Box shipping remains competitive despite consolidation, says Drewry

1/18/2018

Container shipping remains a competitive industry despite the wave of consolidation that has swept the sector, according to research from Drewry.

Following completion of the remaining deals that will see OOCL become part of Cosco, and the three big Japanese carriers merge their container operations to form the Ocean Network Express, the leading seven carrier groups, inclusive of all subsidiaries, would control approximately 90% of the active containership fleet as it stood on October 1, Drewry said.

Despite this concentration, the sector remained highly competitive by standard measures, it added.

Using the Herfindahl-Hirschman Index method to determine competitiveness, Drewry found that container shipping still operated as a “competitive marketplace”.

“Based on the known ship data series, remarkably there were 379 different vessel operators, all bar 31 of which garnered less than 0.1% market share,” Drewry said. “With so many operators on the water there is clearly a lot of potential for more M&A, but in reality the majors are unlikely to be interested in the small fry.

“More likely, the leading carriers will look to lines in the next tier down that have a little more substance.”

But even in a scenario in which all capacity was controlled by the leading seven lines, the level of market concentration does not surpass the threshold that would signify a highly concentrated environment, inferring that to reach that status there would need to be further M&A within the top seven carriers.

While the overall picture appears to indicate that shippers have nothing to fear from consolidation, the competition levels do differ markedly at the trade route level. The northbound Europe-east coast South America and westbound Europe-South Asia trades fit the ‘highly concentrated’ description, but only just, Drewry said.

“The industry is heading towards a scenario whereby a small handful of dominant carriers dictate matters, but there is still healthy competition in most trades for now,” Drewry said. “Shippers will need to stay watchful for deals that impact their main routes.”

The fact that M&A activity had not materially changed anything to date was not surprising, it added.

“The latest consolidation wave has barely become operational, with most transactions either just concluded or still pending,” Drewry said. “Moreover, even after all of the latest deals are finalised, they alone do not have sufficient weight to move the industry all the way to being a non-collusive oligopoly.”