At the beginning of the New Year 2014, the international freight forwarding company and everyone look forward to the new future, looking forward to the market development trend of the global container market in the next year:
The P3 alliance will once again promote the consolidation of the container shipping industry in the pursuit of economies of scale. Since the international financial crisis in 2008, the shipping market has been in a downturn, and this downturn will continue in the next few years. Without control over freight rates, container carriers can only survive by reducing costs and improving their financial position. The P3 initiative, announced in June by Maersk, MSC and CMA CGM, is a measure to both reduce costs and improve services, which will make container shipping more economical and efficient for all three companies.
At present, the top 20 carriers generally feel that large-scale, fuel-economy ships are of great benefit to reduce the cost of single container transportation, and the new shipbuilding price has bottomed out, resulting in a large number of new shipbuilding orders are still unabated.
Under the impact of large ships, the existing alliances have been thinking about how to upgrade cooperation or expand the absorption of members, and the liner operators who are still in an independent state will also actively seek to join the relevant alliances, or unite interested parties to deepen their ability to withstand market shocks with closer cooperation.
The financial strain caused by the excessive expansion of carriers in recent years may attract new investors to join or take over
Due to the long period of poor trends and returns in the shipping industry, 2014 could be an opportunity for new investors to take advantage of the market downturn to step in. A large number of ship-owner shipbuilding has occurred in the field of bulk carriers (ship-type shipyard sales), which has led to the speculation of vertical integration of the industrial chain, and the container shipping industry with a greater concentration in comparison, in addition to individual carriers to maintain profits, most operators are also facing financial constraints and banks are reluctant to lend. However, shipping is an evergreen industry and has played an indispensable role in the process of economic globalization. From the perspective of asset allocation, the shipping industry has a large demand for funds, and has been in a state of low value for a period of time, and the risk has been greatly diluted. Therefore, whether there are external investors with sufficient funds willing to enter and lead the integration of the container shipping industry is worth thinking about.
For example, in recent years, the extremely active non-operating shipowners - Seaspan, taking advantage of the low cost of new ships, as well as the carrier's tight financial situation, frequently order ships in major shipyards, and sign long-term leases with carriers to lock in profits. In order to finance new orders, in addition to raising funds for fleet expansion by issuing shares and convertible bonds in the capital market, Sispan also introduced private equity funds such as Carlyle to set up a joint venture with the Great China Intertransport Company GCI to share the new shipbuilding plan.
Another example is the sale of $150m in convertible bonds to FSI, the French sovereign wealth fund, making CMA CGM the second largest foreign shareholder in the family-owned airline, with a 6 per cent stake. Following the investment, FSI will appoint former Thales CEO DenisRanque to the Board of Directors of CMA CGM, and FSI Director ThomasDevedjian will participate in the management of the company as an observer. The previous Turkish Yildirim Group also took a stake of 24% as a strategic investor. The JacquesSaade family, which founded CMA CGM, owns 70% of the company and still has about $4.6 billion in debt to repay. At the same time, CMA CGM is also looking at the possibility of a public IPO after 2015.
Third, asset sales may be further intensified
In addition to the entry of external capital, with the long-term market downturn, liner operators themselves are actively seeking to revitalize existing assets, optimize portfolios, and even sell some non-important assets to increase liquidity. On the one hand, the carrier is forced to face the high debt scale and the high cost of debt capital, on the other hand, it is also to enhance the ability of the main business to resist risks.
In early 2013, for example, CMA CGM restructured its $5 billion debt and increased cash flow, selling a 49 percent stake in terminal company TerminalLink to China Merchants Group for $545 million. Then in April, Mediterranean Shipping announced the sale of a 35% stake in its terminal company TIL to private equity fund "Global Infrastructure Partners GIP" and co-investors for $1.9 billion, also in order to rebuild capital and maintain Mediterranean Shipping's leading position in the industry.
In addition, as South Korea's largest shipping company and the country's largest container carrier, cash-strapped Hanjin Shipping has been Mired in debt, the original CEO Kim Young-min resigned in November this year. Hanjin Shipping plans to sell non-core assets, including ships, in a bid to restore its financial health. The company intends to raise 690 billion won ($643 million) through the operation in exchange for support from creditors.
According to reports, 200 billion won of the funds may come from the bulk carrier business, and Hanjin Shipping has signed contracts with shippers with good credit records such as Korea Electric Power Company and PoSCO Steel Company. Hanjin intends to use long-term shipping contracts as collateral to generate cash flow by issuing securities. Another 300 billion won is likely to come from Hanjin Shipping's sale of stakes in terminals and real estate at home and abroad. Currently, it has two VLCCS and 58 bulk carriers, including two Capesize vessels built for KEPCO.
Analysis shows that due to the sluggish global freight rates leading to losses for several years, South Korea's three major shipping companies are facing a cash crunch, Hanjin Shipping, Hyundai Merchant Marine and Seton Ocean Shipping are expected to 2013 will be the third consecutive year of losses, further eroding cash flow. Some analysts pointed out that because these shipping companies use debt to support expansion, they may need external financial assistance to pay for new ship loans. But it is unlikely that these shipping companies will be able to turn around and improve their solvency in the near future. If no action is taken, the situation is likely to worsen next year as cash drains rapidly.
