No crisis coming in container shipping: CMA CGM's boss Rodolphe Saade
FRENCH shipping giant CMA CGM says the global container-shipping sector is in its strongest position in years thanks to sweeping consolidation and stronger economic growth, leaving it well placed to to withstand competition from trains on major Asia-Europe routes.
Container lines are emerging from a severe downturn that culminated in last year's collapse of South Korea's Hanjin Shipping and CMA CGM recently reported better second-quarter profits and said it expected operating profits in the second half of the year to exceed its first-half performance.
"Last year was a bad year, 2017 is a good year and 2018 should be a pretty steady one," CMA CGM chief executive Rodolphe Saade, told Reuters in an interview. "With the consolidation in the sector, the development of alliances and the favourable market conditions, I can't see a crisis coming."
A series of major acquisitions, including CMA CGM's US$2.4 billion takeover of Singapore-based APL and market leader Maersk Line's US$4 billion deal to acquire Hamburg Sud, have curbed overcapacity. Vessel-sharing alliances between container lines have also helped cut slack. That said, consolidation in the sector has probably run its course for now, Mr Saade said.
Demand is expected to grow by 4-4.5 per cent this year, outstripping an expected 3 per cent rise in supply.
Reflecting the strength of the turnaround, CMA CGM confirmed in its quarterly results that it was ordering nine new vessels, all among the largest ever built in the sector.
Mr Saade rejected criticism that the orders risked recreating a supply glut, saying the vessels were tailored for busy Asia-north Europe routes where scale was crucial and its partners in the vessel-sharing Ocean Alliance already used extra-large ships. Existing vessels used on Asia-Europe routes would be transferred to other markets such as the trans-Pacific, he said.
CMA CGM declined to disclose the value of the order, which press reports have put at $1.2 billion, but said it would finance the deal through bank loans and its own funds.
Improved company results along with asset sales meant CMA CGM was financially secure and saw no need to list on the stock market, at least for now.
Although shipping is highly volatile, it remains the predominant means of moving goods around the world. Competition is emerging from rail, particularly with China's efforts to advance its "One Belt, One Road" infrastructure project.
But while railways may be able to move freight from Asia to Europe in two weeks, half the time of container ships, shipping remains far more economical and has greater scale.
CMA CGM itself aims to expand into land routes, seeing services along the supply chain as key to finding growth after the overhaul of the container shipping market. But Mr Saade said it was too early to say how it would develop the market.