By Jonathan Saul

LONDON, June 21 (Reuters) – Denmark’s Maersk Line is preventing to stay the world’s no.1 container transport service as a wave of mergers and acquisitions, significantly in Asia, creates new challengers making an attempt to seize a much bigger share of a depressed market.

Maersk itself hasn’t made a serious acquisition for greater than a decade however says it could be open to “the right opportunity”, though doubters imagine such offers danger accumulating ships with out securing sufficient prospects.

A unit of oil and transport group A.P. Moller-Maersk , the road has a 15 % share of the general container market. However, it faces Chinese rivals with international ambitions in addition to extra conventional Western opponents that are shopping for up belongings in Asia.

The battle is over the world container commerce, and particularly between Asian ports – one of many few comparatively brilliant spots for an trade struggling its worst downturn since its origins within the Nineteen Fifties and Nineteen Sixties.

“It’s really tough and everybody in the industry is really suffering, and so have we,” Jakob Stausholm, a member of Maersk Line’s administration board, informed Reuters.

“We are defending our leadership position. If we are strong, there is no reason for us not to grow,” stated Stausholm, who’s the road’s chief technique and transformation officer.

The container trade, which ships largely shopper items starting from iPhones to designer attire, has been compelled to chop prices and attempt to construct scale as a result of a weak international economic system and overcapacity.

“World GDP growth is struggling … Combined with trade growth slowing down, this is a recipe for a very bad market,” stated Evangelos Chatzis, chief monetary officer with unbiased Greek container group Danaos.

In November, Maersk stated it might save $250 million within the coming two years and cut back its workforce by 17 % or 4,000 folks, primarily via attrition.

It managed to submit a revenue of $37 million within the first quarter of 2016, in contrast with a $182 million loss within the final quarter of final yr. However, the revenue was down 95 % from the $714 million it made a yr earlier.

COMPETING WITH THE BIG BOYS

Now it should cope with stiffer competitors created by the mergers and acquisitions.

The world’s no. 3 participant, CMA CGM of France, is within the technique of buying Singapore’s Neptune Orient Lines (NOL) for S$3.4 billion (US$2.5 billion). Last week CMA introduced it might additionally kind a three way partnership with PSA Singapore Terminals to function container berths.

In China, former state-controlled rivals COSCO and China Shipping Group have merged to create China COSCO Shipping Corporation. Separately, China Merchants Group is shopping for logistics group Sinotrans & CSC Holdings Co.

“Developments are moving rapidly in Asia and the NOL deal and separate consolidation in China will give Maersk a run for their money,” a transport trade supply stated. “There is a question over whether China will increasingly use these bigger Chinese lines to ship goods now over Western carriers.”

Outside the area, Germany’s Hapag-Lloyd is discussing a merger with Middle East container group United Arab Shipping Company.

Size issues within the present arduous occasions. “If you are small you cannot survive,” stated David Cheng of the Hong Kong Maritime and Port Board. “The big container liners in Asia are not regional liners – they are global liners … They are competing with the big boys like … Maersk, CMA CGM.”

That battle is ready to centre on Asia. “The intra-Asia trade has remained comparatively profitable despite the problems with the wider trade. Going forward, players will increasingly compete for market share on this route and there is already positioning,” a banker who arranges ship financing stated.

“The CMA CGM acquisition of NOL is a case in point of that type of positioning.”

Maersk Line’s dad or mum has money reserves of about $12 billion and is beneath some stress from shareholders to place it to make use of. Chief govt Nils Smedegaard Andersen stated final month that the group held “plenty of liquidity reserves for unexpected and expected investments”.

The line final made a serious acquisition in 2005 when it purchased P&O Nedlloyd, about 5 years after shopping for Sealand and Safmarine.

Stausholm held open the opportunity of new offers. “If the right opportunity is there we will look into it,” he stated. “If you look at the history of Maersk Line, we have achieved our leadership position by combination of organic growth and acquisitions.”

However, he rejected any suggestion that Chinese prospects would flip predominantly to Chinese shippers. “They also need a carrier like Maersk Line,” he stated. “We have a strong position out of China, particularly into Europe.”

He additionally pointed to Maersk’s Singapore unit. “The intra-Asia trade is small vessels and short distances and I think we compete with our MCC subsidiary pretty well in that business.”

BUYING A PILE OF STEEL

Some buyers doubt the knowledge of the present dealmaking.

“By taking part in the consolidation, you effectively buy a pile of steel, but customers are not loyal in this business. So the big risk is that you are left with extra shipping capacity, while price-sensitive customers slip away,” stated Otto Friedrichsen, fairness strategist at Danish asset supervisor Formuepleje. “I don’t think acquisitions is the way to go.”

Formuepleje, with round 45 billion Danish crowns ($6.9 billion) allotted in bonds and equities, has shunned the transport trade. “We see major challenges for the industry in setting the market price at the moment, and that is one of the reasons we’re not investing in Maersk,” stated Friedrichsen.

Analysts Rahul Kapoor and Nilesh Tiwary at Drewry Financial Research Services stated the structural change could be unfavourable for A.P. Moller-Maersk’s earnings.

“The traditional container shipping model seems broken,” they wrote in a notice this month, sustaining the “unattractive” score for the group’s inventory which they first gave in April.

BET ON MEGA-SHIPS

The weak market has hit the large strains which have invested closely in “mega-ships”, largely to function the principle Asia to Europe commerce route. Industry sources have questioned whether or not there may be sufficient work for the most important container vessels on the excessive seas in the meanwhile, placing extra stress on earnings.

“The overcapacity is too large and the recovery will take its time,” stated Hermann Klein, chief working officer with the Offen Group transport firm.

In 2011, Maersk grew to become the primary line to position orders – price billions of {dollars} – for mega-ships often known as “Triple-Es”, with a capability of over 18,000 TEUs (20-foot equal container models). Maersk stated it had improved value efficiencies within the first quarter of this yr.

But the banker stated the seek for effectivity had introduced its personal issues. “This trade has seen a significant cash drain. So there is no surprise there are mergers taking place,” the banker stated.

On high of the mergers and acquisitions, the trade can also be trying to vessel sharing. Maersk was first to announce such an association with the world’s quantity 2 line MSC of Switzerland, which began in early 2015.

Maersk stated its mega-ships and the MSC alliance gave it scale and helped to chop prices. “The Triple-Es we have received have served us well. We probably expected demand growth to have been higher, but it still works well for us with the volumes we are experiencing,” Stausholm stated. ($1 = 1.3425 Singapore {dollars})

(Additional reporting by Jacob Gronholt-Pedersen in Copenhagen; enhancing by David Stamp)

(c) Copyright Thomson Reuters 2016.