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Global Supply Chain News: Mergers, Capacity Reduction Strong in Container Shipping Sector in 2016, will Continue in 2017

 

From 20 Carriers to 17 in One Year, and Several More will be Merged Away Soon

Jan. 25, 2017
SCDigest Editorial Staff

As SCDigest recently reported, 2016 may have been the most tumultuous 12 months in the 60 year history of the container shipping sector, with the level and pace of alliance forming, mergers, acquisitions, failures, and restructurings among carriers perhaps unprecedented. (See 2016 a Year of Tumult in the Ocean Container Sector, but will Changes at Last Drives Rates Higher for Shippers in 2017?)

Of course, all this largely driven by rock bottom rates in 2016, as trade and container volumes grew yet again at a barely positive pace, and new megaships having been delivered in recent years in expectation of much high volume growth.


Supply Chain Digest Says...

"Carriers have taken a lot of capacity out of the market, they are losing significant sums of money every day, and continuing to do that is just simply not sustainable."

 

Soren Skou

Maersk Line


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Those dynamics are sure to continue in 2017, though there are signs the industry is getting serious about overcapacity.
According to the analysts at Alphaliner, only 17 large scale international container carriers remain as of January 2017, down from 20 one year ago.

The reduction results from the acquisition of APL by CMA CGM and the integration of CSCL within COSCO, while Hanjin Shipping made an abrupt exit from the container shipping market in September 2016 due to bankruptcy.

The number of carriers will shrink further in 2017 with the pending conclusion of the Hapag-Lloyd and UASC merger, the acquisition of Hamburg Sϋd by Maersk, and the merger of K Line, MOL and NYK's liner shipping businesses. That would leave just 13 major carriers, before any other moves.

The overall capacity operated by the 17 main carriers shrank by 1.3% over the last 12 months, after taking into account the removal of Hanjin's tonnage, Alphaliner adds. Collectively, these carriers control 81.2% of the global liner capacity as at 1 January 2017, compared to 83.7% controlled by the 20 main carriers a year ago.

Apart from Hanjin Shipping, five other carriers logged capacity reductions, with Zim recording the largest loss as its operated capacity shrank by 14.8%. MOL and K Line also recorded significant capacity reductions of 10.6% and 7.7% respectively ahead of the planned merger with NYK to form the J-3 partnership.

Although CMA CGM Group's operated capacity grew by 17.3% thanks to the APL purchase, the aggregated capacity of both carriers fell by 9.3%, due mainly to the outsourcing of a substantial part of CMA CGM's feedering activities (smaller ships that feed containers to larger ships or move containers from terminal to terminal within a port complex).

Hamburg Sϋd was also forced to rationalize its operated capacity due to the very weak trading conditions on its core South America routes. The carrier's operated fleet shrunk by 6.6% last year, ahead of the Maersk acquisition.

The year over year change in TEU capacity across the 17 major carriers left is shown in the graphic below from Alphaliner. (We'll note the big jump in capacity by Hyundai Merchant Marine comes from it picking up some of the assets from bankrupt Hanjin.)

 

Separately. Maersk Line CEO Soren Skou estimates the total idled container ship capacity is currently about 5%, but that even that relatively small reduction is at last acting to prop up rates.



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He noted in an interview with CNBC that "Carriers have taken a lot of capacity out of the market, they are losing significant sums of money every day, and continuing to do that is just simply not sustainable."

Before the financial crisis, global trade was growing 8-10% per year, Skou said.

“Now we're down to something very close to global GDP, around 2% probably in 2016. We expect 2.5%, maybe 3% this year. So of course it's a lot lower level of growth, that means that we have overcapacity, have invested in too much capacity as an industry, we are working our way through that as we speak, and we have seen virtually no new capacity being ordered in the last year,” Skou added.

Will the carriers maintain discipline and send rates back higher? The answer appears to be Yes, for financial survival if nothing else, though many wild cards remain. Will global trade rally and move past 3% this year, or will protectionism drive down volumes below Skou's forecast?

We will keep you posted.

What's your take on developments in the container shipping industry? What do you think will happen to capacity and/or rates in 2017? Let us know your thoughts at the Feedback section below.

 

Your Comments/Feedback

Srihari

Senior Consultant, Infosys
Posted on: May, 22 2016
Great article. I am a little suprised not to see BNSF in the mix while I understand their financial mode/operation is a little different. 

That would only give a complete perspective with all the players in the pool.

Mike O'Brien

Senior editor, Access Intelligence
Posted on: May, 26 2016
Surprised to see Home Depot fall off the list; thought they were winning with Sync?

Julie Leonard

Marketing Director, Inovity
Posted on: Jun, 27 2016
Using the right tool for the right job has always been a best practice and one of the reasons, we feel, that RFID has never taken off in the DC as exponentially as pundits have been forecasting since 2006. While these results may seem surprising to those solely focused on barcode scanning, the adoption of multi-modal technologies in the DC makes perfect sense for greater worker efficiency and productivity.

Carsten Baumann

Strategic Alliance Manager, Schneider Electric
Posted on: Aug, 19 2016

The IoT Platform in this year's (2016) Hype Cycle is on the ascending side, entering the "Peak of Inflated Expectation" area. How does this compare to the IoT positions of the previous years, which have already peaked in 2015? Isn't this contradicting in itself?

Editor's Note: 

You are right, Internet of Things (IoT) was at the top of the Garter new technology hype curve not long ago. As you noted, however, this time the placement was for “IoT Platforms,” a category of software tools from a good number of vendors to manage connectivity, data communications and more with IoT-enabled devices in the field.

So, this is different fro IoT generally, though a company deploying connected things obviously needs some kind of platform – hoe grown or acquired – to manage those functions.

Why IoT generically is not on the curve this year I wondered myself.

 

 

Jo Ann Tudtud-Navalta

Materials Management Manager, Chong Hua Hospital, Cebu City, Philippines
Posted on: Aug, 21 2016

I agree totally with Mr. Schneider.

I have always lived by "put it in writing" all my work life.  I am a firm believer of the many benefits of putting everything in writing and I try to teach it to as many people as I can.

This "putting in writing" can also be used for almost anything else.  Here are some general benefits (only some) of "putting in writing":

1. Everything is better understood between parties involved.  There are lots of people types who need something visual to improve their understanding.
2. Everyone can read to review and correct anything misunderstood.  This will ensure that all parties concerned confirm the details of the agreements as correct.  This is further enhanced by having all parties involved sign off on a hard copy or confirm via reply email.
3. Everything has a proof.  Not to belittle the element of trust among parties involved, it is always safest to have tangible proof of what was agreed on.
4. There will be a document to refer to at any time by any one who needs clarification.
5. The documentation can be useful historical data for any future endeavor.  It provides inputs for better decisions on related situations in the future.
6. This can also be compiled and used to teach future new team members.  "Learn from the past" it is said.

There are many more benefits.  Mr. Schneider is very correct about his call to "put it in writing".





Sandy Montalbano

Consultant, Reshoring Initiative
Posted on: Aug, 24 2016
U.S. companies are reshoring and foreign companies are investing in U.S. locations to be in close proximity to the U.S. market for customer responsiveness, flexibility, quality control, and for the positive branding of "Made in USA".

Reshoring including FDI balanced offshoring in 2015 as it did in 2014. In comparison, in 2000-2007 the U.S. lost net about 200,000 manufacturing jobs per year to offshoring. That is huge progress to celebrate!

The Reshoring Initiative Can Help. In order to help companies decide objectively to reshore manufacturing back to the U.S. or offshore, the nonprofit Reshoring Initiative's free Total Cost of Ownership Estimator can help corporations calculate the real P&L impact of reshoring or offshoring. http://www.reshorenow.org/TCO_Estimator.cfm

Robert

Transportation Manager, N/A
Posted on: Aug, 30 2016
 Good article!  I am sending this to my colleagues who work with me.  We have to keep this in mind.  Thanks!

Ian Jansen

Mr, NHLS
Posted on: Sep, 14 2016
SCM is all about getting the order delivered to the Customer on date/ time requested because happy Customers = Revenue. Using the right tools to do the right job is important and SCM is heavily dependent on sophisticated ERP systems to get right real data info ASP.

I've worked in a DC with more than 400,000 line items and measured the Productivity of Pickers by how many "picks" per day.

I've learned that one doesn't have to remind Germany about your EDI orders.

Don Benson

Partner, Warehouse Coach
Posted on: Sep, 15 2016
Challenge - to build and sustain effective relationships at the level of the organizations that are responsible for effectively coordinating and colaborating in an otherwise highly competitive environment 

Jade

Admin, Fulfillment Logistics UK Ltd
Posted on: Oct, 02 2016
Of course we all need to up our game. We need to move with the times, and always be one step ahead of what the future will bring.

Mike Dargis

President of asset-based carrier based in the Midwest, Zip Xpress Inc. (at ZipXpress.net)
Posted on: Oct, 03 2016
Thanks for the article, but I know there's a lot more to this issue than just the pay rates. Please check out my blogs on the subject at www.zipxpress.net.

Blaine

Inventory Specialist, Syncron
Posted on: Nov, 16 2016
Lora, great article! I agree that companies choose the 'safe' solution more often than not. My solution is a bolt-on for legacy ERP's and we even face challeneges of customer adoption. Most like to play it safe and choose an ERP upgrade, which is more costly, time consuming, and has lower ROI across the board. Would love to learn more about your company, we are always looking for partnerships.

Blaine
blaine.schultz@syncron.com

Bob McIntyre

National Account Executive, DBK Concepts LLC
Posted on: Nov, 21 2016
This is a game changer in GE's production and prototyping.  It also has huge implications across the GE global supply chain with regard to the management of their support and spare parts network. 
 

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