Tuesday, 10 January 2017

Alliances Play Important Role in Container Shipping Recovery

Several weeks ago I asked for help finding information on Davenport Laroche and shipping container investments. My call for assistance got very little response; in fact, none at all. This prompted me to do my own research into the container shipping industry and educate myself.

This is what I discovered:

2016 was a very challenging year for container shipping lines. Most companies reported consecutive losses and struggled from quarter to quarter. These adverse conditions even resulted in the surprise bankruptcy of Hanjin Shipping Company - a Top 10 container shipping line and one of South Korea's largest transport companies. It seems that container shipping was not alone, many of the world's leading ports shared in the struggles, as well.

After hearing this, most investors would turn-tail and run in the opposite direction. Rightfully so I suppose. But, what about century-old companies like Maersk (1904) and APL (1848)? They are not giving up; they must have a plan to survive the downturn. Certainly international trade is not going to grind to a standstill!

It would seem that the answer they've come up with is partnerships and alliances. These coalitions are becoming increasingly popular among both container lines and shipping ports. Starting from the top of the industry, Maersk Line, the world's leading container line, has partnered with the Mediterranean Shipping Line - who is ranked number two in the industry - to form the 2M alliance. APL joined the world's largest shipping partnership - the OCEAN alliance, with number three ranked CMA CGM, as well as China Cosco Shipping, Evergreen Line, OOCL and Neptune Orient Lines.

These alliances allow the participating container shipping lines to make better use of the group's resources and thus operate more efficiently. This doesn't necessarily make them more revenue, but it certainly saves them money. That still means more profit in the end! "A penny saved is a penny earned."

Looking ahead to 2017, it would seem to me that the shipping alliances formed will play an important role in the industry's recovery, and lead to profitability in the future. Left to fend for themselves, many of the industry's major players would have eventually perished in an increasingly competitive sector. Mark Shields once said "There is always strength in numbers. The more individuals or organizations that you can rally to your cause, the better."

The only real threat I see to the container shipping industry in 2017 is President Trump's economic plans. If introduced as he promised on his campaign, they could bring about an era of protectionism and possibly start a trade war with economic giants like China and India.

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