The future of container companies

For us who work in shipping, we cannot be but amazed of what is occurring within the container branch of the industry. The losses are astronomical! Ships are becoming the same, if not astronomical, but very large indeed. Yet despite losses there are plenty of actors in the container branch so the 80/20 rule doesn't seem to be applicable here. Having said that I can finally see the possibility of things getting sorted out, of which I will now explain in further detail.

When I went to sea, a good 30 years ago, the then largest container ship could load 4 500 TEU, and that was big. Today the world's largest container ship is the MSC Maya that docks in Gothenburg next week. In comparison, she can carry a load 19 224 TEU. During the same period common carrier vessels have gone from a few hundred TEU to today's figure of up to 3 500 TEU. The economies of scale with big vessels are incredibly large, transport costs and the negative environmental effects have decreased.

During the same period we have seen mergers. I could name many examples but one springs to mind and that is Nedlloyd and P&O who were swallowed up by Maersk. Surprisingly no company has been nudged out of business which is partly due to state ownership and the banks. ”Too big to fail” is the by-word here and one can see that the current market economy hasn't applied to this branch. In short, weaker companies have been allowed to survive despite the fact they shouldn't have.

We now see more mergers taking place with alliances being formed to an extent to question which shipping companies will be left. The French line CMA CGM has its eye on NOL/APL for a 20 billion kroner price tag. NOL has been profitable since 2010 so it's not surprising that the Singaporean owner wants to sell. An interesting fact is that the State of Singapore, via NOL, runs a shipping line named the ”American President Line”. The two major Chinese lines COSCO & China Shipping are looking to merge. Both companies are owned by the Chinese state so here I wouldn’t have thought there will be much to disagree over. There's change taking place on the smaller end of the scale too. Unifeeder and Teamline are in alliance and have partly sailed together for a while now. X-press Feeders has recently acquired common carrier TransAtlantic, a purchase that will affect us here at Port of Södertälje.

As from the 1st of December this year the market shares in TEU were as follows, according to sources at www.alphaliner.com.

Maersk 14,7 percent
MSC 13,3 percent
CMA CGM + NOL 11,5 percent
Cosco + CSCL 7,7 percent
Then follows Hapag Lloyd and Evergreen on 4,6 percent each.

So, suddenly the four major container shipping companies control nearly 50 percent of the market. One can imagine that those actors with just two to three percent of market shares are beginning to get worried.

At the same time the large companies are not immune from worries of their own. Maersk announced in November that they were not going take the option to build six large container Triple E class ships capable of transporting 19 630 TEU. Overcapacity is still a big problem as the world economy and the stream of goods is not what it used to be. Only seven of the 14 largest shipping lines reported positive third quarter results this year. In the middle of October the ”China Containerized Freight Index”, CCFI, fell to its lowest level since the index was first introduced in 1998. Despite Maersk's order cancellation 37 ships with a capacity of over 14 000 TEU will be delivered next year.

My conclusion and prediction is to expect a turbulent 2016. I cannot see any large growth regarding volumes on the horizon. New deliveries will go ahead despite this gloomy prognosis as they were ordered years in advance and as a result transport costs will be kept low. I believe that 2016 will be the year when we see just which of the shipping companies will continue to stay in business, with the smaller companies lagging far behind. Having said that there are orders in for even larger ships which puts the onus on port authorities and stevedoring actors to honor new investments in shipping lanes, docks and cranes. The winners during 2016? Engineering companies, again!