Drewry: Consolidation between Top Tier Carriers Unlikely

CMA CGMImage by Navingo

The consolidation between top tier carriers such as French liner giant CMA CGM and its German counterpart Hapag-Lloyd is unlikely, according to Simon Heaney, Senior Manager for Container Research at Drewry.

As explained by Heaney, the merger of carriers of such size would probably be challenged by regulatory authorities amid fears of breaking fair competition rules.

“We’ve all seen the news about CMA CGM and Hapag-Lloyd so I don’t discount the possibility, but I think M&A between the top tier carriers is unlikely, partly because of competition laws. The industry is still highly fragmented and from a carrier point of view in need of further consolidation, but I think it will come from lower down the pecking order,” Heaney said.

The reports on potential merger talks between the duo emerged earlier this month with Reuters writing that CMA CGM had made an exploratory approach to Hapag-Lloyd over a possible merger.

However, a Hapag-Lloyd spokesperson said that “there is no substance on these market rumors.”

Be it as it may, carriers across the board have been eager to consolidate with their peers as a way of attaining cost efficiency in a market struggling with overcapacity headwinds.

Despite some pickup in rates and overall recovery of market fundamentals, in particular, restoration of balance between demand and supply, 2018 promises to be another difficult year for carriers.

As indicated by Drewry, carriers are losing money again and many are expected to report red ink in the second quarter of this year. The losses are being ascribed to liners’ failure to capitalize on the strong demand amid rising costs, driven in particular by escalating fuel prices.

Even with the emergency bunker surcharges, introduced in June and July, Drewry expects carriers to struggle to recover these costs.

The shipping consultancy estimates that the industry’s fuel bill will be approximately USD 7 billion higher than last year.

Aside to fuel surcharges, carriers are exploring every possible avenue for cost reduction and these have resulted in numerous service suspensions over the past few months and are likely to see further slow steaming.

Taking all these into account, ocean carriers are expected only to break-even in 2018.

This is despite the projected global demand forecast of 6.5 percent for 2018 stemming from the pickup in world economy. The forecast for next year of around 5 percent is likely to be revised, Drewry said, due to the brewing trade war between the U.S. and China.

The impact of the tariffs on the container trade in 2018 is likely to be delayed, however, for 2019 the impact is likely to be greater once the full extent of the planned tariffs is revealed.

World Maritime News Staff

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