Consolidation

The consolidation of container shipping companies and the subsequent effect on rates within the market will place consignees in a bit of a vice. By limiting the scope of competition consignees will obviously have less bargaining room when it comes to negotiations. However, depending on the elasticity of freight rates at their new price level above the pre-consolidation market price level will govern the longevity of the new standard rate. If higher container rates prove inelastic after consolidation than demand will remain the same proving conditions optimal for owners certainly and suboptimal for consignees regardless if demand remains constant because they are now paying a higher price for the same amount of freight space onboard the vessel. If higher container rates after consolidation prove elastic than demand will drop and so will the newly established rate. In most cases a slump in demand due to a monopolistic rate structure (higher rates) will cause a decrease in fixtures thus leaving ship owners hungrier for cargo and lowering their rates until price equilibrium is reached. Depending on how owners react to their new found pre-eminence within the market after consolidation, either by keeping rates genuinely equal to the current market price or taking advantage and raising rates to their liking, will determine whether or not demand falters. In the end the market will balance itself out once consolidation has taken full effect, but there is no doubt that owners will have the upper hand in the beginning over consignees and possibly even charterers.

Below is a graph that shows the projection of consolidation in relevance to market share for the top companies.

“It might seem irrational to order and deploy new vessels in a market with severe overcapacity, but there is sound reasoning behind Maersk Line's decision last year to award Daewoo Shipbuilding a $3.8 billion contract for 20 Triple-E (18,000 TEU) vessels, which Maersk claims are the world's largest and most efficient container vessels. To keep pace, other carriers are similarly ordering and deploying new, ever-larger vessels. When appropriately utilized, larger vessels are more cost efficient and better suited to the current market conditions. On average, slot costs decrease by as much as 50 percent from a 2,500 TEU to a 10,000 TEU vessel—and the cost advantages of Triple-E vessels are even larger.” –

Hamburg-based Hapag-Lloyd AG, the world’s sixth-largest container line, is in merger talks with Hamburg Sued, the No. 12, to create the world’s fourth-largest carrier. The two lines together would have capacity less than only A.P. Moeller-Maersk A/S, CMA