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There are only three things wrong with the world’s shipping industry. There are too many ships, with too much cargo space, delivering freight for too little money.
The merger of China Cosco Holdings and China Shipping Container Lines, the country’s two largest shippers, may take some capacity out of the market but it will not, by itself, balance supply and demand.
Industry estimates suggest there is 30 per cent too much capacity in the global container shipping market. And with the equivalent of around 2.9 million 20-foot containers being delivered every year, that situation is only likely to worsen. On some routes, freight rates barely cover fuel costs.
Francis Lun, chief executive officer of Hong Kong brokerage Geo Securities, summed up the scale of the problem succinctly, telling Bloomberg Businessweek: “The global market can support 10 shipping companies. It cannot support 20.”
The Cosco/China Shipping merger, which will create a group with 7.8 per cent of the container market, is expected to be the first of many. Indeed days after news of the deal broke, French company CMA CGM offered to buy Singapore’s Neptune Orient Line for $2.4 billion.