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Container shipping consolidation not likely to result in profitability: analyst
A Leading equity analysts has said that consolidation of the container shipping business will not return the sector to profitability, the UK's Lloyd's Loading List reported.
Lines have been re-drawing the container shipping market in a bid to correct the supply-demand imbalance, boost freight rates and grow market share. A host of new alliances, including an agreement by Hapag-Lloyd and UASC to merge by the end of 2016, have emerged from the restructuring, while demolitions are surging as capacity is cut and lines remove unprofitable vessels from their fleets.
But despite this, Drewry Financial Research Services said its negative stance on the sector would continue while container shipping remained in transition.
"Alliances along with M&A activity are responses to the low-growth industry, where a significant number of carriers have not made money in the recent past,?said Drewry.
"Also, this is seen as a way out to gain economies of scale and boost profitability as low cost operations require scale. However, alliances and M&A should not be seen as a silver bullet.?
Drewry projected that container shipping supply-demand imbalances would persist, with revenues and pricing remaining under pressure due to newbuild capacity set to enter the market over the next few years.
"We anticipate further pain and the industry may need to be prepared for another couple of tough years until the earnings impact of the consolidation becomes tangible,?said the analyst.
Lines have been re-drawing the container shipping market in a bid to correct the supply-demand imbalance, boost freight rates and grow market share. A host of new alliances, including an agreement by Hapag-Lloyd and UASC to merge by the end of 2016, have emerged from the restructuring, while demolitions are surging as capacity is cut and lines remove unprofitable vessels from their fleets.
But despite this, Drewry Financial Research Services said its negative stance on the sector would continue while container shipping remained in transition.
"Alliances along with M&A activity are responses to the low-growth industry, where a significant number of carriers have not made money in the recent past,?said Drewry.
"Also, this is seen as a way out to gain economies of scale and boost profitability as low cost operations require scale. However, alliances and M&A should not be seen as a silver bullet.?
Drewry projected that container shipping supply-demand imbalances would persist, with revenues and pricing remaining under pressure due to newbuild capacity set to enter the market over the next few years.
"We anticipate further pain and the industry may need to be prepared for another couple of tough years until the earnings impact of the consolidation becomes tangible,?said the analyst.
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