Now that money is pouring back into liner coffers, talk about carrier consolidation has been put on hold. Mostly.
Over at Rickmers, boss Bertram Rickmers reckons consolidation in the container shipping industry is “inevitable”.
We have been hearing of this inevitable consolidation ever since the global financial crisis began, but even in the depth of the GFC the world’s top lines kept on sailing.
You have to ask yourself how the top 20-odd carriers can lose a collective US$15 billion in one year and still all remain afloat. Surely one or two shipping companies should have gone under or been acquired.
Instead, many of the carriers were bailed out either by the states that own them, or by business consortiums injecting capital. Was that a good thing? Who knows. Certainly for customers with contracts, but in the long term it won’t do much good for the industry.
Rickmers is not the only liner executive who believes there are too many carriers in business. Earlier this year Maersk CEO Eivind Kolding was singing the same tune. He said governments should not be bailing anyone out as they were interfering with free market forces.
That’s okay for the world’s biggest line to say. No one is going to acquire Maersk.
But the executives do have a point. The top 10 carriers have 60 percent of the container carrying market. When demand for exports plunged last year instead of losing one or two players the industry was forced to lay up huge amounts of capacity.
It’s a bit like a company in tough economic times deciding to cut wages instead of laying people off. The pain is spread across the company. Without consolidation all companies in the shipping industry had to share the pain of contracting volumes.
The reason for protecting a line is that if it goes under, potentially hundreds of ships can be left idle, threatening the market, and shippers will be left high and dry. What is interesting is that the government and private sector bailouts had precisely the same effect.
With the strong recovery in exports, carriers are steaming back to profitability so the consolidation debate will go on to the backburner. But it is bound to be reheated come the next economic downturn.