Consolidation, Shipping Volume Continue to Grow
Declining shipping growth in China and collapsing freight rates have set off a domino effect in the international shipping industry. Because of this, we've seen major companies merge as consolidation in the industry becomes more and more apparent. Last year, it was China Ocean Shipping Co. (COSCO) merging with China Shipping Group, and Neptune Orient Line taking over CMA CGM.
Now, German container shipping company Hapag-Lloyd AG (HLAG) has agreed to merge with Kuwait-based United Arab Shipping Co. (UASC), creating a group valued between $7.7 billion and $8.8 billion, Reuters reported.
The reason that we've seen so many mergers and acquisitions in this industry, particularly in Asia, is because companies are looking to capitalize on the region's troubled market due to weak consumer demand and saturation. Reuters reported that this is the industry's worst downturn since its origins in the 1950s and 1960s.
HLAG, which ranks fifth globally in terms of carrier capacity, unveiled the plan for the merger in April, and received backing from UASC shareholders earlier this month. After this merger, it will move closer to the No. 4 company, COSCO.
Previously, HLAG merged with Chilean shipping firm Compania Sud Americana de Vapores in 2014. This latest merger could give UASC better access to trans-Atlantic and trans-Pacific routes, and give HLAG bigger ships for Asia-to-Europe routes.
In order to save money, shipping companies also are looking to strike deals on vessel sharing and cargo pooling. The latter will be easier now that the Panama Canal's expansion is finished. According to Business Insider, the canal's expansion will allow it to double the amount of cargo traveling through. In December, we also saw the world's first "megaship," which can carry nearly a third more cargo than the largest ships at the Port of Los Angeles. This came after companies already added larger vessels to their fleets, allowing for a container shipping growth rate of 7.7 percent. The global fleet also plans to add 1.3 million 20' equivalent units of capacity this year.