According to Drewry, IMO’s 2020 may result to a major carrier bankruptcy. In its recently published Container Insight Weekly, Drewry suggested that financially vulnerable carriers could be pushed into mergers and acquisitions (M&A) by the extra costs associated with the new low-sulphur fuel regulation.
Specifically, it is stated that the deadline for IMO 2020 causes carriers to be tense and believe that will be severely affected by the changes.
Therefore, Drewry asks
Are they in a position to deal with myriad of extra associated costs such as unrecoverable [bunker adjustment factors], capex costs to install scrubbers and extra funding requirement for bunker credit, among others?
The answer to be given is that there’s a possibility for IMO 2020 to inspire another major carrier bankruptcy and/or trigger more defensive M&A.
The new sulphur-regulations could inadvertently push industry consolidation along, closer to where it needs to be in order to achieve sustainable profitability.
It cited the last round of M&As that started with the merger of Chinese carriers Cosco and CSCL in 2016 and concluded with the integration of the Japanese carriers NYK, MOL and K Line into the Ocean Network Express (ONE) in Q1 2018.
Moreover, the mergers and acquisitions made some progress to the extent that the leading seven carriers now control approximately three-quarters of the world’s containership fleet.
Concluding, even if IMO results to another round of industry consolidation, the chances are that there will still be enough carriers left to prevent the big trades from being highly concentrated.
