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Nov.30, 2015

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10 THE JOURNAL OF COMMERCE www.joc.com NOVEMBER 30.2015 COVER STORY PLAGUED BY OVERCAPACITY and ongoing losses, the container shipping industry is rife with talk of potential mergers and acquisitions. The consolidation of the highly fragmented industry is long over- due, especially when contrasted with such other heavily capitalized transpor- tation sectors as railroads and airlines. The possibility that a new wave of M&A may be imminent was touched off by news that several carriers are in vari - ous stages of talks aimed at consolidation, including NOL and both Maersk Line and CMA CGM; Cosco and China Shipping Container Lines; and Hanjin Shipping and Hyundai Merchant Marine. (At press time, an announcement about NOL was said to be imminent, with CMA CGM the likely buyer.) With the severe glut of vessel space and expected new deliveries threatening to undermine freight rates for another three years, mergers could offer carriers another avenue to cutting costs by eliminating redundant overhead. "What we are seeing now is not all that surprising," said Lars Jensen, CEO of SeaIntel Maritime Analysis in Copenhagen. "I have been saying that by 2020 there will be only eight big carriers, and this is gradually what is beginning to unfold. It will take a long time." If any of the merger talks bear fruit, a shakeup of the five major vessel-sharing alliances will follow, he said. Any incipient wave of ocean carrier M&A deals would mirror a trend underway in other transportation sectors, especially among third-party logistics providers. In the past year alone, FedEX acquired GENCO and is buying TNT Express, UPS bought Coyote Logistics, XPO Logistics acquired Norbert Dentressangle and Con-way, Kin- tetsu World Express bought APL Logistics, and DSV is buying UTi Worldwide. Even North American railroad companies may join the merger mania, if Canadian Pacific succeeds in its reported talks to buy Norfolk Southern (Story, page 13). But unlike 3PLs, the path to successful mergers among ocean carriers, whether state or privately owned, is strewn with regulatory, financial and cultural obsta - cles that throw the outcome of current talks into doubt. "There's a need for con- solidation, but given the politicization of the industry, I just don't see a rash of mergers," said Peter Shaerf, managing director of AMA Capital Partners, a New York investment bank that specializes in maritime deals. "I just don't see it hap- pening between two private companies. I think there will be sporadic mergers, like that between Hapag-Lloyd and CSAV, but I don't see it as a pervasive trend." Any combination of steamship lines would face rigorous scrutiny by inter- national regulators to guard against a single carrier or combination of carri- ers controlling too much of a single trade lane. European and Chinese regulators' alarm bells go off when carrier combina- tions result in their market share reaching or exceeding 30 percent of a single trade lane's volumes. "The issue is made more difficult by trying to discern exactly what is in the 30 percent," said Rod Riseborough, CEO of Container Trades Statistics, which tracks liner companies' trade volumes. He said it's hard to tell, for example, whether the Chinese Ministry of Transport's 30 percent rule on the China-Europe trade includes cargo shipped from China to the areas out- side the scope of carrier alliances such as the Gulf and India. "As far as the EU is con- cerned," Riseborough said, "their mandate is only for the 27 EU countries, and excludes much of the cargo carriers by alliances to Russia and Turkey, etc." Although the U.S. Federal Mari- time Commission doesn't hold the same threshold rule, the agency can block any changes to vessel-sharing agreements, or shipping alliances, caused by the game of musical chairs that consolidation would With an NOL acquisition imminent and China's carriers likely to merge, container shipping is on the cusp of a major shakeup By Peter T. Leach

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