Maersk exec: “Don’t expect to see any more top 20 consolidation”
Maersk exec: “Don’t expect to see any more top 20 consolidation”
A senior Maersk Line executive said Tuesday that shippers have benefited from consolidation in the liner industry, but don't expect to see any more large-scale takeovers in the immediate future.
“Large acquisitions might be a little dicey. Look at the top ranks and a lot of those carriers, at least most of the people in the industry would say, are not really up for sale. There is a very limited field that is potentially up for sale,” said Lars Jensen, director of global intelligence and analysis for Denmark's Maersk Line, the world’s largest container shipping carrier. Jensen was speaking at the ninth Global Liner Shipping Conference hosted by Containerisation International in London.
The plus side to shippers of all the mergers and acquisitions activity, Jensen said, comes from the savings associated with carriers’ increased economies of scale being shared with the customer. Also, the smaller companies without the financial capacity simply cannot develop the complicated global services that shippers require, he said.
Jensen added that while liner consolidation has ramped up in the last eight years or so, shippers still have plenty of choice as container shipping remains fragmented, judged by competition authorities benchmarks and that there are still some 400 carriers operating worldwide.
“Large acquisitions are not impossible, but at least unlikely. The most practical way forward if you want to grow by acquisitions, will be through increased purchasing of minor niche carriers,” he said.
The Maersk executive said that over the past eight years there have been 41 acquisitions, but that less than 10 percent of those involve Asian carriers either being bought or sold. “Is there something inherent in the way Asian carriers are set up that makes them reluctant to make acquisitions, or are they going to start an acquisition spree like we have seen with the European carriers?” Jensen asked.
Maersk is of course one of the companies who swelled its vessel capacity and stranglehold on the liner top spot with the purchase of the then top-10 Anglo-Dutch carrier P&O Nedlloyd in 2005. And like another leading carrier who made a big purchase, Hapag-Lloyd, which bought CP Ships, Maersk posted heavy container losses in 2006.
When asked by Shippers NewsWire if his company regretted the P&O Nedlloyd takeover, Jensen said the acquisition was “definitely not a failure,” but admitted that the company will have to wait a couple of years to fully assess its success and see a financial return.
During his keynote speech at the CI conference, Jensen said: “Of course there are challenges arriving from consolidation. One of them is increased network capacity. It is relatively easy to manage a business if you have one string going between one part of the world to the next. But when you have to manage more strings the complexity does not just grow five-fold because you have five more strings, but rather it grows at least 25-fold. So it becomes much more difficult to manage your business unless you go back and look at all your processes and see how you can do things differently.
“Keeping the customer in focus is also a challenge whenever you go through mergers and acquisitions. No matter whether it is a small or large carrier you buy, there is in all companies an inherent tendency to focus inwards during a phase of consolidation. It really requires an effort on the part of carriers to make sure to remember there is actually a customer out there and you are dependent on him. He’s the one that pays your gas bills at the end of the day.”
Jensen said that as carriers grow in size through takeovers they risk diseconomies of scale, which force them to remodel their operations. Since the P&O Nedlloyd takeover, Maersk has cut ocean vessel capacity in certain trades, most notably in the transpacific, as well as reducing the number of U.S. inland routing options.
Not commenting on those developments in particular, Jensen said: “You have to change to a new platform that enables you to handle the larger business. That’s not something that you do just one time, that happens at regular intervals.
“As consolidation has added pace over the last several years, more and more companies are having to face up to this. That’s causing growing pains,' he said.
“Of course ensuring that the economies of scale that you were looking for when you went into an acquisition are achieved requires that at times you might, post-takeover, look at scaling down in some places in order to scale up in others. One plus one sometimes equals two-and-a-half and sometimes maybe one-and-a-half,” he said.
Commenting on the speculation that A.P. Moller-Maersk is lining up a bid for Hapag-Lloyd, Jensen said: “I’m going to bet that in a half a year from now there is going to be a different rumor and another six months later. Those same rumors are all going to speculate among the same small circle of carriers, only in different permutations, simply because there simply are not a lot of options.”