In case you haven’t heard, the worst-kept secret in the shipping industry has now been confirmed, Cosco acquires OOCL, Cosco paying $6.3 billion for Orient Overseas International Ltd (OOIL) – owners of OOCL, the seventh-largest shipping company in the world. Based in China, Cosco has been an industry leader for some time and this agreement to become the majority shareholder in OOIL is interesting to say the least.
For those who follow the industry closely, you’ll know this is simply the latest in a collection of different mergers and takeovers within the shipping industry. Of them all, Cosco’s merge with China Shipping seems to be one of the most influential but the list just keeps growing ever larger. With all these changes within the industry, this raises two main questions; why is it happening and who will be next?
According to a recent Fitch rating, growth in demand has halted in recent years and this makes the issue of overcapacity even worse which, in turn, puts the shipping industry in real trouble; in particular, the small- to mid-sized companies who are almost being stalked by the giants of the industry. With pressure being placed on freight rates and all operations, defaults and more consolidations is looking like the probable destination for the industry.
In addition to the problems above, Fitch also predicts a continued drop in performance across the board and the sector has been given a negative outlook. As the shipping industry continues to crash, billions of dollars are being lost all over the world and the consequences of this have been seen with Hanjin Shipping who recently liquidated. Elsewhere, the companies are trying to salvage business with mergers and acquisitions. In terms of our second question, who could be next?
As we know, CMA CGM has been making moves in recent times with their acquisition of NOL and 2017 could see the expansion of the Ocean Alliance. According to recent reports, APL will be joining bringing the alliance’s contribution to 14% of all container capacity. With this move, they’ll be behind only the 2M alliance but, perhaps more interestingly, they’ll move into the top three most valuable companies in shipping.
Furthermore, the container businesses of NYK, MOL, and K Line will also be merging with the move expected to be completed by 2018. Within the top ten most valuable container fleets, only one company is Japanese – Shoei Kisen – but this merger will certainly increase the strength of this particular entity. If successful, it will be valued at over $5 billion which is fifth place in the rankings.
Currently, Hapag-LLoyd is Germany’s largest container shipping line but they’ve also been forced into a merger with a deal due to be agreed with United Arab Shipping. Sticking with Germany, the next couple of years will also be important for Hamburg Süd who will be bought out by Maersk. Even though this transition hasn’t been completed just yet, Maersk has already admitted to looking for more deals in the coming years.
Returning to Asia, reports continue to surround a possible merger between Yang Ming Marine Transport Corp and Evergreen Marine Corp as well as an acquisition of Hyundai Merchant.
Summary – Until there is a distinct change in fortunes for the shipping niche, small- to mid-sized companies are sitting ducks for the giants of the industry. If no merger can be agreed between these companies, it won’t be long before the largest companies come swooping in.