Drewry: Box Carrier Mergers Will Not Do Anything to Improve Sector Profitability in Medium Term

Drewry says last week's merger announcements mean it merely shuffles the excess number of ships into fewer hands.

Following news last week of two major box shipping mergers, Drewry Shipping Consultants Ltd. (Drewry) says consolidation will not do anything to help the sector's profitability in the medium term, and classified the deals as likely being one-offs.

As Ship & Bunker previously reported, last Monday Neptune Orient Lines (NOL) confirmed a S$3.4 billion ($2.4 billion) cash offer from France's CMA CGM S.A. (CMA CGM), and on Friday it was reported the China Ocean Shipping (Group) Co., (Cosco Group), and China Shipping (Group) Co. merger had been approved by China's state cabinet,

In its December 13 edition of Container Insight, Drewry says that, in the case of the NOL / CMA CGM deal, selling at below book value "is hardly likely to encourage other owners to rush to sell."

"Neither have NOL's peers seen any significant uplift in their share valuation, something that usually occurs when further M&A in a sector is anticipated."

Drewry notes that the two deals will also cause "some operational headaches as alliance members face losing a partner. "

CMA CGM has said it plans to move NOL into the Ocean Three (O3) alliance from the G6 Alliance, but it is currently unknown whether the resulting Cosco/CSCL entity will be part of O3, of which CSCL is currently a member, or be part of the CKYHE Alliance, of which Cosco is a member.

"Consolidation will not do anything to improve industry profitability in the medium term as it merely shuffles the excess number of ships into fewer hands," Drewry concludes.

"Further consolidation is a possibility as other lines decide they cannot keep up with the Jones', but the challenging outlook will subdue valuations, making them less appealing to potential sellers."

Box carriers this year have been struggling with overcapacity and rock-bottom rates, and in October Alphaliner said freight rates had fallen to a new record low and may fall even further.

Last week Ship & Bunker reported that Alphaliner also predicted that, having set two five year highs for idle capacity in November, the market was "set to exceed its all-time high of 1.5 Mteu by the end of this year".