Changing lanes: Box lines horizontal integration reaches climax

  • By Antonella Teodoro
  • •
  • 03 Apr, 2019

In its latest monthly analysis, MDST highlights how, with little room to manoeuvre, the latest wave of liner consolidation is drawing to a close, however, there is an opportunity to expand vertically. Maersk Line and CMA CGM are leading the charge as they broaden their business across the supply chain

A flurry of mergers and acquisitions over the past five years has seen the number of truly global liner operators shrink drastically
The larger the line, the easier it is to change the network it can offer.
THE past five years have been characterised by a new wave of container shipping consolidation, which has resulted in the top 10 shipping lines controlling more than 91% of the total capacity offered on the deep-sea market.

Based on our latest containership databank (March 2019) and excluding intra-regional markets, we identify Maersk Line as the leading carrier.

Maersk’s capacity is now estimated to account for over 19% of the global deep-sea container line capacity (excluding intra-regional), as shown in Figure 1.
Rewind five years, before Maersk Line and MSC formed the 2M Alliance which by default started the latest consolidation wave, the market share among the major carriers was more evenly spread. (See Figure 2)

In addition to the formation of the 2M Alliance, the other key areas of consolidation, whether through vessel-sharing agreements or mergers and acquisitions were as follows:

• CMA CGM’s acquisition of APL (September 2016) — The French carrier has since enlarged its fleet from 1.7m teu to 2.4m teu in January 2019, accounting for 13.7% of the total global deep-sea fleet capacity

• K-Line, MOL, NYK merged their container operations into ONE, the Ocean Network Express (March 2017) — MDST estimates their combined share of the deep-sea trades to be 8.7%

• The Alliance (April 2017) — An east-west alliance consisting of Hapag-Lloyd, K-Line, MOL, NYK and Yang Ming

• Ocean Alliance (April 2017) — An east-west alliance comprising CMA-CGM, COSCO, Evergreen, OOCL

• Maersk’s acquisition of Hamburg Süd (December 2017)

• Hapag-Lloyd’s takeover of CSAV (December 2014), and more recently UASC (May 2017)

• COSCO completes OOCL acquisition (June 2018)

There are no mergers and acquisitions expected to be completed in the near future.
 
However, with Hyundai Merchant Marine’s flurry of orders for ultra large containerhsips over the past year, speculation is rife as to which alliance the carrier would join as its existing agreement with the 2M is due to expire in April 2020.

Since the Ocean Alliance members recently extended their co-operation in January 2019, joining the Alliance would seem the most realistic option for HMM.

With fewer lines dominating the market, this raises questions over whether there is enough competition in the market and doubt over the future of smaller carriers.

Tables 1, 2 and 3 illustrate the major changes in the networks offered by the lines in the past five years.

They show that the larger the line, the easier it is to change the network it can offer, translating into more flexibility and adaptability to changing market conditions, putting the smaller operators under increasing pressure.

On the transpacific trade the Ocean Alliance is the dominant player with a deployed capacity share of 43%, followed by the Alliance with 26%. The 2M Alliance’s share of 18% is less than half of the Ocean Alliance deployment (43%).
 
The non-alliance market share on the transpacific trade lane is estimated to be 13%, representing the highest share on the east-west trades.
With a deployed capacity share of 47%, the 2M Alliance is the largest alliance on the transatlantic trade lane.
 
The Alliance is second with a capacity share of 27% with the Ocean Alliance in third with 19%.

On the individual routes, consolidation could indirectly offer opportunities for small players.

For instance, the strict conditions imposed by regulators on Maersk’s operations after the acquisition of Hamburg Süd have offered the chance for a small line, in this case Pacific International Lines, to launch a service between Asia and the South America east coast.

With the room for more horizontal integration now quite limited, shipping lines’ eyes seem to be fixed on a more challenging target of becoming global logistics integrators. At least this seems to be the aim of two of the major ocean carriers, Maersk and CMA CGM, which, through vertical integration, aim to offer a more holistic service to their customers.

By contrast, there are lines such as Hapag-Lloyd who want to maintain a more traditional approach continuing to offer container shipping services to their customers.

There are risks involved in the strategy adopted by such as Maersk Line and CMA CGM, including the scale of financial investments required, dealing with changes to their tried and tested business model and associated costs.

However, the opportunities are very appealing. The move allows the pair to get closer to cargo owners and influence how they move goods, while exploiting further their economies of scale and market coverage.

Which strategy will result to be the winning one for any individual line is difficult to predict. This will depend on the flexibility of shipping lines’ management in adjusting their view on how to move a box. The sea voyage will become, more and more, just a part of the service rather than the central focus. The way in which information is shared and managed within the integrated entities will be vital — technology will be key.

First published on Lloyd's List website March 2019