Global container shipping lines are increasingly moving into the logistics business as they turn their back on large-scale consolidation activity, according to analyst Fitch Ratings.
The credit ratings and research specialist believes that the consolidation wave in container shipping might be approaching its end, as the market is focusing more on ‘vertical integration’ amid slowing growth in container trade and digital disruption.
“While we do not discount the possibility of further consolidation through the defaults of smaller, financially weaker companies or their acquisition by stronger rivals, we believe any large-scale acquisitions are unlikely,” said Fitch Ratings.
“This is because only limited additional cost efficiencies are achievable through further increases in scale. Moreover, obtaining regulatory approvals may become challenging due to competition issues, while funding large acquisitions requires an ability to demonstrate a clear deleveraging path, which could be difficult in the prevailing market conditions.”
Indeed, HLPFI readers will recall that during the first half of 2019, France-headquartered CMA CGM made significant headway in taking over approximately 90 percent of the shares in Swiss freight forwarder Ceva Logistics.
Meanwhile, A.P Møller-Mæersk is transforming itself into an integrated container logistics company with a view to balancing its shipping earnings by developing its logistics services and terminals business units by 2023.
The shift from consolidation to vertical integration, according to Fitch Ratings, provides an opportunity for container shipping companies to generate more stable cash flows and to reduce exposure to volatile freight rates.
However, the logistics business is also competitive and fragmented. Although boosted by e-commerce, global growth rates in logistics have slowed down, and the margins in freight forwarding are under pressure from digital competition.