Chase for market share still the biggest threat to liner shipping recovery

Tim Smith, Maersk
Tim Smith, chairman Maersk China: "The unprecedented wave of consolidation may bring more stability in 2017."

There will be no early recovery for container shipping, an expert panel at the 6th Asian Logistics and Maritime Conference in Hong Kong, concluded on Tuesday.

“Overcapacity in the liner sector will be a consistent theme through 2017”, said analyst at Alphaliner, Tan Hua Joo. The situation would only be made worse by the chase for scale and market share, he added, noting that the consolidation in the sector had led to close to 75% of the global fleet of containerships being controlled by just 10 carriers at the same time as US$86bn in investment capital had been lost.

Such consolidation has drawn a line in the sand between the top 7 carriers, once the Japanese trio, of MOL, K Line and NYK is completed next year, and the midsize players such as Hamburg Sud, OOCL, HMM and Zim, who now find themselves extremely vulnerable. On the other hand, regional lines PIL and Wan Hai are perceived as a safer bet in the longer term. If losses continue there will be more consolidation, with OOCL, ZIM and HMM being most at risk, suggested Mr Tan.

Where capacity had been removed from the market, most notably with the bankruptcy of South Korea’s Hanjin Shipping, it had been as a result of political blundering, Mr Tan argued. “It was a strategic mistake on the part of the Korean government to allow Hanjin to fail and let Hyundai Merchant Marine survive,” he said.

“Commercially, Hanjin was in a stronger position with its place in THE Alliance,” he added. “Whereas Hyundai Merchant Marine, to date still has no place in any liner alliance.”

But capacity is still being added to the market with no less than 114 ships of more than 9,000 teu due to hit the water over the next 15 months adding a net growth of 5% once scrapping of older tonnage is taken into account. Mr Tan estimated that overcapacity would reach 3m teu by 2017.

Acceleration in scrapping is the only positive, led by the virtually defunct panamax sector, which has to all intents and purposes, been given its marching orders following the expansion of the Panama Canal.

Contrary to Mr Tan’s thoughts on the damage caused by increasing scale and the chase for market share, Tim Smith chairman of Maersk China said that consolidation would be a force for good. “The unprecedented wave of consolidation may bring more stability in 2017.”

Steve Saxon, a partner at McKinsey & Company agreed that mergers, bankruptcies and consolidation was a trend in the liner sector that was yet to run out of steam.

The chief commercial officer at MOL, Richard Hiller addressed the shortcomings in liner shipping that could be addressed by looking to practices within the aviation sector and adapting them to liner shipping. Among his suggestions was the introduction of cancellation fess for shippers’ boxes that failed to arrive at port, a situation that occurs nearly 30% of the time in the US.

Mr Hiller said that variable charges for early container bookings and late bookings should also be considered, now that the technology was available.

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