Is liner consolidation the end for competition

It is looking increasingly likely that the liner industry consolidation that started the year before the Hanjin Shipping collapse will end up reducing the number of major carriers to no more than a handful.

In just two years the number of major carriers has reduced from 20 to 13, and that is set to fall to 11 after the merger of Japan’s three carriers into Ocean Network Express (ONE).

Although the Japanese merger was rejected in South Africa and the US told them to resubmit their application once the merger is completed, it is expected to succeed since none of the alliances have 20% of the Asia-US and Asia-EU markets,

That 11 will fall again if Cosco Shipping Holdings’ desire to buy Orient Overseas Container Line is fulfilled and will see the top four carriers control 53.8% of the world’s container market.

If consolidation continues experts believe it will bring the number of major carriers to five or six within a decade.

In a recent interview with the Financial Times, Maersk CEO Søren Skou said one of the key factors driving the recent round of consolidation was the withdrawal of governments from the industry and the lack of official support in South Korea.

That led directly to Hapag-Lloyd acquiring United Arab Shipping Co, CMA CGM’s purchase of APL, along and the collapse of Hanjin Shipping.

But government backing for other carriers remains, most notably Taiwan’s support for Yang Ming Line.

“For Maersk Line, it is never great to compete with somebody who by definition can’t go bankrupt,” Skou was quoted as saying.

Skou also said to the FT that consolidation is driven by the need for container shipping lines to digitise.

A strategy that Maersk are already active in; with their recent Blockchain experiments and the launch of their digital forwarding platform.

“The investments and costs you have to put into digitising means there will be an incentive for companies to merge. You still have a lot of companies with weak balance sheets.”

The next stage of consolidation might see the fragmented intra-regional carriers absorbed by the biggest liners to provide a feeder system for their primary Asia – EU / Asia-US routes.

Africa-centric Pacific International Line (PIL) is the first likely candidate as the remaining carriers (Zim, Yang Ming, Hyundai Merchant Marine and Evergreen) are government-financed or have some sort of government ownership or affiliation, and as each of them has only 1.5-2.8% of global market share, there should be no regulatory challenges.

For the Global Shippers Forum and industry regulators the focus is ensuring that carriers do not slip back into their old ways of price-fixing.

The lack of competition that an oligopoly gives way to is not healthy for the market, so we will be watching closely as the Cosco-OOCL purchase moves towards a conclusion and the lanes rationalised further.

Shippers should also pay close attention.