The latest chapter in the on-going saga of container shipping consolidation is, at this point, simply rumour. Yesterday the Wall Street Journal reported that the Israeli shipping line Zim Integrated Shipping is looking for buyers for the majority of its fleet of boxships, with the ultimate aim of scaling down from a global operator to a Mediterranean player. Staff at Zim have denied the story that WSJ said it got from people in the know. No doubt the truth will emerge sooner rather than later.
Meanwhile, analysts who are paid to be in the know but sometimes are not, continue to insist that the current wave of mergers is still not enough to guarantee the continuing existence of the global fleet’s present structure.
Coinciding with the Zim rumour was the latest report the containership sector from Drewry the sentiment of which is neatly contained in the title: Size is everything.
The Drewry report suggests that the recently announced merger of the liner divisions of Japan’s three largest ship operators, Mitsui OSK Line, Kawasaki Kisen Kaisha and Nippon Yusen Kabushiki Kaisha, has effectively drawn a line in the surf between the sustainable and non-sustainable lines currently operating. When ‘J Lines’ receives all its ships on order it will become the fifth largest ship operator with a 7.5% share of capacity, Drewry claims.
Commenting on the merged unit’s rise into big carrier status, Drewry says: “In this new era of beefed up carriers when scale is everything the new minimum share required to be considered a big carrier looks like being at least 3%, which at present only 10 carriers (including the J Lines) meet. The Top 10 now control approximately 77% of all ship capacity. In recent years the chosen method of climbing up the rankings was to order lots of big ships, but now that most carriers recognise there are too many ships the only practical way to achieve scale is via M&A.”
Based on this new way of perceiving the market Drewry suggests that it is “more relevant to speak of the Top 7 rather than top 10.This is because of the widening gap in terms of share between the Top 7 and the remainder. First among equals, Maersk Line currently has 15% of capacity share; at 7 Evergreen has a 5.7% share. Below the line at 8 is Orient Overseas Container Line while Wan Hai sits at the bottom of the pile with just 1.1%. Despite Drewry suggesting that 3% could be sufficient share to be considered a big carrier, OOCL (3.1%) is considered ripe for merger with another entity.
“Arguably, Hamburg Süd, PIL and Wan Hai are less disadvantaged by their size due to their lower exposure to the East-West trades. However, scale is becoming more of an issue in the North-South trades as more mega-carriers add bigger ships to these routes, which will be a consideration for Hamburg Süd, while PIL and Wan Hai seem to be in a better place as scale is not so critical in the Intra-Asia trades, as borne out by Wan Hai’s better than average financial results. PIL, though, does have 12 x 11,800 teu ships on order so will presumably be extending its reach into the East-West routes (the Transpacific being the most likely destination) and therefore will become less of a niche operator in time.”
Drewry therefore reasons: “By process of elimination the medium-sized carriers Drewry thinks have the biggest cost disadvantage and therefore are the most likely candidates for some form of M&A are OOCL, Yang Ming, HMM and Zim.
“The world’s largest carrier Maersk has signalled its appetite for M&A (as well as placing a moratorium on new ship ordering) so while it does seem that the big wave of consolidation has now been concluded with the J Lines deal there is clearly still some space for more. What we do not know is if the medium-sized carriers will be acquired, merge or simply withdraw from the larger trade routes due to their insufficient scale.”
Drewry is not alone amongst analysts in thinking that there could be room for further mergers. Last week Alphaliner said: “[The Merger of the three Japanese lines] leaves a shrinking number of mid-sized players in 2% – 3% share operating on the main trades with OOCL, Yang Ming, Hyundai Merchant Marine and Hamburg Sud. “This could prompt some of these ’smaller’ independent carriers such as Hamburg Sud, OOCL and Yang Ming to seek consolidation partners of their own, in order to compete more effectively against their larger rivals.”
Asked by hongkongmaritimehub.com to comment a spokesperson at OOCL said: “We cannot respond to such speculations.”