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Big risks in liner shipping but potential rewards
Source
American Shipper
Post Date
12/17/2018

The liner shipping industry may be heading into a period of major change as some companies seek to broaden the services they offer, says Drewry.

In an article in Container Insight Weekly, the London-based consultant said it “has often been hard to distinguish one carrier from another with few observable unique selling points aside from obvious regional affiliations and size. However, things may be about to change as there is growing evidence of a divergence in corporate strategies among carriers that could drastically the shape of the industry.”

It points to three different strategies, each with particular risks, which carriers seem to be pursuing.

Some, like Maersk and CMA CGM, “want to leverage their size by getting across more of the supply chain in a bid to claim more of the sales and profits.”

Maersk CEO Soren Skou has said he wants his company to become “a global integrator of container logistics — a company very similar to UPS and FedEx” — over the next three to five years. CMA CGM, which already owns a third of CEVA Logistics, is making a bid for its outstanding shares.

Drewry says, “The size of the task involved and investment required to achieve it are huge. It will take expert management to navigate this new course and there is a danger of taking the eye off the ball for the core shipping business.”

It also notes that it risks alienating or losing business to other companies such as forwarders and NVOCCs or even terminals, which compete with the carriers. For example, just last week the terminal operator DP World completed its acquisition of Unifeeder, which is a competitor of Maersk’s Sealand feeder ship subsidiary. (Maersk recently combined and rebranded its Seago Line, MCC Transport and Sealand units under the Sealand brand.)

Drewry says other carriers, such as Hapag-Lloyd, are focusing on their core product, “putting network optimization and revenue management at the forefront,” alongside reliability and service quality.

“The upside here is that if the more ambitious carriers crash and burn in their supply chain adventures, Hapag-Lloyd will be sitting pretty and won’t be overly burdened by servicing debt. The downside risk is that if the global integrators are successful, they will look second rate and vulnerable to takeover.”

A third strategy that may be pursued by some smaller carrier is “playing catch-up” to the larger carriers, says Drewry. It points to Hyundai Merchant Marine, which has an owned and tered fleet with capacity of 408,118 TEUs. That’s nothing to sneeze at — Alphaliner ranks as the 10th-largest carrier in terms of capacity — but it is far behind Maersk, MSC, COSCO, CMA CGM, Hapag-Lloyd, ONE and Evergreen, which have fleets ranging in size from more than 4 million TEUs to just under 1.2 million TEUs.

HMM in September ordered a dozen 23,000-TEU ships and eight 15,000-TEU ships and said last month, “Cost competitiveness and the mega containerships is in line with ‘Capacity of 1 million TEU’ strategy that will play an important role for HMM in obtaining economies of scale. This strategy will lead to additional cost reduction.”

The Korean carrier added that it was “surely confident we can fill up the newly ordered mega containerships,” but Drewry said, “Buying more Ultra Large Container Vessels when the market can barely accommodate what is already on the water will delay the industry in obtaining balance between supply and demand that could sustain greater profitability. There is little point having mega-ships if having them means freight rates are uneconomic.”

Drewry said it thought the number of carriers pursuing such “catch-up strategy” will be small, “limited to companies with state backing or ties to shipyards in need of assistance. ” And indeed, Japanese and European officials have been critical of HMM s orders and Korean support for the shipbuilding industry.


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