Ocean carrier APL, a subsidiary of Singapore’s Neptune Orient Lines, finds itself in an interesting position at present. Despite the formation of the G6 Alliance, of which APL is a member, the company has struggled to maintain profitability in the wake of the worldwide economic downturn. Carrier alliances were designed to save companies money by allowing them to leverage the economies of scale provided by cooperating on the major east-west trades, but APL and others have continued to lose money at an alarming rate. Such sustained losses are surely a motivating factor in Singapore-owned investment firm Temasek Holdings once again putting NOL up for sale, but the company’s recent financial history—posting annual losses totaling $1.31 billion since 2008—isn’t exactly enticing.
Earlier this summer, rumors began circulating again that Temasek was actively seeking buyers for NOL. At the time, Danish container giant Maersk Line, Hapag-Lloyd of Germany, and Hong Kong-based OOCL were mentioned as potential suitors, but it turned out another European line would emerge as the frontrunner. NOL announced in early December it received a preliminary purchase offer from France’s CMA CGM, the third largest container carrier worldwide, valued at $2.4 billion including about $3 billion in outstanding debt.
The latest BlueWater Reporting Carrier Report gives readers an in-depth look into the potential sale of NOL to CMA CGM, the company’s recent financial performance, especially as it relates to liner operations, and an analysis of APL’s fleet and network. In addition to written commentary and analysis, the report includes pivot tables within an Excel workbook that show APL’s estimated weekly deployed capacity by trade over time, as well as current market share in each trade by weekly deployed capacity, fleet details, any recent American Shipper news articles or BlueWater Service Tracker updates, and service information including which ports are called most and with which carriers it currently cooperates.
Combined Market Share
According to BlueWater Reporting, CMA CGM’s 462-ship fleet has a combined capacity of 1,845,178 TEUs, while APL has 100 ships with a capacity of 625,427 TEUs. The adjacent chart, built with data from BlueWater Reporting’s Carrier Ranking Report, compares the combined current capacity of APL and CMA CGM with that of other top ocean carriers.
Should CMA CGM acquire NOL, Maersk and Mediterranean Shipping Co. would retain their rankings as the No. 1 and No. 2 ocean carriers by operating fleet capacity with 2,816,356 TEUs and 2,677,624 TEUs, respectively, but the merged APL/CMA CGM group would immediately put itself into the discussion of the largest carriers with 2,473,079 TEUs. By comparison, fourth largest carrier Hapag-Lloyd is the only other line with more than 1 million TEUs of overall fleet capacity at 1,017,118 TEUs. The list is rounded out by Taiwan’s Evergreen Line (983,456 TEUs), and China-owned COSCO (858,832 TEUs) and CSCL (748,867 TEUs), which recently began merger discussions of their own.
On paper, a deal between NOL and CMA CGM makes sense from a market share standpoint. CMA CGM already has a strong foothold in the Asia-Europe trade lane, where APL has been deploying less and less capacity of late. APL, on the other hand, is more active in the transpacific than in the Asia-Europe trade, where CMA CGM has a smaller relative share of the market.
Outlook
For the time being, it seems the rumors of the impending sale of APL’s parent company NOL are turning to reality. CMA CGM’s purchase offer for NOL has received the full support of the companies’ boards, as well as that of owner Temasek Holdings, but the deal is far from done at this point. There is no guarantee, for example, that regulators in the United States, European Union and China will allow the transaction to go through. Just last year, it was Chinese antitrust authorities that scuttled the proposed P3 Alliance, which would have brought together the top three container carriers worldwide in Maersk, MSC and CMA CGM.
And although obtaining APL’s tonnage in the transpacific and Asia-Europe trades would certainly help CMA CGM, the more important piece of the transaction will be retaining APL’s customers. This may be easier said than done though, and it’s likely the primary reason CMA CGM intends to maintain the APL brand even after the acquisition is complete. Despite the financial failings of NOL and current weak market conditions, CMA CGM would still be acquiring a once-great brand in APL. If the merged company is able to continue to grow its earnings, even on diminishing revenues by focusing on profitable revenue streams, that just might be enough to return the struggling carriers to profitability.
Meyer is web editor of American Shipper and a research analyst with BlueWater Reporting. He can be reached by email at bmeyer@shippers.com.