July 14, 2017

Ocean Carriers Keep Combining – What Does It Mean for Intermodal?

By itself, this is a momentous development, just for the dollar amount of the transaction, which far eclipses acquisitions in recent months by Maersk Line (Hamburg Sud for $4 billion) and Hapag-Lloyd (CSAV for an even smaller amount).

But it isn’t happening in isolation, of course. This trend seems sure to be closely watched and widely discussed. Sept. 17-19, Intermodal EXPO will tackle the implications of the changing market, including multiple sessions on the consequences of changing ocean carrier dynamics on the rest of the industry.

For one thing, the latest consolidation is redrawing the ocean carrier relationships and continues to alter the pattern of who’s got the largest ocean carrier capability behind Maersk, which is entrenched at number one by revenue and shipments. Mediterranean Shipping and CMA CGM had been numbers two and three before the latest bombshells. COSCO/OOCL could even rise to number two as six merged ocean carriers stand to control 75 percent of sea container freight, according to the Wall Street Journal.

Another way to look at these transactions is that they are signs of hope after the Hanjin bankruptcy that was the logical consequence of a very weak market.

Still another way to look at them is as a natural reaction to the emergence of alliances that created new bonds between companies.

However you look at it, it’s well known that steamship lines are reacting to financial realities with these moves, sometimes with help from governments. Buckets of red ink have drenched almost every carrier’s income statements in recent years. Too few shipments were around to fill their containers, in part because of a sluggish world economy. Basic economics tells you that situation couldn’t go on forever for the ocean lines.

The highly encouraging signs of 2017 international trade growth certainly are a step in the right direction. Based on commentary from the Journal of Commerce and consultant Drewry, rate levels seem to be too, holding promise and welcome news that profitability could once return to the sector.

From the intermodal standpoint, these deals represent a series of changes that have the promise to deliver better, more reliable service along with the complexity that accompanies any deal. Looking at some recent history from other transport modes seems to indicate that a “proceed with caution” stance would be appropriate in the months ahead as the rest of the intermodal industry adjusts to new commercial realities.

Of course without naming names, or even modes, there could well be a lesson based on what has happened before in the wake of mergers and acquisitions. Suffice it to say there is ample history that not all of them go swimmingly. In fact, some businesses drowned, and failed, after mergers. Others almost drowned before they righted the ship and delivered on their pre-deal promises, benefiting service and profits alike.

So is there a historic parallel between deals of today and decades past?

It goes without saying that the companies doing acquisitions will go to great lengths to keep trying to provide good service. At the same time, history tells us even the best intended efforts won’t be perfect.

For intermodal, that means the same sort of watchwords could well apply as the shakeout on the high seas unfolds. Those watchwords could be patience, flexibility, innovation and an attitude that never loses sight of the company’s own goals. Some might want to change the order of those watchwords, naturally, but they all are likely to be important.

Come to think of it, those are the same qualities that have worked for so many successful companies in the intermodal sector for so long – before, during and after acquisitions.