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Stormy waters

Maritime trends #1: The market is consolidating

The shipping industry is facing large-scale changes after finding itself in the midst of a crisis. The number of ships built annually has sunk to new depths - from 1,700 in 2015 to just 147 this year. In the first part of our new series “Maritime Trends”, we highlight how ship owners, shipyards, and suppliers can adapt.

Today, ships transport over 80% of the world’s cargo, making them the number one mode of transport for trade goods. And yet the shipping industry finds itself in turmoil. Vessels are growing in size and number, causing overcapacity as well as sinking freight and charter rates. And the weak global market is only adding to the problem, resulting in mergers and insolvencies. In short, the market is consolidating. What does this mean for smaller companies?

Shipowners weathering a storm

According to a study by Clarksons, bulk carrier owners in particular have to stem the tide of reduced transport costs—as they result in low profit. While this spells trouble for the majority of smaller fleets, there is a silver lining for larger companies. The market is changing through restructuring, mergers, and insolvencies. It will only bounce back, however, once shipping companies scrap old cargo ships, decreasing the numbers of available vessels and so allowing freight rates to recover.

Shipyards in Asia struggling against low demand

Shipyards in China and Korea, the two world leaders in shipping, are at a standstill due to a lack of orders. The Chinese government is providing financial support to a handful of shipyards, encouraging the construction of new vessels. And in Korea, many small shipbuilders are being forced out of business after suffering heavy losses—prompting the authorities to respond by introducing consolidation measures. For example, the government is calling for a merger between DSME and Samsung and has enlisted the help of consulting firm McKinsey.

Korean and Chinese shipyards will rely on government aid to remain in operation.
Martin Johannsmann, CEO, SKF Marine GmbH

If the tide fails to turn, shipyards will no longer be able to compensate for losses from the year before. Many more of them will close, with the survivors relying on government support and cutting costs, meaning thousands of workers losing their jobs. How can the situation be improved? Firstly, the freight market has to recover—only then can the shipyards can follow.

Number of ships constructed in China, Korea, and Japan compared with the rest of the world between 2005 and 2015.

The greatest benefit for extended ship uptimes is predictive monitoring of critical machine conditions. This allows fleet managers and marine engineers to plan and execute remedies of defects with perfect timing—avoiding serious damage and unnecessary dry dock times. Subsequently, maintenance intervals can be extended, breakdowns prevented, and high operational safety ensured, while the service life can be enhanced and repair costs considerably reduced.

A better situation for the supplier industry

2015 was a good year for the majority of marine equipment suppliers—especially for the companies that focus on service. Granted, orders related to the construction of new ships did decrease. However, repairs, saving fuel, and adhering to ever stricter environmental regulations all require investment in existing fleets. By providing these necessities, suppliers offset a large part of their losses. But that is not to say they are immune to the crisis. Mergers have already taken place, with more set to follow—and the falling number of orders will harm them in the years to come.

Looking ahead: The shipping industry in the year 2021

The number of market players is expected to fall dramatically in the next five years—by around 30 to 50%. This applies to ship owners, shipyards, and suppliers alike.

This could mean:

  • Fewer ship owners in charge of large fleets and with significant market shares.
  • Only a small number of Chinese and Korean shipyards will survive.
  • Smaller suppliers will merge with larger ones looking to expand their portfolios.

Avoiding shipwreck means reacting as quickly as possible to all challenges. Indeed, these are tumultuous times; ships are becoming more energy efficient and new partnerships are being formed regularly. Companies that adapt to this new market, however, can harness the storm to get ahead of the competition.
The next installment in our Maritime Trends series will show exactly how the market is changing, with particular focus on onshore fleet operation centers.

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