Container industry chaos likely to continue, observers say

Speakers at Northeast Cargo Symposium caution that outlook for container shipping is uncertain as traditional sources of new revenue slip away; forecast is for more consolidation.

By Toby Gooley

The container shipping industry finds itself once again in a period of turmoil and uncertainty, with no end in sight.

Hanjin Shipping Co. Ltd.'s bankruptcy served to exacerbate an already unsteady situation, and the recently announced joint venture among Japan's three largest container carriers—NYK Line, Mitsui O.S.K. Line, and K Line—is widely viewed as a harbinger of more consolidation to come.

Speakers on a panel at the Coalition of New England Companies for Trade (CONECT) Northeast Cargo Symposium, held in Providence, R.I., earlier this month, reeled off a litany of challenges facing the container shipping industry. John Reeve, a longtime maritime industry consultant, cited forecasts that carriers could lose as much as $10 billion in 2016, noting that container lines can no longer grow their way out of their troubles. Fast-growing economies like China and Brazil that boosted demand for shipping services have dramatically slowed, and with e-commerce speeding the order-to-delivery cycle, "the days of converting cargoes from air to ocean are over," he said. Relatively new container ships are being scrapped, and although Reeve expects container rates to gradually increase, any rise will be very limited due to continuing overcapacity, he said.

The year has seen three major mergers: CMA-CGM and Neptune Orient Line, COSCO and China Shipping, and Hapag-Lloyd and United Arab Shipping Co. With virtually all of the major container lines in the red, further concentration in the industry is "quite possible," Reeve said, but much will depend on the motivation and attitudes of the government players that exert influence over many of the world's shipping lines. He also suggested that Maersk is "probably in the market" for a merger.

At least one carrier, Hyundai Merchant Marine (HMM), has demonstrated that it's possible to come back from the brink. An announcement by its parent, the giant Korean industrial conglomerate Hyundai Group, that the carrier was in danger of collapse left competitors, including Hanjin, anticipating a bankruptcy. But a swift restructuring between March and June changed everything, said Michael Vaccaro, vice president of Hyundai Merchant Marine America and Hyundai America Shipping Agency.

After spinning off from its parent, HMM generated more than US$1.3 billion in working capital by selling off such assets as its bulk business and Hyundai Securities division. It also cut loose some of its charters and renegotiated debt with banks and creditors, and next year will join an alliance with Maersk and Mediterranean Shipping Co. (MSC). Hyundai still needs to rationalize its fleet further, but it now has about four to five years of "runway" to rebuild, Vaccaro said.

Vaccaro predicted there will be further merger and acquisition activity, noting some forecasts that in five to 10 years the number of container carriers will be half what it is today. "Every container carrier now is subject to speculation about acquiring or being acquired by another carrier," he said.

Intermediaries have benefitted from the liner industry's problems as shippers seek to spread their risk, Reeve said. That trend was confirmed by fellow panelist Trevor LaChapelle, vice president, global transportation, for BJ's Wholesale Club Inc. BJ's has "embraced the idea of working with" ocean consolidators to gain more flexibility, assure the availability of containers, and get help with "things we hadn't foreseen and had not negotiated into our contracts" with ocean carriers, he said.