The South African Competition Commission has decided to block the proposed merger between Japan's big three container shipping companies.
Namely, the commission has prohibited the deal between Kawasaki Kisen Kaisha (K Line), Mitsui O.S.K. Lines (MOL), and Nippon Yusen Kabushiki Kaisha (NYK Line) to merge their container liner shipping businesses to form a joint venture in that market.
After considering the impact of the proposed transaction on the market for the provision of container liner shipping services and on the adjacent market of the car carriers shipping market where the joint venture partners compete, the commission has found that the structure of the container liner shipping market "is conducive to coordination based on previous collusive conduct in the container liner market in other parts of the world."
South African Competition Commission added that the merger "increases the likelihood of coordination as it creates further structural linkages in the container liner market."
The commission also found that the proposed transaction creates a platform for coordination in the car carrier market which has a history of collusion involving the merging parties.
Announced in October 2016, the new joint-venture company would operate a fleet totaling 1.4 million TEUs, placing it as sixth in the market with approximately 7% of global share.
K Line and MOL, which will each hold 31 percent, and their compatriot NYK Line, which will hold the remaining 38 percent, envisaged to establish the new joint-venture company on July 1, 2017, while business commencement was expected to start as of April 1, 2018.
Nigeria is in dire need of a maritime transport policy which will complement the existing national transport policy and advance the country's global trade.
This was stated by Dakuku Peterside, Director General of the Nigerian Maritime Administration and Safety Agency (NIMASA), at the opening of the National Workshop on Maritime Transport Policy (MTP) organized recently by NIMASA in collaboration with the International Maritime Organisation (IMO).
According to Peterside, the program is a new phase in the nation's journey towards maximising maritime opportunities.
On the occasion of the workshop, Peterside said, "60% of the cargo headed to West Africa will likely end up in Nigeria; we have not only a long coast but also one of the longest inland waterways, in addition to six active port complexes. All these, coupled with our population, make us the biggest economy in Africa. Therefore, we need a sustainable maritime policy that would guide the coordination of maritime activities as we strive to advance Nigeria's global maritime goal."
As part of the revolution happening in the transport sector, President Muhammadu Buhari-led administration is advancing the intermodal transport system by linking all the port complexes to the hinterland via the railway to further facilitate ease of doing business, Peterside added.
However, Peterside pointed out that NIMASA cannot achieve this goal alone. Therefore, there is a need to seek the support of the IMO and other relevant stakeholders in order to come up with a model to develop a maritime transport policy.
"A workable maritime transport policy of any nation should be stakeholders driven. Therefore all associated stakeholders and professionals in the sector are needed to participate in the articulation and formulation of this policy," as explained by Peterside.
Separately, Kitack Lim, IMO Secretary General, stated that promotion and development of national policies to guide planning, decision making and relevant legislative actions is an important governance practice of many governments, including Nigeria.
"We will support NIMASA in developing a sustainable maritime transport system reflecting and balancing the interests of stakeholders with a carefully devised and executed maritime transport policy, which is crucial in serving as a fundamental guidance document to provide a long-term sustainable vision for the future of the Nigerian maritime sector," Lim said.
The three-day workshop is designed to equip the agency and other relevant stakeholders with technical skills needed for drafting the policy. The training is expected to focus on the concept, the formulation process and content of such policies.
What is more, the workshop is aimed at raising national awareness of the importance of a national maritime transport policy by engaging representatives of the various government ministries and other stakeholders in a meaningful dialogue, according to NIMASA.
Four major international trade associations have made a joint proposal to the UN International Maritime Organization (IMO) concerning ambitious CO2 reductions by the international shipping sector.
In a detailed submission, BIMCO, INTERCARGO, International Chamber of Shipping (ICS) and INTERTANKO proposed that IMO Member States should immediately adopt two "aspirational objectives" on behalf of the international shipping sector.
These include maintaining international shipping's annual total CO2 emissions below 2008 levels, and reducing CO2 emissions per tonne of cargo transported one kilometre, as an average across international shipping, by at least 50% by 2050, compared to 2008.
In addition, the industry associations have suggested that IMO "should give consideration to another possible objective of reducing international shipping's total annual CO2 emissions," by an agreed percentage by 2050 compared to 2008, as a point on a continuing trajectory of further CO2 emissions reduction.
The shipping sector, which is responsible for transporting about 90% of global trade, accounts for 2.2% of the world's annual man-made CO2 emissions.
The IMO Marine Environment Protection Committee will meet in London this July to begin the development of a strategy for the reduction of the sector’s CO2 emissions aligning the international shipping sector response to the 2015 Paris Agreement's call for ambitious contributions to combat climate change.
The UK's attention is switching to the future role of its ports, harbours and seafarers, which is expected to gain importance as the nation launches Brexit talks.
The focus is turning to a rise in world trade, which is likely to increase the 95% of imports and exports that currently pass through UK's sea ports. This is coupled with the continued growth of merchant ships, in terms of size, and the UK’s dependence on imported oil, gas and biofuel.
Additionally, the nation's passenger numbers on cruise ships and ferries look set to continue to grow, albeit with industry concerns voiced about the need to retain agreeable border control relationships with UK’s European neighbours.
"As so often in our history when facing political and international pressures, our relationship with the sea provides the strong and enduring stage from which our island and its people can make their mark, whether in trade, defence or diplomacy," Commodore Barry Bryant, Director General of Seafarers UK, said.
"Our unique situation and the quality of our maritime offerings in seafaring people, port and supply chain operations and financial services remains second to none and give us a strong negotiating hand," Bryant added.
Commenting on UK's future customs and trading arrangements, Mark Simmonds, the British Ports Association's Policy Manager, said that the new customs arrangements should prioritise trade facilitation and look to replicate the benefits of the EU Customs Union.
UK ports support 344,000 jobs ashore, handling almost 500 million tonnes of freight and more than 60 million passengers every year, according to Maritime London.
Despite a modest increase in freight rates seen in 2017, a sustainable recovery in the container shipping market would be possible only by reaching a viable supply-demand balance through capacity cuts, Fitch Ratings said.
Container transport volumes outstripped capacity growth in 2016 for the first time since 2010-2011, helped by a higher rate of vessel scrapping and delayed deliveries. The reversal is expected to be only temporary, as net capacity growth "will accelerate in 2017 and 2018, exceeding demand growth and contributing to increased overcapacity."
If maintained throughout the year, a moderate recovery in freight rates "should support an improvement in container shipping companies' credit metrics in 2017, but the performance will vary significantly."
Fitch Ratings informed that smaller, less diversified companies may struggle to achieve positive EBIT, while companies with scale, geographic diversity and a record of successful cost-cutting are likely to perform comparatively well.
The ratings agency said that market equilibrium is needed for a sustainable improvement in financials, adding that M&A deals, rather than alliances, are the most likely route to restoring the supply-demand balance in container shipping.
This trend is underway, with the top-five container shipping companies consolidating their market position through mergers and acquisitions. Their market share is likely to be around 57% in 2018, up from 45% in 2016.
"But many of the remaining smaller companies have weak credit metrics. Their ability to remain afloat will largely depend on freight rates, which are volatile, and the banks' willingness to provide funding," Fitch Ratings concluded.
The severing of diplomatic ties between Qatar and its neighbors in the Gulf has caught the market off guard, causing a lot of concern amid growing uncertainty surrounding the impact of the crisis on the shipping industry.
Being the world's biggest exporter of LNG, it was assumed that the LNG shipping sector would be affected the worst by the sanctions imposed on Qatari vessels following the diplomatic fallout. However, the impact on the sector has been muted, as majority of its cargo is not sold to its hostile neighbors but Asian countries such as India, China, South Korea and Japan.
As explained by Drewry's LNG and LPG Shipping Analyst, Shresth Sharma, figures from 2016 show that around 66 pct of Qatari LNG was exported to Asian countries. Since the sanctions do not apply to this region there has been no major disruption on the trade route, and LNG shipping patterns haven't experienced any major changes.
According to Sharma, having that in mind, there haven't been any major fluctuations on the LNG market, and LNG prices are expected to remain immune to the ongoing situation. With respect to the Middle East, Sharma added that the region was not a big market for LNG with hardly 3.3 million tons of LNG imported from Qatar in 2016. Therefore, the market impact of UAE cutting its ties with Qatar is expected to be minimal. A similar scenario is predicted for relations with Egypt as the country doesn’t have any direct contact with Qatari exporters as it mainly imports through third parties such as Trafigura.
"It is mainly the European countries that will feel the impact of the Qatari crisis but that is also expected to be muted. The main impact will be represented in diverting of ships with Qatari cargo from the Suez Canal to the Cape of Good Hope," he added.
Specifically, this means longer voyage time for Qatari cargo to reach their European customers.
Nevertheless, the situation seems to have given Asian buyers some leverage as they are likely to press Qatari producers for more liberal contract terms. Namely, the Japanese and now more recently the Indian government are asking for more flexible terms if they are to renew their long-term contracts for Qatari LNG, Sharma pointed out.
Chinese shipyards have experienced a 31.5 percent decline in newbuilding order intake reaching 9.86 million dwt in the first five months of this year when compared to the corresponding figures from last year, China Association of the National Shipbuilding Industry (CANSI) said.
At the end of May, the orderbook backlog came at 85.15 million dwt, a drop of 30.7 percent year-on-year and down 14.5 percent in comparison to the end of 2016.
However, the completion volume of new ships saw a steep growth. Namely, during the said period, the country's shipbuilders completed 22.93 million dwt of newbuilding tonnage, up by 78.8 percent year-on-year.
According to CANSI, the country's 53 key shipbuilders completed 19.57 million dwt equivalent of new ships, up by 63.5 percent. Nevertheless, when it comes to new orders, the key shipbuilders had secured 8.74 million dwt of new tonnage, which is down by 37 percent year-on-year. At the end of May, the yards' orderbook reached 80.61 million dwt, dwindling by 31.6 percent.
The figures have been announced as the country's shipbuilders launch its largest ship yet – the first 20,000 TEU containership COSCO Shipping Taurus.
The opportunities for further mergers and acquisitions among Top 20 carriers are receding with each new deal, but there is still a high likelihood that a second wave involving medium-sized carriers will follow soon, according to shipping consultancy Drewry.
Carrier consolidation is moving apace with the merger of Japanese carriers NYK, MOL and K Line, which have announced the name of their merged containership entity – Ocean Network Express (ONE), scheduled to start operations on April 1, 2018.
When ONE becomes operational it will be the world's sixth largest carrier when measured by containership fleet with close to 1.4 million TEU, giving it a market share of approximately 7% based on today's fleet.
The creation of ONE is in keeping with the rising trend of consolidation in the container industry, following on from recent M&A deals involving CMA CGM and APL, Cosco and CSCL, Maersk Line and Hamburg Süd, and Hapag-Lloyd with UASC.
As things stand in terms of active and ordered ships, by 2021 when all newbuilds in the system are due to have been delivered, the top five carriers will control a little under 60% of the world’s containership fleet. Back in 2005 the same bracket of carriers held around 37%, according to Drewry.
Come 2021 the top 10 lines will control 80%, compared to 55% in 2005, while the three leading carriers, namely Maersk Line, MSC and CMA CGM, will take about 42%, against 26% in 2005.
With fewer carriers, that in time will become financially stronger, the pendulum is swinging back towards those that can stick it out.
"Inevitably, as the gap between the leading seven carriers and everyone else beneath gets wider speculation will mount about whether the smaller players can keep up and remain cost-competitive," Drewry said.
Greek companies continue to lead the way in vessel ordering this year, followed closely by Chinese firms, according to Alibra data.
Some 146 firm vessels have been ordered so far this year across the bulker, tanker and container segments. Some 26 optional vessels are attached, of which all but two are for tankers – showing that shipping companies still see some potential upside in the wet trade. Whether these options will be exercised is anyone's guess.
Internationally, buyer appetite continues to be for tankers.
Of all 93 firm orders for tankers from buyers around the world, 27 are for VLCCs (plus 8 options – the most numerous). Some 23 orders have been placed for aframaxes, of which around half will be LR2s. A great deal of orders have been seen for small tankers too – we’ve tracked deals for 21 tankers of up to 15,000 dwt.
So far this year, Greeks have ordered 40 of these 146 firm vessels, while Chinese buyers account for 26. China has exclusively contracted tankers across a wide range of tonnages. Only around 65% (26 vessels) of Greek orders were for tankers, in which they favoured VLCCs (15 ships). We've also tracked firm orders from Greeks for 14 bulk carriers, of which 10 will be panamaxes.
International companies continue to favour China and South Korea as the place to build their bulkers, tankers and containerships. Respectively, the countries account for 45% and 44% of all the firm orders we've tracked this year. Japanese yards have so far only snared 7%.
The arrival of spring brought fresh bloom on the trees and flowers on the plants but there is no spring in the step of the shipping industry as it moves into another slow summer.
The recent spring gatherings in New York and Stamford CT produced the false view that the dry cargo markets were booming when in fact they were barely breaking even.
All of this while shipping continues to carry more than 90% of physical world trade and will do so for the foreseeable future.
Shipping is the world's largest service industry with hundreds of shipowners competing on a global basis to be paid to transport billions of dollars' worth of cargoes across the oceans and waterways around the world.
The huge rise in demand for shipping services in the last decade, led by the Chinese industrial boom commencing in 2004, caused a significant surge in freight rates for dry-bulk and containerized cargoes. This attracted a large number of new owners and investors from the various private equity and hedge funds in the USA and Europe.
It is clear that the objectives of many investors in the publicly quoted companies were to chase short-term gains in ship values while cutting costs in all directions. However most of the Funds that have invested in the last 10 years have shown little or no return except for some day trading on shipping rumors.
The investment surge focused on building new ships to meet the perceived increased demand, with a view that the ship values would increase enabling them to be sold for a profit as soon as they were delivered.
This philosophy ignored the fact that ship values are driven by the revenues earned from carrying cargoes, the quality of the ship management and the capacity of the shipyards to build new ships, and deliver them in a short timeframe.
The Chinese boom lasted less than 5 years but the new ship orders continued to deliver into the 2nd decade and resulted in a 50% growth in the capacity of the world fleets of dry-bulk and container ships. The tanker fleets were also over-built as investors switched their attention away from the loss-making dry markets and also climbed into the OSV markets.
The result is a grossly overtonnaged industry with depressed freight rates and reduced ship values. Many quoted companies face insolvency as the unavoidable costs of Classification surveys loom and the balance sheet values of the ships are overstated.
Many of the new investors rely on statistical projections of ship values rather than a factual analysis of the freight markets and ignore the fact that charterers will not fix longterm charters with owners that are likely to sell the ships at any time.
Funds have rarely done well when investing in service industries that use expensive assets that are high maintenance and inherently depreciating.
Most of these facts are known to traditional shipowners who have faced similar excesses in the past 30 years, but none of such a serious size.
These owners, who value close relationships with cargo owners, form the hard core of shipping that focuses on operating their ships efficiently on period charters that generate modest profits after bank financing and depreciation but provide a longterm revenue stream.
A well maintained ship properly managed can earn as much as a new ship as there has been little change in the ship's fundamental technology. The ships must be properly certified and the costs of these statutory surveys must be budgeted for.
New regulations covering air pollution and ballast water treatment will slowly be introduced but are costly.
Given the substantially private nature of ship ownership it is not surprising that the majority of charter fixtures go unreported and the so-called Indexes, such as the BDI are a worthless gauge of market activity. Only the publicly quoted companies publish some details of charters and the prices of ships bought or sold,
The result of the short-term approach to ship values is that a majority of ships now trade in the spot markets, do not achieve even 300 days annually of paid activity and have to pay for their own fuel.
Recently we have seen a surge in newbuilding orders in both wet and dry bulk and more surprisingly in large container ships. By funding the construction of large numbers of ships of all types without securing their employment is a huge mistake as we have already seen.
The enormous losses in the German equity and debt markets will be repeated elsewhere and probably in the Chinese and Korean Exim banks as they work to support their shipbuilders.
The outlook for crude oil demand is stable with no growth in production and low prices. But the introduction of new fleets of Iranian and Saudi Vlccs and the decline of US imports suggest a weak future for ships not fixed on period charters.
The container markets are grossly overtonnaged and mostly a one-way traffic with few backhaul cargoes and new US policy on trade agreements will likely reduce US imports.
Overall we can expect shipping to return to making marginal profits from the services it provides and the operational longevity it can obtain from using well maintained and well managed ships.