In just the last few months, we’ve seen two massive deals in the ocean shipping industry: CMA CGM, already the third largest container carrier, in December made a $2.8 billion all-cash offer to acquire APL parent Neptune Orient Lines from Singapore-owned Temasek Holdings; and shortly thereafter, state-owned conglomerates COSCO and China Shipping announced plans to merge at the behest of the Chinese government.
All this merger and acquisition activity has the industry and analysts such as myself wondering if there isn’t more to come. And if so, who might be a likely (or at the very least, logical) target for the next wave of ocean carrier consolidation?
One pairing that is being mentioned a lot these days is that of fellow South Korean carriers Hanjin Shipping and Hyundai Merchant Marine (HMM). Full disclosure: this is pure, baseless speculation. But something we do know for sure is that both lines have struggled to turn a profit since the global economic recession and have amassed massive amounts of debt. Although Hanjin in early February posted a meager $6 million profit for 2015, from 2009 to 2014, Hanjin and HMM’s container-shipping and related businesses have posted annual losses totaling $849 million and $720 million, respectively (See “Sailing to profit,” American Shipper, July 2015, pages 24-30).
The adjacent chart, built with data from BlueWater Reporting’s Carrier Ranking Report, compares the combined, overall deployed capacity of Hanjin and HMM with the other top lines by individual capacity, including the merged fleets of CMA CGM and APL, and COSCO and CSCL. Ranked eighth and 17th in the world in terms of deployed fleet capacity at 670,309 TEUs and 378,511 TEUs, respectively, Hanjin and HMM sport a total deployed fleet capacity of 1,048,820 TEUs. A merger between the two would immediately vault the combined company to the No. 5 spot behind Maersk Line (2,858,476 TEUs), MSC (2,693,857 TEUs), CMA CGM-APL (2,284,683 TEUs), and COSCO-CSCL (1,694,213 TEUs), and just ahead of Hapag-Lloyd (1,032,524 TEUs) and Evergreen (970,099 TEUs).
Because of the way the industry is structured now—with large-scale vessel alliances accounting for nearly all container traffic on the major east-west trades—any merger or acquisition of alliance member carriers could have far reaching effects beyond their individual service networks. As with both the CMA CGM-APL and COSCO-CSCL combinations, Hanjin and HMM belong to two different alliances.
A recent analyst report suggested that a Hanjin-HMM tie-up would “devastate” the CKYHE Alliance of Hanjin, COSCO, “K” Line, Yang Ming and Evergreen. This might be true, but only if Hanjin jumps ship for the G6 Alliance, of which HMM is a member along with APL, Hapag-Lloyd, NYK, MOL and OOCL, and COSCO leaves to join the Ocean3 Alliance of CSCL, CMA CGM and UASC. Alternatively, the combined Korean carrier could choose to continue operating within the CKYHE—both have their advantages and disadvantages when it comes to cooperative efforts as well as market share in the major east-west trades.
Presently, the G6 sits behind the CKYHE in both transpacific and Asia-Europe market share, with a combined weekly deployed capacity of 55,525 TEUs from Asia to North Europe and 115,282 TEUs in the eastbound transpacific, compared to 72,210 TEUs and 143,041 TEUs for the CKYHE. If Hanjin were to go to the G6, however, that would be a big enough swing to turn the tables. In that case, the G6 would have a combined weekly deployed capacity of 68,922 TEUs and 146,588 TEUs, respectively, compared with 58,813 TEUs and 111,735 TEUs for the CKYHE. On the flip side, bringing HMM’s tonnage into the CKYHE would give it an even greater lead in the transpacific and, at 83,976 weekly TEUs, put it in a position to compete directly with the 2M Alliance of Maersk and MSC (83,993 TEUs) in the Asia-Europe trade.
When all is said and done, the Ocean3 could lose CSCL or add COSCO depending on the wishes of the Chinese government. My hunch is that because the merged COSCO-CSCL container line will operate as COSCO and the CSCL branch will essentially exit container shipping entirely, it will stay in the CKYHE, where it can be the big fish in the pond, as opposed to playing second fiddle to the merged CMA CGM-APL group. COSCO-CSCL might also find it appealing to stay in an alliance of all Asian lines, rather than having to cooperate heavily with a French carrier in CMA CGM and UASC, which is owned by a consortium of six Middle Eastern nations.
Only the 2M would remain unchanged, unless of course Maersk or MSC decide to wade into the M&A waters themselves, in which case all bets are off.
Meyer is web editor of American Shipper and a research analyst with BlueWater Reporting. He can be reached by email at bmeyer@shippers.com.
Container Analytics: Who’s next for liner M&A?
