THE container shipping industry lost US$4.7 billion in 2012 on top of a loss of $5.97 billion in 2011, reports Alphaliner.
This is in addition to the $20 billion loss during the financial crisis of 2009. The industry did rebound in 2010, however, the approximately $13 billion profit in that one year alone has easily been wiped out since.
Based on the above figures we can see that the industry is between $17 billion and $18 billion in the hole. These losses simply cannot continue. There will surely be consequences for the shipping lines going forward if this does not change, and soon.
In this publication we have raised the question several times before on whether continued losses will lead to consolidation in the form of acquisitions. The answer at this stage appears to be no, at least not in any significant way.
However, there is a more subtle form of consolidation that we have not looked at to date. This consolidation comes in the form of creeping market shares, as the bigger companies become bigger at the expense of the smaller ones.
This is what we will look at today in Hong Kong Shipping Gazette...
In the below table we can see the fleet size of the industry's 10 largest players from the beginning of the expansion of container shipping in the 19080s to the present day.
From the above table it is clear that much has changed in the past 33 years. In fact only three carriers have maintained their top 10 position, in terms of active capacity, over this time - Evergreen, Maersk Line and APL. However, even two out of those three companies, Maersk and APL, are very different companies today from what they were then after their various mergers and acquisitions.
Interestingly Hong Kong's OOCL was listed in the top 10 previously, but has since dropped out of the rankings. Nevertheless, it has been one of the most consistently profitable shipping companies in the world over the past few decades, regardless of the wider economic situation of the market.
We can also see that the world's second and third largest shipping lines by capacity today, MSC and CMA CGM, were nowhere to be seen until 2001 after which time both have grown tenfold - which is extraordinary growth.
From the 1980s through to today the world's containership fleet, in terms of capacity, has grown almost 24 times over.
What also has changed in the industry is the size of the vessels deployed. We can see in the below graph that in 1980 the average vessel size for the top 10 shipping lines in the world was 1,283 TEU. If we look even closer to focus on the top five and top three carriers as well the average vessel size ranged from around 1,200 TEU to 1,500 TEU.After two decades the average vessel size for these carriers had increased to between 2,200 TEU and 2,500 TEU - an increase of roughly 1,000 TEU or more than 60 per cent.
In the past 12 years the increase has been even more dramatic. From 2001 to 2011 the average size increased by more than 80 per cent to over 4,000 TEU.
Today the average vessel size for the 10 largest carriers is 4,511 TEU, which is roughly 250 per cent more than what it was in 1980.
Given the industry's orderbook today the average vessel size is destined to continue climbing in the coming years, particularly with Maersk's Triple E class ships, which have a nominal handling capacity of 18,000 TEU, entering the market later this year.
The increasing size of the average containership has had multiple effects on the market today. Firstly it has helped reduce unit costs for those carriers that have the largest vessels. Secondly, due to the perceived cost benefits it has spurred more lines to invest in larger vessels as well.
But in spite of the perceived benefits the rush to upsize has also contributed to the severe supply overhang in the sector today.
It has also contributed to what we will see below as the subtle or silent consolidation of the market.
In the chart below we can see the evolution of the carriers' market share, in terms of capacity deployed, from 1980 to 2013.
In 1980 the top 10 carriers in the sector held a market share of 41.5 per cent. The top three carriers alone held just a 20 per cent market share in terms of active tonnage.
Essentially, we can say that the container shipping industry was rather fragmented at that time.
It became even more fragmented by 2001 when the ten largest carriers commanded 37.3 per cent of the market share, and the top three held just 18.4 per cent.After 2001 the industry experienced a number of large mergers and acquisitions, which led to a much less fragmented market. By the end of 2011 the top 10 carriers held a market share of 63 per cent, while the top three carriers saw their share rise to 38 per cent. This is a massive jump from a decade earlier.
If we then fast forward to the present, the market concentration has increased even further, despite the absence of mergers and acquisitions.
The top 10 carriers as of May 2013 now hold 69 per cent of the industry's market share, while the top three have increased to 40 per cent. This is remarkable considering there have been no mergers among the major players.
In other words, the container shipping industry is undergoing consolidation, but it is consolidation through asset expansion, not mergers. Therefore it is much more subtle.
But regardless of whether the consolidation is subtle or overt, the end result will be the same - fewer players that will continue to control more and more of the market and a significant reduction in industry competition. The ultimate losers in this scenario will be the shippers.
Let's now see which players command the bulk of the market share today.
Clearly Maersk Line is the leader. It has grown its market share from 3.6 per cent in 1980 to 16.3 per cent today. This increase in market share has been greatly helped through mergers and acquisitions.
MSC on the other hand, which has grown its market share from 3.3 per cent in 2001 to 14.5 per cent has done so through the more subtle approach - adding more and more ships to its fleet. CMA CGM has also been a big mover over the past decade, increasing its share from 1.9 per cent in 2001 to 9.1 per cent today.
Within the top 10 players itself there is a fairly even spread in terms of market share. However, the three to watch going forward will be Maersk Line, MSC and CMA CGM, which have increased their shares so significantly over the years, and continue to do so today.
Should they grow much further it could become a major challenge for the rest of the industry to overcome, particularly on the Asia-Europe and transpacific trades where only the biggest carriers will be able to survive.