‘Swim or sink’ outlook prompts Asia shipping to face mergers

Bloomberg

Swim or sink: That’s the message shipping executives in Asia are taking into the new year. Faced with a prolonged trade slowdown and depressed freight rates, the region’s container lines are set for further consolidation after a year that’s seen the collapse of South Korea’s Hanjin Shipping Co., a mega merger among Japanese rivals and the sale of Singapore’s shipping flagship. With capacity in excess, firms will continue joining forces to cut costs and improve efficiency, according to the heads of A.P. Moller-Maersk A/S and Hyundai Merchant Marine Co.
“It will be another difficult year,” Hyundai Merchant Chief Executive Officer Yoo Chang-keun said in his New Year’s speech to employees. “Global shipping companies are preparing for the long battle in the shipping industry through M&As and government support.”
An overly optimistic outlook of trade recovery following the 2008-2009 global financial crisis prompted shipping companies to order ever-larger vessels, with some stretching longer than the Eiffel Tower. As capacity piled
up, the companies tried to under-bid each other on freight rates to lure clients, causing levies to drop to unprofitable levels and sinking the global container-shipping industry into losses.
“The old model of growth through acquiring new capacity, building new ships is not working any longer,” Soren Skou, chief executive officer of Copenhagen-based market leader Maersk, said in a Bloomberg Television interview in December. “There are a number
of players in our industry that have not been profitable for a long stretch. So I see consolidation
continuing.”
Pointing to an imbalance in supply and demand that has destabilized the industry and created an environment which is “adverse to container line profitability,” Nippon Yusen KK, Mitsui O.S.K. Lines Ltd. and Kawasaki Kisen Kaisha Ltd., Japan’s biggest shipping companies, agreed in October to combine their container-moving businesses, with the joint operation targeted to begin in April 2018.
CMA CGM SA, the world’s third-largest container-shipping company, bought Singapore’s Neptune Orient Lines Ltd. in early 2016. China merged its two shipping groups — China Ocean Shipping Group and China Shipping Group — in late 2015, forming China Cosco Shipping Corp., Asia’s biggest container line.
Nippon Yusen rose 6.5 percent, the biggest gain since Nov. 14, at the close of trading in Tokyo Wednesday. Kawasaki Kisen advanced 4.5 percent, the most since Aug. 4, and Mitsui O.S.K. rose 5.6 percent, the most since Nov. 10.
Shares of Hanjin surged by a record 30 percent, the daily limit in Seoul trading, after a local media report that the sale of its U.S.-Asia assets may be concluded as early as next week. Hyundai Merchant jumped 8 percent, compared with a 1.1 percent gain for the MSCI Asia Pacific Index.
Hanjin, once the world’s seventh-biggest container-shipping company, sought court receivership last year after creditors ended all funding support and the government decided not to intervene. Korean rival Hyundai Merchant was taken over by lender-banks as part of a creditor-led restructuring.