Ever since the 1990s, mergers and acquisitions of shipping companies have been happening all over the world. These mergers have been playing a part in driving the global economy for the last 30 years. They are also known to facilitate world trade between businesses among many different industries in various countries of the world.
Container transportation plays a huge role in facilitating international trade. The last few years have transformed the shipping industry. And played an important role in evolving the entire logistics industry. Container shipping has also increased the worldwide GDP at an enormous rate.
What is a shipping line merger?
A shipping line merger occurs when two or more shipping lines join forces to create an entirely new shipping line. It can also happen when an existing shipping line buys out a majority share of a smaller line.
It is also referred to as market consolidation. In the last few years, mergers and acquisitions of shipping lines have become pretty common. Market consolidation has converted the global container transportation industry. This has eventually lead to mergers and procurements.
Container shipping has its benefits and disadvantages. Shipping alliances have resulted in the expansion of the container transferring companies into full-fledged port operations. Thus, making room for more mergers. Shipping consolidation has certain benefits like reduction in costs, enriched efficiency, and improved management of the ship’s capacity.
However, it also imposes certain challenges like- reduction in competition, abuse of market power, and higher rates and prices of shipping containers in the USA and other parts of the world. All these activities that have now started happening require proper monitoring. Along with it, the assessment of the mergers and acquisitions trends in container shipping is also necessary.
What are the reasons behind shipping lines’ mergers?
Shipping line mergers have been considered to be a highly efficient way for container shippers. It helps them grow the business and establish themselves in this highly competitive industry. Here are some reasons why shipping line mergers have become so popular:
- Global exposure: When large companies buy out comparatively smaller container shipping companies, they can expand their international networks. This increases their client base and they can thus sell their products and services to other demographics as well.
- Institute market power: Being a monopoly in an industry as vast as the shipping industry allows shipping companies to become “price markers” in the industry. They are then in a position to set the market prices. Rather than basing their rates on the otherwise prices set by the industry.
- Solving the issue of overcapacity: Shipping container operators often deal with the major issue of excess capacity, as it weakens their market power as a whole. Mergers and acquisitions in the shipping industry have allowed the big players to control the smaller container providers. And with this, they can make their operations much more efficient. This is a common challenge that shipping companies face that mergers can easily mitigate.
- Betterment of economies of scale: Market consolidation is preferred by the shipping carriers. As it helps in the reduction of costs and also sells higher volumes of the fleet of cargo containers. Thus giving them an expanded negotiation power.
How does market consolidation impact importers and exporters?
Shipping line mergers make way for these essential changes for the importers and exports of cargo:
Additional capacity and better services even in low seasons
Like we discussed above, carriage mergers help in dealing with the overcapacity issues faced. As a result of this, the buyers and sellers of shipping containers can easily procure the cargo boxes like a high cube or standard shipping containers and also avail special services that the newly formed shipping line can provide them to expand their global reach.
Changes in existing services and schedules
The union of two shipping lines inevitably results in the creation of a new corporate structure, thus giving rise to certain changes in the current services and schedules, especially if the merger is made to expand worldwide reach.
Fluctuation in freight rates
Transportation mergers result in impulsive changes in the cargo rates. These changes can be both positive and negative depending upon the impact of the merger on both the shipping companies.
Some Common Mergers in the Shipping Industry
Shipping companies have gone through many mergers and acquisitions in the last few decades and reports have suggested that till the year 2019, the top 25 shipping container companies of the world owned more than 90% of the total market share.
Some of the most integral shipping line mergers and alliances are as follows:
- Container line Maersk retained its place as the world’s larger shipping container operator when it took over Hamburg Sud for $4 billion.
- COSCO shipping amalgamated with China Shipping and even took over Orient Overseas Container Line (OOCL) to take the position of the third-largest operator.
- The CMA-CGM group took over Neptune Orient Lines (NOL) to become the fourth-largest container operator.
- Hapag Lloyd also merged with CSAV and UASC to take the fifth rank in worldwide container operators.
- Ocean Network Express (ONE) was born in 2017 with the joining of forces of Japanese carriers MOL, NYK, and K-Line and came into the sixth position.
- The 2M alliance formed between Maersk, Mediterranean Shipping Company (MSC), and ZIM brought their market share to around 35% across the top 100 container carriers globally.
- The Ocean Alliance in 2017 also comprises agreements between CMA-CGM, COSCO, Evergreen, and OOCL.
- Another major coalition was the alliance between Hapag-Lloyd, ONE, and YML coming together.
The shipping lines have formed their own alliances with other major lines and many have also merged with large or small-sized container shipping lines in order to create a greater overall market share and this has resulted in getting the industry players to work together in order to enhance industry-wide technology and create and maintain standards which eventually proves to be beneficial for the entire shipping industry.