Weekly News Review | 11 December 2017 | Automotive Purchasing and Supply Chain Automotive Purchasing and Supply Chain

Talking Point

Container ships get bigger as competition gets smaller and ports feel the pinch

Last week Maersk Line finally acquired Hamburg Sud almost a year after the proposed takeover was first announced. The deal cost Maersk €3.7 billion on a cash and debt-free basis and the acquisition was financed through a syndicated loan facility. Together, the two shipping lines will have a total container capacity of 4.15 million TEU and will represent a 19.3% share of global fleet capacity. 105 Hamburg Sud vessels will be integrated into the Maersk Line fleet, with the combined fleet totalling some 773 vessels (owned and chartered). the two companies will be able to realise operational synergies in the region of US$350-400 million annually as from 2019, said a Maersk spokesperson. The cost synergies “will primarily be derived from integrating and optimising the networks as well as standardised procurement”. This figure compares with Hapag-Lloyd’s $435m expectations after the merger with UASC and CMA CGM’s $500m target following the takeover of APL.

In another piece of last week’s shipping news, it was announced that the European Union competition regulators had approved the takeover of OOCL by China’s Cosco, despite investigators finding it would hold a “very significant” market share of transatlantic trade. These acquisitions mean, of course, that the number of major container lines has been significantly reduced.

All of this activity is set against a backdrop of falling freight rates. in spite of the shipping lines’ vain efforts to increase them. I understand that rates on the important Asia to the United States routes have fallen by between 24 and 27 percent in the last year. Where will all this end up? We have increasingly large shipping companies chasing business at increasingly low returns. Something surely has to give.

Meanwhile, the size of the container ships continues to grow and this is placing ever-greater strain on ports around the globe. The number of berths capable of accommodating these behemoths is not infinite. Port congestion is now a major constraint to efficient shipping, particularly on America’s west coast. Ports have adapted and adjusted to increasing vessel size practically since containerisation was invented, but the cost of doing so is rocketing. Channels need to be dredged, new wharfs and cranes need to be installed and bridges often need to be raised. As the amount of goods requiring shipment in containers continues to increase, let’s hope the shipping industry and the ports can continue to satisfy customer demand.

Sam Ogle

Sam Ogle

Simon Duval Smith

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Trisha Chowdhury

Sam Ogle

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