"The trend toward consolidation among container shipping firms will continue into 2018 as larger companies look for opportunities to increase market share, while smaller companies seek to increase efficiency to maintain profitability."
According to the analysis, consolidation through slot purchases and alliances has helped improve efficiencies without the need for companies to take on extra debt. These strategies allow shipping companies to pool resources to increase efficiencies and customer reach without balance sheet impact and transaction risk and have helped halt the overcapacity which was developing on many routes with the onset of ever larger container vessels.
In line with many analysts Moody's expects shipping companies to continue to seek these alliances and slot purchase agreements where possible. Any that do not participate will probably be at a competitive disadvantage as they are less likely to achieve the cost efficiencies needed to compete with peers in alliances. Exceptions would be regional firms like Wan Hai Lines that focus successfully on a specific market niche and do not compete with larger firms on the main trade lanes.
Moody's anticipates that M&A will continue in the sector given the potential for both revenue and cost synergies resulting from such transactions. However, while recent mergers including CMA CGM and NOL, and Hapag-Lloyd and CSAV (the German firm having more recently merged with UASC) have, according to Moody's report, resulted in synergies, the success of future transactions will depend on strong operational execution.
The shock of the Hanjin collapse acted in two ways upon the markets, firstly it produced a immediate slight reduction in global carrying capacity but, more importantly it emphasised to shipping executives their vulnerability should they lose the confidence of those supplying lines of credit.
In Moody's view, the impact of debt-funded mergers and acquisitions on companies creditworthiness would depend on a number of factors, including the company's ability and focus on restoring its metrics to within the rating agency's guidance over a 12-18 month period.
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