03-10-2016

Major News Reflects The Biggest Of Trends

Clarkson

The collapse of Korean container shipping line Hanjin has provided some of the biggest headlines that the container, or any other, shipping sector has seen over the last few decades. There’s of course significant debate about the ramifications, but what does the story illustrate in terms of the journey undergone by the liner sector in modern times?

The Big News

2016-09-30_upload_8729810_CIM1609Container shipping’s September headlines were dominated by the downfall of Korean liner company Hanjin. Following financial collapse, Hanjin has sought court protection in a number of jurisdictions but rehabilitation of the company appears impossible. At the start of September, Hanjin was the 8th largest containership operator by capacity deployed, operating around 100 ships and 600,000 TEU. Hanjin’s fleet at that point was about 40% owned tonnage and 60% chartered in, and constituted 3% of global capacity, with a 7% share on the key Transpacific trade lane. Quickly Hanjin vessels became stranded waiting outside ports, with others arrested amidst much debate over the legal position. Rates on the Transpacific spiked, but have since flattened. Cargo delays have ensued; reports suggest that there may have been up to $14bn of cargo stuck on Hanjin vessels. Charter owners are reportedly owed over $1bn, and increasing uncertainty has enveloped the boxship sector.

Liners Re-Aligning

But what’s the underlying story? Hanjin has fallen victim to extremely difficult freight market conditions. Freight rates have been under severe pressure in recent years and the industry is still dealing with the aftermath of the global financial crisis, when container trade slumped by 9% in one year, creating a huge chunk of surplus shipping capacity. This has driven a raft of liner company merger and consolidation activity in recent times, as well as further re-alignment of the major liner4 companies into a few key alliances. In fact, 5 of the top 20 boxship operators in late 2014 are now out of the (or on the way out of) the list (CSAV, CSCL, NOL-APL, USAC and Hanjin). Today the top 20 operators deploy 88% of the world’s capacity and the top 10’s share is 70%.

It’s A Long Story

Taking a longer view, despite the fact that the liner sector has been one of the less fragmented parts of shipping, the recent round of consolidation is also part of a long-term industry trend. The story of the liner sector has always been one of co-operation, alliances and consolidation across a wide range of carriers, eventually forming into groupings and companies better positioned to take advantage of opportunities available in the industry. Back in 1996, the top 10 liner companies deployed 45% of capacity; soon, if Hanjin’s capacity is absorbed, and with UASC merging with Hapag-Lloyd, the figure could be 75% (see graph).

Tomorrow’s News Too

So, no doubt the collapse of one the world’s major liner companies is going to have significant ramifications in the here and now, both operational and commercial. However, the latest news is also one more chapter in the long story of consolidation in the liner business.

Source: Clarksons 

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