Could the new regulations on sulfur emissions spur further consolidation within the container shipping industry or prompt more mergers and acquisitions?
Analysts don’t think so, for a variety of reasons, although they hedge a few bets.
Major lines don’t have the financial wherewithal to undertake big acquisitions, either. Because they’ve embarked on both an acquisition and a fleet expansion spree, the major 14 carriers have increased debt levels to uncomfortable levels, while profits have remained miniscule. A recent study by consultancy AlixPartners put the most recent debt-to-earnings before interest, taxes, depreciation and amortization, or EBITDA, at 10.1 times, a record in this decade.
“Unless carriers can curtail debt or improve profitability or ideally do both in tandem, this community is not in any shape to do more deals,” said Jim Blaeser, a director in the transportation and infrastructure practice at the AlixPartners and the study’s lead author.
However, Jensen, for one, believes the fate of two of the next tier of container lines is less settled. These are Taiwan’s YangMing Marine Transport and Korea’s Hyundai Merchant Marine. Both are too large to be niche local carriers, but too small to compete globally with the big seven.
YangMing, Jensen believes, could be a takeover target and fellow Taiwan carrier Evergreen is a logical suitor. Hyundai Merchant Marine is far less attractive as it’s gone on a recent buying spree in an effort to become a global player, piling more debt on top of an already precarious balance sheet. “With Hyundai Merchant Marine, with the strategy that they’ve chosen, they can only survive as long as the Korean government keeps subsidizing them,” Jensen said.
Consolidation of smaller, niche carriers is another matter, Jensen added. “There is plenty of space for regional niche carriers just not for as many as they are out there,” he said. “So we will see consolidation happen there and that would both be through mergers and acquisitions and also out by bankruptcy.”
