Further liner consolidation required to boost rates

4/27/2017

By the end of 2018, the top seven container lines will control 70% of global capacity, but this will still leave a fragmented market open to price wars and rate instability, warns Alphaliner analyst Hua Joo Tan.

Sitting below the top seven lines is a group of carriers whose future prospects are limited, according to Mr Tan. These include OOCL, Yang Ming, Hyundai Merchant Marine, Pacific International Lines, Zim and Wan Hai.

“These lines are potential consolidation targets but few are attractive to buyers, with the possible exception of OOCL,” Mr Tan said. “OOCL will be consolidated, but not for a few years when it is prepared to accept a suitable price.”

The continued existence of the second-tier lines meant there would be little decrease in competition and the consolidation that had already taken place had had little measurable impact on rates, Mr Tan said at the TOC Asia conference.

“Rates remain weak and there are no signs of strength on the transpacific trade, where there is a prevailing sense of market share entitlement among lines,” Mr Tan said.

Moreover, the failure of Hanjin Shipping is not likely to be repeated, meaning small lines will not go out of business but will remain trading, either by refinancing as in the case of Yang Ming, or with government support in the case of HMM.

“HMM and Yang Ming are both restructuring but neither will fail,” Mr Tan said. “The same is true for Zim.  But none of these are bankruptcy candidates. Government support will be forthcoming.”

Further instability is likely to come from the 18-month long integration of the three Japanese carriers.

“They have a long time to fight for market share and are manoeuvring in a vacuum,” Mr Tan said. “The Japanese are the most aggressive price givers at the moment.”

While the fledgling SM Line, born out of the ashes of Hanjin, would have a market share of less than 2%, this too would have a significant impact on rates, Mr Tan said.

“The only way to enter the market in the wake of Hanjin is to offer heavy discounts,” he said.

Moreover, even the smaller lines were adding to capacity, with OOCL taking delivery of six 20,000 teu units, Yang Ming adding vessels and Zim expanding aggressively on the transpacific.

“It all leads to a volatile freight environment over the next few months,” Mr Tan said.