Weakening Demand in Shipping Sector, Brings Players to Opt Mergers Through 2016-17

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The Logistics Headlines, New Delhi 11th Feb 2017 : The global shipping industry has been facing challenges due to overcapacity in its sub-sectors. It may take few years for existing containers to get used up, however to gain a respite in such times, a lot many shipping and containership giants are opting for acquisitions, alliances, and mergers. As weak demand for seaborne trade continues, wave of mergers are creating hopes for the difficult times to pass. The past year of 2016 had seen some crucial mergers and more are anticipated in 2017.

As building new ships is not working in favour anymore, the old model of acquiring capacities, a number of players of the industry are looking at merging with each other with a share-based profit idea to even out revenues earned in the process.

Acquisition and mergers may mean that fewer lines shall control more space. But, how sufficient it would be to strengthen the liner’s profitability can be understood only after some vintage gets attached the relationships. The trend of mergers and acquisitions can mean reduction in service for shippers, but benefit the customer for using the offered choices in increasing competition and reducing congestion.

Major Mergers in the Shipping Industry for 2016

After the merger of China’s two largest shipping lines — Cosco and China Shipping and bankruptcy of South Korea’s Hanjin Shipping, an anticipation of greater mergers and consolidation follows. Last year South Korea’s Hanjin Shipping Co collapsed to a huge merger amidst Japanese competitors and then the sale of Singapore’s shipping flagship.

The European Commission (in 2016) had cleared the proposed acquisition of APL parent group- Neptune Oriental Lines (NOL) by CMA CGM, and gave clearance under the EU Merger Regulation conditional when APL left the G6 liner shipping alliance as proposed by CMA CGM.

MOL, NYK and K Line Merger, a Path-breaking Record

Japan’s three big shipping groups –MOL, NYK (Nippon Yusen KK) and K Line will jointly venture into a company having a total capacity of 1.4m teu that can rank as the sixth largest over the world with a share of about 7% in the global market. The merger may happen on 1 July 2017, with commencement of business set for the April 1st, 2018.

By integrating container shipping business, companies are trying to deliver a stable and high quality customer focussed products in the market place. The joint venture will foresee percentage share- MOL 31%, K Line 31%, and NYK 38% with a contribution of Y300bn. Also, Grieg Star- Bergen, Norway had entered into a joint venture with the Gearbulk.

Shipping Line and Containership Mergers in 2017

Germany’s Hapag-Lloyd (HLAG.DE) is also in discussion to get into a merger with the United Arab Shipping Company (UASC). In 2016, we saw a merger of REM Offshore ASA into the Solstad Offshore. Deep Sea Supply and Farstad Shipping may also merge into becoming individual subsidiaries under the Solstad Offshore. The shareholders of Deep Sea Supply and Farstad Shipping will receive shares in the Solstad Offshore merger.

Large players had not expected the speed at which the capacity and demand fell. These steps taken by big ocean carriers tell us about the rapid changes in maritime industry, helping them reduce orders, reorganize relationships and realign operations.

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