New cycle for shipping industry after major reshuffle?

Major shipping giants also began to suffer losses.

In 2015, COSCO SHIPPING Holdings' net profit after deducting non-recurring gains and losses attributable to the parent company was a loss of 4.35 billion yuan, and in 2016, this loss expanded to 9.421 billion yuan.

In 2015, COSCO SHIPPING Development's net profit after deducting non-recurring gains and losses attributable to the parent company was a loss of 3.219 billion yuan, and in 2016, this loss narrowed to 112 million yuan.

In 2015, Maersk's net profit after deducting non-recurring gains and losses attributable to the parent company was 2.032 billion yuan, down 92.91% year-on-year, and in 2016, the net loss after deducting non-recurring gains and losses was 14.686 billion yuan.

A major reshuffle was inevitable. The shipping industry, which had already experienced many rounds of "big fish eating small fish" mergers and acquisitions, began to see "big fish eating big fish" consolidation.

At the end of 2015, CMA CGM announced a $2.4 billion acquisition of Orient Overseas Container Line, the world's 13th largest liner company; in 2016, China Ocean Shipping Group's container shipping business merged with Cosco Container Lines resulting in the establishment of China COSCO Shipping Corporation Limited in Shanghai; Maersk announced the acquisition of Hamburg Süd, a German container shipping company, consolidating its position as the industry leader...

In the more than a year from 2015 to the present, the top 20 container shipping companies have undergone 6 major mergers and reorganizations, as well as the bankruptcy of Hanjin Shipping. If the existing merger projects are successfully completed, the top 15 companies in 2015 container ships The fleet will be integrated into 12, and the world's top ten fleets will operate about 80% of the industry's capacity, and the industry concentration will be significantly improved.

In addition, the original shipping alliances have been broken up, and new alliances have emerged.

On April 20, 2016, COSCO Container announced in Shanghai that it would join CMA CGM, Evergreen Marine, and Orient Overseas to form a new Ocean Alliance.

On May 13 of the same year, THE Alliance was born. The alliance consists of six liner companies: Hapag-Lloyd, Yang Ming Marine Transport, Mitsui O.S.K. Lines, Nippon Yusen Kaisha, Kawasaki Kisen Kaisha (later merged into ONE), and Hanjin Shipping (later bankrupt).

In general terms, after this round of integration, the shipping market's capacity has been reduced, there are fewer players, and a "supply-side reform" of the shipping industry has been carried out globally at the cost of bankruptcy and huge losses.

Recovery: Pacific Basin Shipping purchases five cargo ships for US$100 million   Insufficient cash, shares to make up for it

After the large-scale integration, with the recovery of the European and American economies and the increase in domestic import and export amounts, the shipping market has also begun to recover.

The CCFI rebounded from its bottom of 640 points in the first half of 2016 and is currently around 870 points; the BDI rebounded from its low point of 291 points in February 2016 and has recently returned to over 1000 points.

Stimulated by the market rebound, shipping companies have begun to increase capacity again. In early August this year, Pacific Basin Shipping announced that, although supply and demand factors remain uncertain, considering the recovery of the dry bulk shipping market, the board of directors believes that the price of cargo ships is attractive. Following the delivery of 7 newly built cargo ships in the first half of the year, it purchased four dry bulk carriers and one resale newly built dry bulk carrier.

The total cost of the five cargo ships is US$105 million, which is not a large amount in the capital-intensive shipping industry, but it is tantamount to a gamble for Pacific Basin Shipping, which has been losing money for many years. At the end of 2016, the company's cash and cash equivalents plus trading financial assets totaled only US$172 million.

Ultimately, US$0.46 of the purchase price was paid through the issuance of cargo ship cost shares (accounting for 5.37% of the issued share capital), and 187 million shares (accounting for 4.42% of the share capital) were allocated on August 10 to raise net proceeds of US$0.376 for the remaining US$0.585 cash payment.

Recently, Pacific Basin Shipping announced its interim results, with operating revenue of 4.831 billion yuan, an increase of 41.93% year-on-year; net profit was a loss of 81 million yuan, a decrease of 76% year-on-year.

COSCO SHIPPING Special also recently disclosed its interim results, with operating revenue of 3.312 billion yuan, an increase of 16.64% year-on-year; it turned a profit of 72 million yuan.

Long-term pressure still exists   Vessel load factor still below 70%

Although the global economy is strengthening, and the demand growth rate for both dry bulk and container shipping is expected to improve this year, the aftereffects of the 2008 crisis continue to this day, and the long-term upward elasticity of shipping is still somewhat suppressed. This is particularly evident in the dry bulk shipping industry.

First, because the dry bulk shipping industry has a low entry barrier and high service homogeneity, there are many market participants, and the industry concentration is low: the top 10 companies in the industry account for only 11% of the market share. Even after industry adjustments and the clearing of some loss-making enterprises, it is difficult to achieve the same level of concentration as container shipping.

Second, in 2008, dry bulk shipping prices soared to over 10,000 points, and a large number of new ship orders followed. It takes about 2-3 years for bulk carriers to go from signing new orders to delivery and commissioning. Although some breaches of contract occurred during the crisis, a large number of new ships were still delivered between 2010 and 2012. The delivery of new ships, coupled with overcapacity, caused the vessel load factor to fall from 100% in 2007 to 68.8% in 2016.

Considering that the service life of ships is generally over 20 years, in the long term, the severely excessive capacity remains a "sword of Damocles" hanging over the dry bulk shipping market, suppressing the long-term upward elasticity of the dry bulk shipping market.

Currently, with the clearing of capacity, the industry has reached the bottom of the inventory cycle and has begun to recover. However, there is no so-called "new cycle"; shipping has always been in a cycle.

Because it takes about 2 years for bulk carriers to go from signing new orders to delivery and commissioning, dry bulk shipping supply often lags behind freight rate adjustments—the current expansion plans affect the industry's supply level 2-3 years later. In the industry cycle, it constantly evolves from "de-ordering" to "de-capacity".