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Uncertainty in the Shipping Industry’s Recovery Is Not Slowing Down Consolidations of Ocean Lines

After the last two mergers by Ocean Lines in China and Japan, only seven major carrier groups in the world remain and they posses 75% control of the global shipping markets. This consolidation of control does not ease the pressures of the current business environment because the market becomes even more competitive with fewer players. An underperforming business environment continues to encourage ocean line mergers to keep their businesses solvent. If the global shipping industry continues to rely on the practice of consolidating carriers but not evaluating and implementing sound business planning to sustain growth after a merger or acquisition, we may see a new trend of these mega carriers combining forces.

So, a massive process of consolidating container lines continues. However, there are signs of recovery from the crisis which peaked after Hanjin filed for bankruptcy as these new shipping powerhouses are seeing increased demand and feeling the economies of scales resulting from the consolidations and vessel sharing alliances. Couple this current business climate with the worries of becoming the next Hanjin, and we are now seeing the next wave of mergers and acquisitions through the consolidation of Asian Container Lines.

Even with the COSCO merger completed, the global shipping industry is showing no signs of slowing down the industry’s trend of mergers and acquisitions anytime soon. The COSCO-OOCL created third largest shipping line in the world, consolidating strengths of both state owned companies to ensure China will have full control of its lines’ futures.

Japan took a similar course of action. Japanese container lines NYK, MOL, and K-Line created a joint business venture now called Ocean Network Express or ONE. While the Japanese government does not have the same controlling interest in its’ carriers as China does, the island nation created a path for these companies to remain competitive as two of them were struggling individually with reported losses well over of a billion dollars each. This merger will save these companies nearly a billion dollars annually and bring them together through the development of a new IT platform. In addition to these changes, the new shipping group is also setting up precautionary measures to avoid a situation like Hanjin.

South Korea is making a move to nationalize the country’s shipping sector with the announcement of the formation of the Korea Shipping Partnership, an intra-Asia alliance between the 14 of the peninsula nation’s ocean carriers. HMM remains Korea’s flagship line, but the Korean government hopes to move past the devastation caused by Hanjin’s demise and rebuild the nation’s container shipping business. The goals of this partnership are to improve the operational costs by each carrier and deal with the supply and demand of capacity on their intra-Asia routes. Critics of the program are questioning how these companies will work in cooperation because under normal circumstances they are all intensely competitive with one another. But the South Korean government believes it is essential to clean up this sector, and it is the only country doing so.

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