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State support preventing box sector

State support preventing box sector
INTERVENTION by governments and other interested parties to prevent a major container line from collapsing could prove to be counter-productive in the long-run by delaying much needed industry consolidation.

State support preventing box sector consolidation.

Intervention by governments and other interested parties to prevent a major container line from collapsing could prove to be counter-productive in the long-run by delaying much needed industry consolidation.

That is the view of several senior executives who believe the container shipping industry remains far too fragmented, and that rationalisation is essential to take costs out of the system and improve efficiency.

?With so many players offering products that are not very different from each other, the market needs more consolidation,? Maersk Line chief executive Eivind Kolding said this week.

But although several prominent carriers have come close to going under in recent months, Mr Kolding said he did not expect any of the top 10 lines to fail.

That partly reflects the shareholding structures of the major players, most of which have a controlling owner able to take a longer perspective.

But stakeholders also rallied round lines that were in struggling to survive.

?What has surprised us was the amount of support that a line in distress can get from banks, creditors, charter owners, and governments in some instances,? Mr Kolding told Lloyd"s List.

?When a line is in deep trouble, everyone comes together to support it under the premise that there would be an even bigger loss if hundreds of ships are left idle.?

Neither does Neptune Orient Lines" chief executive Ron Widdows expect any casualties among the top lines.

?The jury is still out on one, but it is hard to see a significant player going down,? he said.

AP Moller-Maersk, which releases its 2009 results tomorrow, continues to raise objections to state aid for struggling carriers that may then distort competition.

?I think it is a negative that we see governments interfering in this industry. We need market forces to rule,? said Mr Kolding.

He also criticised those lines that, having been rescued from almost certain bankruptcy, then start to act in a destabilising manner by embarking on aggressive expansion programmes at a time when the majority of carriers are maintaining tight discipline.

Bail-outs have almost certainly prevented the sale of weakened companies and another round of merger and acquisition activity that many had anticipated and hoped to see.

?If it has not happened now, when will it ever happen?? asked Mr Kolding,

?It is such a logical thing to happen that I think over time that we will see more.?

Although the global heavyweights seem safe for now, the many smaller lines with market shares of around 3% remain at risk, according to Mr Kolding, and are the ones most likely to be absorbed since their small scale is not sustainable in the long-term.

If there are industry casualties, it will most likely be in the non-operating sector, and particularly among those owners which have large unfunded orderbooks, Mr Kolding predicted.

While supporting the call for more consolidation and keeping a constant eye out for acquisition opportunities, Mr Widdows said a more immediate prospect was the sale of ships at low prices from distressed owners or by yards whose customers had defaulted.

Although receiving little publicity so far, the number of ships on the market is growing, according to Mr Widdows.

?We know so because we are getting the phone calls,? he said.

But NOL would not be interested in any 13,000 teu ships that may come on the market, regardless of price, because of their operational limitations.

Instead, the Singapore company that owns APL will continue to focus on ships in the 8,000 teu-10,000 teu range that are employable in multiple trades.


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