A.P. Moeller-Maersk A/S's container altered its strategy this month by planning to expand its fleet through acquisition, breaking from its previous preference of building its own boats. Following from the bankruptcy of Hanjin Shipping last month, the market may see a rapid restructuring as the Danish shipper grabs an easy opportunity.
The recently announced splitting of its logistics and oil companies will allow the shipping entity to act with new freedoms to respond to short-term market changes.
Yesterday, the South Korean bankruptcy court that is handling the insolvency of Hanjin appeared to open the door to a quick acquisition.
"The sale of Hanjin is one of the options we’re considering. If we conclude that it’s the best way to rehabilitate the company, we'll do so," said Choi Ung-young, an adjudicating judge at Seoul Central District Court.
The fleet of the Korean company is certainly an attractive proposition. It operates 97 container ships, 69 of which are chartered and the remaining 60 are chartered. Crucially, it possesses five large vessels that can carry 13,000 containers.
Although Maersk Line, the shipping company of the Danish conglomerate, is already the world’s largest ocean-bound freighter, the acquisition would represent a major extension of its capacity.
Maersk's main rival in the acquisition is Hyundai Merchant Marine (HMM), another Korean shipper.
Given the family-own nature of the firms involved, there is a lot of nationalistic sentiment regarding the Korean flag-carrier. Many are calling for a government intervention to save Hanjin or to encourage the two to merge into a larger Korean powerhouse.
In another complication, Maersk is also musing with taking over HMM. HMM faces severe financial problems of its own. It is currently servicing a 5.2 trillion won ($6.2 billion) debt and has been unprofitable for many years. It also is a logical target for Maersk's drive to expand.
If The Danish carrier acquired both, it would take its global market share from 15% to 20%.
The shipping market has been struggling with over-capacity for some years. This has led to significant deflationary pressure upon carriers. For those that cannot innovate (Maersk, for instance, has pioneered 'slow steaming' initiatives to reduce fuel costs for customers willing to wait) or leverage scale will continue to face financial pressures.
The Procurement Leaders community is forecasting global prices to drop by -0.4% in 2017. We expect that given the persisting over-capacity, we may see further consolidation in the market going forward.
By acquiring more of its rivals, Maersk can control more of the world’s shipping lanes, capitalizing upon reduced supply competition and protecting itself from the over-capacity.
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