for the US$2.4 billion acquisition of Singapore’s Neptune Orient Lines Ltd (NOL).

Yet this acquisition itself creates a hurdle, as NOL is part of another alliance — G6, which controls an 18 percent market share in Asia-Europe — while CMA CGM SA is part of the Ocean Three alliance. NOL will have to be withdrawn from G6 for the merger to be fully finalized.

In this regard, the mergers and acquisitions involving the major players in international shipping may turn out to be something of a chaotic shuffling of the deck, as the different companies change hands and alliances are formed and broken. This leads some industry experts to wonder how long it will be before we start seeing the major alliances themselves consolidated — with smaller carriers finding themselves picking up the scraps.

“I expect the four existing alliances to become three after the merger shake-up and some carriers being left out of the new alliances,” said Lars Jensen, chief executive of Copenhagen-based SeaIntelligence Consulting, speaking to the WSJ. Indeed, what exactly will remain once the dust fully settles remains to be seen, but it’s safe to say that additional shakeups can be expected, as the future of shipping steels itself against the shocks.

If you need a partner to help you strategically manage and successfully move your products out of the port and onto their final destination, be sure to download our ebook — Speeding Time-to-Shelf and Cutting Costs– a must read for today’s logistics managers.