Ever since the 1990s, mergers between shipping lines have occurred across the world. They’ve driven the global economy for the past 25 years, facilitating international trade between businesses across hundreds of different industries.
Below, we’ll consider mergers in detail, why they occur, as well as what impact they have on everyday businesses.
What is a shipping line merger?
A shipping line merger occurs when two or more shipping lines group together to create one new shipping line, or where one shipping line purchases a majority and takes over a smaller line.
Often referred to as market consolidation, shipping line mergers grew in popularity in the late 1990s when ocean liner P&O merged with Nedlloyd, and shipping giant Maersk acquired companies Safmarine and SeaLand.
Mergers were also popular in the mid-2000s, when Maersk acquired P&O Nedlloyd for $4.5 billion (the industry’s largest takeover at the time).
How often do shipping line mergers occur?
Whilst the number of mergers and acquisitions slowed down considerably in 2020 due to the COVID-19 pandemic, the 2010s saw a great number of consolidations in the shipping line market, with the top 25 container operators having a market share of over 90% by the end of 2019.
An overview of the market across the 2010s reveals just how much the landscape changed.
- Maersk maintained its position as the world’s largest container operator when it acquired Hamburg Sud for $4 billion.
- Cosco Shipping merged with China Shipping and took over OOCL to become the third largest operator.
- CMA-CGM took over NOL to become the fourth largest operator.
- Hapag Lloyd merged with CSAV and UASC, becoming the fifth largest operator in the world.
- Ocean Network Express was born in 2017, when Japanese carriers K-Line, MOL and NYK Line merged to become the world’s sixth largest container operator.
We recommend reading our blog on freight and cargo service providers in the Australian market for further information on the ocean carrier services available in 2021.
The 2010s were also the time for new alliances between container shipping lines. Ocean alliances take place when different shipping carriers enter into collaborative agreements with one another to cover different trade routes, allowing them to benefit each carrier in their alliance whilst achieving more desirable rates and transit times for customers. We saw the creation of:
- 2M Alliance in 2017 with agreements between Maersk, MSC and ZIM (altogether accounting for around 35% market share across the top 100 ocean container carriers);
- Ocean Alliance in 2017 with agreements between CMA-CGM, Cosco, Evergreen and OOCL (in 2020, reportedly the largest agreement between shipping companies across the industry); and
- THE Alliance in 2017, seeing Hapag-Lloyd, the Ocean Network Express and YML banding together.
Why do shipping line mergers occur?
Traditionally, shipping line mergers are seen as highly effective ways for ocean carriers to improve their profitability and establish a more robust structure to last in the long term.
Below are some of the reasons why shipping line mergers have become so popular.
- Establishing market power. By ocean carriers merging together, they are in a better position to set prices rather than respond to prices. They become “price makers” rather than “price takers”, allowing them to influence market rates and respond more readily to market shocks.
- Global coverage. When larger companies like Maersk and CMA CGM purchase smaller shipping lines, they are able to expand their international networks. CMA CGM’s acquisition of Cheng Lie Navigation in 2007, for instance, drove the company’s expansion into the Intra-Asia trade.
- Improving economies of scale. Consolidation is very popular because it allows ocean carriers to reduce their unit costs within their vessel network. The higher volumes achieved through mergers also gives them much more negotiating power, allowing them to achieve better terms from their suppliers. The result is that their businesses can improve their economies of scale and become much more profitable.
- Addressing overcapacity. Container operators frequently deal with excess capacity, a big problem as it diminishes their market power. This increased significantly in 2020 due to the impact of COVID-19. Mergers allow larger shipping companies to take control of smaller lines suffering from this issue, restructuring their assets to make operations more efficient. The however can also have a detrimental effect on the market. As peak season hit at the end of 2020 lack of container capacity caused delays throughout the international shipping market.
A 2016 White Paper published by UK-based Drewry Maritime Advisors argued that consolidation before 2008 was driven by a desire for growth but, now, it is “all about survival”. Indeed, when CMA CGM merged with NOL, CMA’s vice chairman stated that “With the outlook for the global container shipping industry remaining grim, joining forces is key to riding out the storm”.
It is difficult to predict the shipping merger and acquisition landscape in 2021 and beyond. It may be that further mergers and alliances will occur in order to “ride out the storm” of COVID-19, with some suggesting that “the merger trend is ripe to continue in 2021”.
A new alliance known as K-Alliance is set to begin in 2021 with an agreement between five South Korean liner operators, so watch this space as further mergers or alliances arise.
What does this mean for importers and exporters?
Mergers between ocean carriers come with three fundamental changes for importers and exporters:
- Services and schedules can change. The consolidation of two shipping companies will inevitably lead to an adjusted corporate structure, resulting in changes to both services and schedules (possibly for the customers’ benefit). The number of services may increase especially if a shipping line seeks to expand its global coverage.
- Extra capacity (with improved service) in low season. As shipping mergers allow ocean carriers to address issues with overcapacity, importers and exporters may find it easier to secure space on vessels. This however still remains a challenge for much of shipping peak season).
- Changing freight rates. Rates are unpredictable when it comes to shipping mergers. Typically, consolidation leads to reduction in costs for the ocean carrier and therefore lower cargo rates for importers and exporters. At the same time, if mergers result in falling competition and supply, freight rates may rise. Consolidation arguably led to growing freight rates from June 2020, as demand began to rise.
If you’ve got any questions about shipping line mergers and how they may affect your import or export business, give us a call today.
Our shipping experts have decades of combined knowledge and experience in consolidation, ocean carriers and freight forwarding. We can provide tailored advice for any issues you may be facing, so please feel free to reach out.