Shipping Companies: Is Bigger Better?

Shipping Companies: Is Bigger Better?
Barry Parker June 27, 2019

“If consolidation was the solution to all that ails shipping, then container liner companies would be super profitable. They are not. In ‘commoditized’ sectors of the shipping industry, which by now includes pretty much everything apart from very small niche markets, there is hardly any economies of scale at the company level. As long as bigger is not in fact much better, then meaningful consolidation will not happen.”

Dr. Roar Adland, visiting scholar at MIT Center for Transportation and Logistics and Professor at the Norwegian School of Economics (NHH).

Like any other business, some shipping companies are bigger than others; this article looks at some of the larger participants in the various sectors. “Big” can be defined in multiple ways. A deep dive into the data reveals the true visage of market dynamics; “controlled” capacity includes not only owned vessels- but also in-chartered tonnage.

In a conventional sense, two entities stand out as they cut across league tables for the various deep sea sectors; they are AP Moller Maersk (APMM, or, simply, Maersk) and Cosco Shipping, both of which have weighty presences, in terms of sheer vessel owning, in multiple maritime sectors.

However, it’s worth pointing out, right up front, that bigger is not always better. Generally, the rationale for bigger companies cuts across three dimensions, melding internal (operational), external (impact on the market) and financial-where the entities raise funds through established capital markets.

Dr. Roar Adland, visiting scholar at MIT Center for Transportation and Logistics and Professor at the Norwegian School of Economics (NHH), told Maritime Reporter: “If consolidation was the solution to all that ails shipping, then container liner companies would be super profitable. They are not. In ‘commoditized’ sectors of the shipping industry, which by now includes pretty much everything apart from very small niche markets, there is hardly any economies of scale at the company level. As long as bigger is not in fact much better, then meaningful consolidation will not happen.”

A different view comes from U.K. based shipping information provider VesselsValue, with analyst Court Smith, telling Maritime Reporter, “The cheap storage of data and ability to access previously unknowable supply and demand fundamentals is allowing for greater visibility into the shipping markets. The older limitations on economies of scale should start to melt away and we should see further centralization into the market leaders. Not only will barriers on economies of scale melt away, but the recent consolidation trend in shipyards in Korea may force owners to even larger entity size in order to command attention and maintain a stronger negotiating position.”

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