AlixPartners study hints consolidation of shipping industry to combat declining profitability

28 February 2016 (Last Updated February 28th, 2016 18:30)

A recent study by a global business-advisory firm AlixPartners has hinted at a possible consolidation of the container shipping industry with view of its declining performance this year.

A recent study by a global business-advisory firm AlixPartners has hinted at a possible consolidation of the container shipping industry with view of its declining performance this year.

The firm had stated that an increased supply of vessels, coupled with the introduction of giant ships, had met with a dwindling demand in the second half of last year resulting to overcapacity, low profitability and reduced cash flow.

Industry profits measured by earnings before interest, taxes, depreciation and amortization (EBITDA) has indicated a fall in the profit incurred by the maritime industry leading to working-capital challenges which is said to herald a bankruptcy.

"These uncertain market conditions are casting a long shadow over the annual rate-negotiation cycle kicking off between major importers and their carrier bases."

An Altman Z-score analysis revealed that the shipping industry dwells on the ‘distress’ zone predicting bankruptcy.

The industry is said to have not been in the safe zone since 2007.

The study hinted that recent mergers such as Hapag-Lloyd acquisition of Compania Sud Americana de Vapores (CSAV), CMA CGM purchase of Neptune Orient Lines and the combination of China Shipping Container Lines and China Ocean Shipping (COSCO) could lead to a consolidation of the container-shipping industry.

AlixPartners managing director and co-head of the firm’s maritime practice Foster Finley said: "Further consolidation and operational overhauls will be necessary if players in this industry, which as a whole remains deeply troubled, wish to reap the kind of benefits enjoyed in other industries.

"In addition, these uncertain market conditions are casting a long shadow over the annual rate-negotiation cycle kicking off between major importers and their carrier bases."

The study had enlisted some measures to be undertaken by the maritime companies to combat the reported depression.

The measures include shoring balance sheets, reducing debt loads and selling noncore assets; adopt cost effective techniques and incorporate new opportunities to utilise lower slot costs to uncovering new markets.