Industry Overall still has Lots of Competition, Drewry Finds, though it is More Concentrated in Specific Lanes

The last couple of years have seen much changes in the ocean container sector, with the creation of three dominant operatingl alliances, and a number of mergers and acquisitions, though some of those (e.g., OOCL's merger Cosco, the consolidation of three Japanese carriers into one) are still underway.

But so far, all that action has done relatively little to move rates, in good news for shippers. While 2017 rates overall did recover from a disastrous 2016, that appears more driven by rising demand that new found pricing power based on consolidation. What's more, rates dropped again in the second half of the year.

Supply Chain Digest Says... Drewry finds that even with the coming completed mergers, the industry would be considered a "competitive marketplace" using the HHI methodology, far from an oligopoly. What do you say? Click here to send us your comments Click here to see reader feedback

In fact, Maersk CEO Soren Skou said last week that "We are simply not making enough money. We need to improve profitability through a combination of higher container rates and cutting costs."

He added that "In the 1980s the freight cost of moving a container across the ocean was $4,000. Now it's $2,000."

For all the recent consolidation, the sector is still surprisingly unconcentrated, the analysts at Drewry Shipping say.

In a recent blog post, Drewry noted that "The fact that M&A hasn't so far materially changed anything is not that surprising on reflection. The latest consolidation wave has barely become operational, with most transactions either just concluded or still pending. Moreover, even after all of the latest deals are finalized, they alone do not have sufficient weight to move the industry all the way to being a non-collusive oligopoly, which we previously outlined as being necessary to herald a new era of 'liner paradise.'"

In other words, the impact of the recent consolidations are just starting to be felt, and even with those moves it is not going to be fat times for container lines.

What's more, Drewry also says that it perhaps overlooked the risk that the merger activity would make some carriers more aggressive with their pricing to tminimize the customer attrition that can come from such changes.

As shown in the chart from Drewry below, the seven top carriers together (when considering the in-progress mergers) have about 79% of the market, based on capacity, in a split far from looking like an oligopoly that could control price. In fact, the "other" category outside those top seven actually has the largest share, at 21%, just ahead of Maersk Line's 20%.

In fact, there are nearly 400 container lines moving boxes across the world, Drewry says.

Drewry also used something called the Herfindahl-Hirschman Index (HHI) method to evaluate the level of concentration in the container carrier market. It finds that even with the coming completed mergers, the industry would be considered a "competitive marketplace" using the HHI methodology, far from an oligopoly.

(See More Below)

Drewry notes that while the overall picture appears to indicate that shippers have nothing to fear from consolidation, the competition levels do differ markedly at the trade route level, which can see more provider concentration than at the overall global level.

Still, Drewry says, that even after the latest M&A has concluded, the industry will remain 'competitive' or 'moderately concentrated' in most of the routes covered, again using the HHI calculation.

All that said, shippers should continue to monitor this situation closely.

"The industry is heading towards a scenario whereby a small handful of dominant carriers dictate matters, but there is still healthy competition in most trade lanes for now," it concludes. "Shippers will need to stay watchful for deals that impact their main routes."

It seems to SCDigest that further consolidation is inevitable if executives such as Maersk's Skou are determined to finding a way to raise rates.

What's your take on the ocean container sector? More consolidation coming? Let us know your thoughts at the Feedback section below.

Your Comments/Feedback