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Mergers, consolidations in global shipping sector: What this means to the Philippines?

Mergers, consolidations in global shipping sector
SHARP MINDS CONTENT February 3, 2018

In 2015, the global shipping industry’s major players joined forces in response to the adversities their sector suffered, which were mainly caused by overcapacity or excess tonnage. They turned to forging strategic alliances, such as mergers and consolidations, to survive.

These business strategies aimed to strengthen the precarious standing of companies by outgrowing their competitors and shoring up financial capacities through streamlined and efficient costing. This had an undeniable impact on global shipping stakeholders.

Joining forces

The shipping industry has been playing a vital role in sustaining world trade and the economy for hundreds of years. Millions of tons of consumer items are shipped from various points of origin to thousands of ports around the world, helping global trade to flourish. Similarly, millions of people rely on water-transport facilities to reach their respective destinations, be it the nearest island or a far-away continent.

According to figures from Alphaliner’s Top 100 as of January 11, five of the biggest shipping companies dominate the industry and account for almost 70 percent of global market share. These are APM-Maersk (19.5 percent), Mediterranean Shipping Co. (14.7 percent), CMA CGM Group (11.7 percent), Cosco Shipping Co. Ltd. (8.4 percent) and Hapag-Lloyd (7.2 percent). The rest vie for the remaining 30 percent.

However, as world trade and economies slow down, other industries, shipping included, are also affected. Oversupply continuously threatens shipping lines as measures are undertaken to prevent companies from sinking further. According to a 2013 Bloomberg report, industry debts amounted to almost $113 billion.

Power in numbers

The shipping crisis was at its worst in 2015. This forced even the oldest carriers in Europe, Asia and America to shift alliances and turn to strategic partnerships, like joint ventures, to help keep themselves afloat. Company think tanks, strategists and capitalists realize that they cannot face the challenges alone. Clearly, there is power in numbers in the shipping sector.

China, Japan and South Korea are caught in the midst of this turmoil. In 2015, the China Shipping and Cosco Groups started discussions on a merger, which were completed by February 2016. This resulted in the Cosco Shipping Holdings Co., which recently offered to buy Orient Overseas International (Hong Kong).

Threatened by growing Chinese collaboration in their region, three of the biggest Japanese shipping lines—Mitsui OSK Lines Ltd, Kawasaki Kisen Kaisha Ltd. (K Line) and Nippon Yusen KK (NYK)—followed suit and announced plans of their own joint venture.

This new venture is expected to begin services in the second quarter, with NYK providing 38-percent equity and the other two splitting the remaining 68 percent between them. The new company is expected to become the sixth-largest container line in the world, as well as have approximately 7 percent of global market share.

Late last year, two more acquisitions took place: one, United Arab Shipping Co. (UASC) by Hapag-Lloyd; the other, Hamburg Süd by APL-Maersk. This affirms Maersk’s significant position as industry leader, with an almost 20-percent share of the market.

Consolidations and mergers are long and tedious processes. Those who go into them have to hurdle numerous conditions and comply with requirements to obtain approval from various jurisdictions worldwide.

At any rate, it is a win-win situation for most carriers involved, as observed by analysts. However, this opportunity was lost on Hanjin Shipping, South Korea’s former top liner and seventh largest worldwide.

After its largest creditor, Korean Development Bank, decided to withhold support, the beleaguered carrier’s financial problems dragged it down. Its worldwide operations, including its US offices, suffered. The liquidation of Hanjin’s assets are underway after a Seoul court declared its bankruptcy last February. Its officials claimed that, unlike its counterparts in China, Japan and other countries, it did not enjoy the support of its country of origin.

Other mergers and acquisitions are still in the works, reshaping the shipping industry and making it an interesting show of power by the world’s largest economies.

What this means to PH

The mergers and consolidations of the industry’s biggest players pose both threats and opportunities to the Philippine maritime sector. The emerging companies that survive consolidation will include in their fleets the newest and latest models of specialized ships. These carriers are equipped with state-of-the-art equipment and can transport millions of containers of goods to any destination.

Specialized ships need appropriate business hubs and infrastructure to support them, such as modern ports and high-tech facilities. If the Philippine government can prioritize the modernization of ports and carry out a more systematic process to unload and haul containers to their respective destinations, then it will mean increased business opportunities for the country.

On the other hand, consolidation into one of several significant players may affect the labor market, particularly Filipino seafarers. As part of cost-efficiency measures, redundant positions will be phased out and manpower streamlined.

This was the case with a longtime officer in one of the carriers acquired by the shipping giants. The surviving company terminated his and his other co-workers’ contracts. Fortunately, the former ship master, who declined to be named, had other options. He and his fellow “retirees” pooled their separation benefits and established a maritime consultancy group.

He offered some words of advice, especially to younger seafarers: “The shipping industry remains dynamic, despite challenges. The younger generation should take advantage of it and continuously pursue advanced learning. This is the only way to stay relevant in a constantly changing working environment.”