Consolidation in a New Era

Since restarting my consulting practice four years ago, I’ve confirmed one of the advantages of this working lifestyle that I had believed to be true: I have more time to pursue special and personal interests. Of the personal interests, the main ones are the ability to be more available to our four sons and to be in a position to act not just as dad, but also as a kind of career mentor. My work and theirs are different, but there are connections, which is a totally great opportunity.

This late-stage career engagement also allows me to pay attention to more sources of information, be they books, magazines, newspapers or the numerous and sundry Internet sources. Not only is there more time to read these sources in greater detail, but it also permits comparisons and more in-depth analysis than what’s possible when holding down a career-based position within a company.

There have been some data and articles published over the past month or so that were interesting as stand-alone pieces, but that I found even more interesting when viewed together. They appeared in The Journal of Commerce, The Economist and the American Journal of Transportation, with the addition of Alphaliner global carrier data from the JOC.

No one will be surprised to read that the container shipping industry isn’t doing so well, in the U.S. or globally. U.S. import and export volumes have been stubbornly flat since 2008. Containerized U.S. imports moving on the Top 40 carriers (representing about 99 percent of all inbound U.S. trade) increased a mere 2.3 percent — 389,098 20-foot-equivalent units to be precise — between 2008 and 2012, barely 0.5 percent a year, according to PIERS.

Growth has been only marginally better for U.S. exports, with the Top 40 carriers (which account for about 98 percent of all exports) increasing export volume about 5.3 percent, barely more than 1 percent a year. That’s not a very encouraging picture.

The market share of the Top 5 carriers in 2012 for exports and imports was in the 40 to 41 percent range, and with slight variation these were the same five carriers each year since 2008. Interestingly, the No. 6 carrier, adding about 6 percent to the total, likewise held that spot during the period.

So it was interesting to read about Maersk Line, Mediterranean Shipping Co. and CMA CGM forming the P3 Network, a global alliance on the three main east-west trade lanes: the trans-Pacific; trans-Atlantic and Asia-Europe. The three carriers are among the Top 6 in the U.S. trades and rank first, second and third among global container shipping companies based on total vessel capacity.

Although many in the industry have been waiting and wondering when the inevitable consolidation of ocean carriers would happen — presumably via the historical processes of buyouts, mergers or absorbing bankrupt companies — the consolidation has been happening in a much more organic process.

While the Top 6 carriers in the U.S. trades had an overall 2012 market share of about 47 percent, those six carriers commanded just shy of 50 percent of global container capacity, with the three largest commanding 37 percent. The Top 10 global carriers control more than 63 percent of global capacity.

That’s not the same as market share, for sure, but what’s the point of building it if you can’t fill it? If all of this isn’t some form of carrier consolidation, what is?

So a small number of companies have a very large impact on a major global industry. As the largest companies add more capacity, this imbalance is likely to continue, if not grow. Studies indicate that across industries and economies, large companies have an outsized influence on markets and market volatility — remember the old saying, “When GM sneezes, America catches a cold”?

If this translates to trade — and a 2012 study found that large companies have a disproportionate influence on trade — growth in trade may well increase the advantage for large carriers. Depending where you sit, what you do and whom you work for, this may or may not be a big deal. If trade grows and the market does well, the big carriers are likely to do well, too. But if business and trade don’t expand and the big companies continue to plod along with low growth rates, the industry may be in for more trouble.  

Barry Horowitz is principal of CMS Consulting Services. Contact him at 503-208-2232 or at barryh@cms-cs.com.

 

 

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