Strategic Options for Container Shipping Lines

A recent article by WSJ:

Container Shippers’ Three Options: Shrink, Merge or Die – WSJlnkd.in/eQPsq5F

To Die – Oh for a shipping and logistics hub like Singapore – unthinkable!!!

Causes for the ‘depression’ in container shipping include slowing economic growth in China, Japan and Europe and even recently, the US is probably going to re-enter recession.

As such, the global financial crisis appeared to have returned and to some in trading centres like Singapore, the economy this year may be worst when compared to 2008.

As a result of the global economic crisis, BCO and shippers have also been redoubling efforts to control costs and shipping rates have fallen to new lows never seen before.

Over container shipping capacity is another big issue.  Building capacity appears to be mostly unneeded, especially in these uncertain times.

What then are our strategic options ?

To let the industry die ???  Sell out ??? – No…..

To Evolve and Restructure! Yes!!!

Operationally and internally,

some container shipping lines could still see more performance improvement, in areas such as Sales and Marketing; Bunkering costs control, port/terminals and related intermodal costs optimisation; Optimised container fleet management and better stowage planning with superior software tools; More Fleet network optimisation tools could be employed to reduce costs further.

Externally, in fact, most Shipping Groups have other divisions other than container shipping lines.

Generally, most of these other divisions are in trouble. But still, there are bright spots. APL for example handled  5% (in 2011) of US military ocean shipments and this should be booming (or will boom) as US pivots to the Asia Pacific since 2012.

Maersk Gains From U.S. Military’s $11.5 Billion War Shipmentswww.bloomberg.com/news/articles/2012-04-26/maersk-gains-from-u-s-military-s-11-5-billion-war-shipments

“Maersk got $800 million from the Pentagon in the fiscal year that ended Sept. 30, up almost sixfold from the previous year, according to data compiled by Bloomberg. That represents 1.3 percent of the company’s $60.2 billion in 2011 revenue, and 2.9 percent of its container shipping business. American President Lines Ltd., part of Neptune Orient Lines Ltd. of Singapore, received $421 million in defense contracts in fiscal 2011. That represented 4.6 percent of the the parent company’s revenue of $9.21 billion in 2011, and 5.4 percent of Neptune’s shipping business.”

These figures were in 2011, 2015 could be more.

The US Navy today is certainly relocating lots of resources to Asia (60% ?), with the Aircraft carrier USS John Stennis recently moved to the main Japanese Yokosuka naval base – ie – together with USS Ronald Regan – 2 Aircraft Carriers Strike Groups in Japan – WOW! – 15,000 navy staff on these two CSG alone.

Container shipping lines should also consider diversify into rail-freight across the overland Asian-Europe! Moving into the Chinese One Belt One Road.

I think Container shipping needs to face up with more competition overland – in particular via rail freight as China takes world leadership in global train development and construction.

Like AP Moller-Maersk – who is a conglomerate of container shipping, oil exploration; ports; 3pl and shipping related services – diversification is probably another key to ride out the “monkey” biz year of 2016.

In the mist of all these deep troubles in container shipping, AP Moller-Maersk looks into the brighter future and just completed the acquisition of Spanish TCB for US$1 bil. CMHI did US$ 950 mil for Kumports 50% in Sep 2015; Turkish Yildrim group acquires Portugal’s Tertir for an undisclosed amount; Brookfield/Qube A$9.28 bil Asciano deals in Feb 2016, Cosco Pacific did roughly US$200 mil for 51% of Piraeus Port, SPIG and other Chinese groups also doing more abroad, many other container ports groups like DP World and PSA International have been expanding all over the world, and locally, ports construction are booming.

So, let cheers up and continue our search for OPPORTUNITIES.

Certainly, this may be  wonderful time for vultures to be bottom fishing!

In summary,

Operationally and internally, some container shipping lines could still see more performance improvement, in areas such as Sales and Marketing; Bunkering costs control, port/terminals and related intermodal costs optimisation; Optimised container fleet management and better stowage planning with superior software tools; More Fleet network optimisation tools could be employed to reduce costs further.

External environment wise, areas of diversification for container shipping includes:

Military ocean shipping for all militaries. Russian and China are hyper active as well, though these activities will likely not benefit Maersk & APL, Such military contracts are pure politics.

Rail container freight across Asia-Europe. China’s belt and road effort is transforming Central Asia, Middle east overland and eastern central Europe.

Invest in Ports – expansions all round the world – bottom fishing everywhere.

Good Luck!