Maersk battles to stay on top as container shipping downturn deepensArchive
LONDON: Denmark’s Maersk Line is fighting to remain the world’s no.1 container shipping carrier as a wave of mergers and acquisitions, particularly in Asia, creates new challengers trying to grab a bigger share of a depressed market.
Maersk itself hasn’t made a major acquisition for more than a decade but says it might be open to “the right opportunity”, although doubters believe such deals risk accumulating ships without securing enough customers.
A unit of oil and shipping group A.P. Moller-Maersk , the line has a 15 per cent share of the overall container market. However, it faces Chinese rivals with global ambitions as well as more traditional Western competitors which are buying up assets in Asia.
The battle is over the world container trade, and especially between Asian ports - one of the few relatively bright spots for an industry suffering its worst downturn since its origins in the 1950s and 1960s.
“It’s really tough and everybody in the industry is really suffering, and so have we,” Jakob Stausholm, a member of Maersk Line’s management board, told Reuters.
“We are defending our leadership position. If we are strong, there is no reason for us not to grow,” said Stausholm, who is the line’s chief strategy and transformation officer.
The container industry, which ships largely consumer goods ranging from iPhones to designer dresses, has been forced to cut costs and try to build scale due to a weak global economy and overcapacity.
“World GDP growth is struggling ... Combined with trade growth slowing down, this is a recipe for a very bad market,” said Evangelos Chatzis, chief financial officer with independent Greek container group Danaos.
In November, Maersk said it would save $250 million in the coming two years and reduce its workforce by 17pc or 4,000 people, mainly through attrition.
It managed to post a profit of $37 million in the first quarter of 2016, compared with a $182 million loss in the last quarter of last year. However, the profit was down 95pc from the $714 million it made a year earlier.
COMPETING WITH THE BIG BOYS: Now it must deal with stiffer competition created by the mergers and acquisitions.
The world’s no. 3 player, CMA CGM of France, is in the process of acquiring Singapore’s Neptune Orient Lines (NOL) for S$3.4 billion (US$2.5 billion). Last week CMA announced it would also form a joint venture with PSA Singapore Terminals to operate container berths.
In China, former state-controlled rivals COSCO and China Shipping Group have merged to create China COSCO Shipping Corporation. Separately, China Merchants Group is buying logistics group Sinotrans & CSC Holdings Co.
“Developments are moving rapidly in Asia and the NOL deal and separate consolidation in China will give Maersk a run for their money,” a shipping industry source said.
“There is a question over whether China will increasingly use these bigger Chinese lines to ship goods now over Western carriers.” Outside the region, Germany’s Hapag-Lloyd is discussing a merger with Middle East container group United Arab Shipping Company.
Size matters in the current hard times. “If you are small you cannot survive,” said David Cheng of the Hong Kong Maritime and Port Board.
“The big container liners in Asia are not regional liners - they are global liners ... They are competing with the big boys like ... Maersk, CMA CGM.” That struggle is set to centre on Asia. “The intra-Asia trade has remained comparatively profitable despite the problems with the wider trade. Going forward, players will increasingly compete for market share on this route and there is already positioning,” a banker who arranges ship financing said.
“The CMA CGM acquisition of NOL is a case in point of that type of positioning.”
Maersk Line’s parent has cash reserves of about $12 billion and is under some pressure from shareholders to put it to use. Chief executive Nils Smedegaard Andersen said last month that the group held “plenty of liquidity reserves for unexpected and expected investments”.
The line last made a major acquisition in 2005 when it bought P&O Nedlloyd, about five years after buying Sealand and Safmarine.
Published in Dawn, June 22nd, 2016