Analysis, trends, market movements, decision tools, globalization of transport, econometric models in logistics, transport, shipping and its industries
LOGISTICS, TRANSPORT AND SHIPPING NEWS TRUCKING INDUSTRY NEWS
28/09/2017
The concentration of shipping companies will make companies more profitable.

When all the recent container Mergers & Acquisitions (M&A) activity has played out there will in effect only be seven major carriers with global scope and market shares above 5%. The move towards liner oligopoly is one of the main reasons why Drewry is more bullish on the chances of sustained carrier profitability.

Research conducted by Drewry for the upcoming Container Forecaster report looked at the market concentration across the six main East-West trades, using the Herfindahl–Hirschman Index (HHI) method, revealing a much more concentrated environment than one year ago.

When comparing the nominal capacity deployed by carriers in July 2016 and July 2017 (in the latter treating all carriers involved in M&A, either completed or pending, as one single entity) we found that that two trades (Asia-North Europe and Asia-Mediterranean) have exceeded the 1,500 index threshold from a “competitive” marketplace to a “moderately concentrated” environment. The two Transpacific routes (Asia-WCNA and Asia-ECNA) remain competitive but moved much closer to the 1,500 threshold, while the North Europe-North America route was largely unmoved. The Med-North America route was already moderately concentrated one year ago, but was even more so this summer.

Drewry expects that increased concentration will dramatically reshape the container market of the future by changing some of the behaviour traits of ocean carriers that have sometimes scuppered their own fortunes in the past. We will expand on this theme in greater detail in the Container Forecaster report, but for these pages we can say that one key area we that we think will change will be more responsive capacity management.

In more concentrated trades we believe that carriers will be able to respond more swiftly to set capacity levels that are more appropriate to the prevailing demand. By smoothing out some of the “lumpiness” that often creates steep fluctuations in ship utilisation the market should start to see more stable freight rates.

Container shipping remains competitive in most East-West trade lanes for the time being, but the trend is clearly moving towards greater concentration. One of the side-benefits for all stakeholders will be an end to some of the worst volatility in freight rates.

 

 

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