Chinese Crash to Spark Wave of Mergers?


The slow recovery seen in the Chinese economy could lead to massive shipping unions within the industry, as carriers seek to ensure that they can survive the turbulence seen in recent months, according to CNBC.

CMA CGM and Singapore’s Temasek Holdings have been in talks recently to allow CMA CGM to merge with Neptune Orient Lines in a bid to consolidate their offerings and deal with an industry wrought with low freight rates and overcapacity.

Esben Poulsson, President of the Singapore Shipping Association, said: “There is definitely a consolidation trend going on. At a difficult moment of the cycle, consolidation is obviously a way for these players to gain greater market share and greater strength toward the customers.”

“There's simply too much capacity and obviously at these current rates, it's not a sustainable business, it cannot continue on a long-term basis but it is a function of the market.”

Read a Technical Paper by Drewry on tackling mega-alliances

The current state of global trade can be seen through the record lows of the Baltic Dry Index – an index used to measure the success of global trade – which slumped to 504 recently, compared to 1296 seen in the same period of 2014.

According to Drewry, shipping lines are now faced with the decision to ‘lay up or not to lay up’ their idle ships, as a result of the drop in demand for cargo.

Maersk was recently the first to act with an announcement that it will be focusing its energy on consolidating its business and cutting capacity on key routes.

The rest of the world’s commercial shipping fleet are now said to be following suit with the world’s largest shipping line in order to brush off ailing profits.

Experts have previously argued that shipping lines need more finance in order to acquire more mega-ships; however, it seems that focusing on cutting capacity and merging companies to obtain the economies of scale benefits may be the only way for shipping lines to survive.

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