Consolidation, whether through alliances or mergers and acquisitions (M&A), will continue apace in the container shipping industry into 2018, as companies try to boost market share, improve efficiency, and handle intensifying competition and persistent oversupply, according to a new report published by Moody’s Investors Service.
“The trend toward consolidation among container shipping firms will continue into 2018 as larger companies look for opportunities to increase market share, while smaller companies seek to increase efficiency to maintain profitability,” says Maria Maslovsky, Vice President-Senior Analyst at Moody’s.
As explained, consolidation through slot purchases and alliances has helped improve efficiencies without the need for companies to take on extra debt. These strategies allow shipping companies to pool resources to increase efficiencies and customer reach without balance sheet impact and transaction risk.
Moody’s expects shipping companies to continue to seek alliances and slot purchase agreements where possible. Any that do not participate will probably be at a competitive disadvantage as they are less likely to achieve the cost efficiencies needed to compete with peers in alliances. Exceptions would be regional firms like Wan Hai Lines Ltd. (Ba2 stable) that focus successfully on a specific market niche and do not compete with larger firms on the main trade lanes.
Moody’s anticipates that M&A will continue in the sector given the potential for both revenue and cost synergies resulting from such transactions. However, while recent mergers including Hapag-Lloyd AG (B2 stable) and CSAV, and CMA CGM S.A. (B1 positive) and NOL, have resulted in synergies, the success of future transactions will depend on strong operational execution.
In Moody’s view, the impact of debt-funded M&A on companies’ creditworthiness would depend on a number of factors, including the company’s ability and focus on restoring its metrics to within the rating agency’s guidance over a 12-18 month period.
The full report “Container shipping — Europe: Consolidation to continue as persistent oversupply spurs liners to join forces” can be downloaded here.