Carriers have already started taking the initial steps
to relieve their financial woes, including slashing CAPEX
and OPEX and stepping up scrapping, but they still have
some hard decisions to make. They need to continue to
drive down costs through effective post-merger integration
and fleet rationalization activities that can bring supply
and demand back into balance.
At the beginning of the year, we were optimistic that
2017 could be the turning point that the industry urgently
needed. However, as we steer the course of the year, our
optimism has been dampened ever so slightly; it was critical that the carrier community maintain spot rate levels
to shore up their finances, but these have slid in recent
weeks and indications are that negotiated contract rates
will not improve.
The industry desperately needs a change in the wind,
but with financial indicators pointing to more bankruptcies and continued consolidation in the market, this seems
unlikely. As we go further into 2017, the industry must
focus on alleviating the pressures that have become so
much more prevalent in recent years. If they were to do
this, optimism in the industry will begin to grow. abfj
ESBEN CHRISTENSEN and FOSTER FINLEY are managing directors at AlixPartners. Christensen co-leads the Transportation
and Infrastructure practice and specializes in operational and
financial turnarounds and restructurings. Finley co-leads the
Operations practice and the Transportation and Infrastructure
practice and focuses on operationally complex situations.
They can be reached at firstname.lastname@example.org and
Commission approved the Hapag-Lloyd-UASC merger,
followed by Maersk’s intentions to buy German shipping line
Hamburg Sud. Those carriers that have yet to be involved
in a merger or acquisition are persistently rumoured to be
the next to do a deal. We are expecting to see continued
consolidation as those small carriers that lack the financial firepower and scale to compete with the larger players
struggle on their paths ahead.
However, this recent uplift in M&A activity has further
complicated operational alliance partnerships, which were
already dynamic and in the wake of the Hanjin bankruptcy suffering from a crisis of confidence. There are three
major alliances we are expecting to see this spring — 2M,
Ocean Alliance and THE Alliance — which will comprise
11 shipping operators and manage more than 70% of the
container capacity on the Asia-to-Europe and transpacific
routes this year.
Shifting alliances and the wave of M&A activity have
infused more complexity and more confusion into an already
tempestuous market. This outlook has the potential to grow
increasingly foggy for shippers and ports if carriers go outside
of their current alliance to merge. Increasing consolidation in
the market may limit shippers’ choices but could, at the same
time, widen their reach as more carriers become truly global.
As the reshuffling continues, shippers should carefully
re-examine their procurement strategies to ensure supplier
diversity. They need to use multiple alliances, and study the
financials carefully, if they are to protect themselves from
the disruption and chaos that a bankruptcy could potentially create.
Figure 2: Industry average Altman Z-Score 2010 to 2016
Source: AlixPartners analysis of publicly available financial reports
2010 2011 2012 2013 2014 2015 LTM
Altman z-Score (LTM)
Removing Hanjin from the dataset only improves the industry average Z-Score to 1.0