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More shipping line mergers ‘would stabilise market’
by Lloyds Loading List

Further consolidation of the box shipping sector could offer lines more market stability, but shippers and forwarders might not benefit from the pricing consistency they crave, according to leading shipping executives and analysts.

Drewry Maritime Research said earlier this week that the proposed merger of two Chinese container shipping giants – Cosco and CSCL – to form the fourth largest carrier in the world would make financial sense for both lines and potentially prompt further consolidation of container shipping companies, possibly along national lines. Despite blocking the proposed P3 Alliance of CMA CGM, MSC and Maersk on competition grounds last year, China’s government and regulators now appears to be supporting the mooted merger of Cosco and CSCL. Lars Jensen, chief executive officer for the Asia Pacific region at Maersk Line, told Lloyd’s Loading List.com that he also supported more industry consolidation.

“A merger [between Cosco and CSCL] is a different type of cooperation, but we welcome any type of consolidation,” he said. “This is a fragmented industry and rates instability comes from this, or is one cause of this. “A merger reduces fragmentation. If it happens, we’ll have a bigger competitor out of China, but we don’t see that as a bigger threat than having two competitors.” However, other analysts believe that the huge rates fluctuations on major trades at present would not necessarily lessen if the liner sector further consolidated. Rahul Kapoor, director of equity research at Drewry, said he did not expect liner customers to profit from more consolidation. “The Cosco-CSCL merger is being driven to help the two liner companies and I don’t see how less competition would benefit customers,” he said.

Peter Sand, Bimco chief shipping analyst, added that consolidation was unlikely to fix the supply-demand issues that are the cause of current rate volatility. “Only a better balance between deployed tonnage and stronger demand can do that, and bring higher earnings around again on all trading lanes,” he said. “In the industry today, too much tonnage is available to cater for the lacklustre demand on key trades like Far East to Europe as well as others.” He argued that shippers would most likely see benefits from partnerships and alliances by lines in the shape of the lower costs levels these can generate. “The market is highly competitive and all participants are price-takers,” he said. “A lower cost level is likely to benefit all in the supply chain, from the operators to the importers. However, you have to remember that owners and operators need to run a profitable business in order to maintain the high standards which are required and keep up investments to improve liner networks.  “Importers are enjoying extremely cheap transportation these years at a level which is below a sustainable one for several owners and operators.”

Source: Lloyds Loading List, September 2015

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