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Shippers: Reefer markets will feel the pain from carrier concentration

Shippers in the Global Shippers' Forum were already sounding the alarm this March about the consequences for importers and exporters of goods such as food. Their concerns surfaced in relation to the merger of Maersk Line and Hamburg Süd and have only grown in the months since.

The Global Shippers' Forum (GSF) is highly concerned about the development in Brazil, Latin America's largest economy, where the entire supply chain from exports of food to warehouses and terminals has been visibly affected by a shortage of reefer containers since the beginning of 2017.

This is an issue recently raised by GSF regarding recent M&A's, in particular the recent Maersk acquisition of Hamburg Süd.

Chris Welsh, Secretary General of Global Shippers' Forum
Meanwhile, overall consolidation and especially Maersk Line's acquisition of Latin American specialized carrier Hamburg Süd creates an almost unheard of concentration of carriers which could drastically weaken competition on international services, not just in South America but also on the crucial routes to and from Australia and New Zealand.

These are observations from Chris Welsh, Secretary General of Global Shippers' Forum, to ShippingWatch. GSF is a coalition which represents 40 organizations of shippers around the world.

"The impact of mega-ships alliances is a major issue for the GSF. The supply of containers, in particular with regard to the reefer market, has been a key concern for GSF around the world. This is an issue recently raised by GSF regarding recent M&A's, in particular the recent Maersk acquisition of Hamburg Süd," says Welsh.

Approved by the EU

In a deposition to the EU Commission in late March this year, GSF pointed out that there were several issues with Maersk Line's takeover of Hamburg Süd.

Along with Maersk Line's alliance partner, Swiss MSC, the three carriers are estimated to control around two thirds of reefer export in Brazil.

"As the Commission will be aware, the liner reefer market is a specialist area of the shipping market. Equipment can often be in short supply and competition in the global reefer/cool market can be restricted," writes Global Shippers' Forum, appealing to the EU Commission for it to thoroughly analyze the consequences for competition and the selection for shippers.

Back in April, the EU Commission approved Maersk Line's takeover of Hamburg Süd under certain conditions.

Australia and New Zealand

Maersk Line and Hamburg Süd's dominance in the reefer market reaches beyond Brazil. Shippers in Australia and New Zealand have stated that the two carriers control a combined 60 percent of the freight market for reefer containers in the region, with Hamburg Süd and Maersk Line as number one and number two in the market, respectively.

According to the shippers, this will likely have consequences for the recipients of meat and other agricultural products in the EU as well as for the exporters.

Although the two carriers have issued notices to customers indicating that no changes will be made in 2017 in relation to existing contracts with customers, shippers are now worried about the short-term effects of the acquisition, but rather the long-term consequences in relation to competition and fewer options in the specialized reefer market.

The massive consolidation with mergers among the largest deepsea container carriers is estimated to be the most significant explanation for the situation in 2017 in Brazil, where a shortage of empty reefer containers on the east coast is worse than ever before because there are fewer carriers for the Brazilian exporters to choose from.

Small players out

"Carrier's activities seem to be more organized because of the collapse in Hanjin Shipping. Meanwhile, the merger between Hapag-Lloyd, CSAV in Chile, and Arab UASC has limited the selection of carriers. The same is true of Chinese Cosco's merger with OOCL, not to mention the heralded merger of the three Japanese container carriers MOL, K Line, and NYK."

"All of these carriers have been considered small players on Brazil's east coast, and have previously done business when large carriers such as Maersk Line, Hamburg Süd, and MSC have run out of empty containers. This year only French CMA CGM is utilizing this situation," one experienced observer told ShippingWatch recently.

 

Brazil's two major food producers, JBS and BRF, which account for close to half the country's combined reefer cargo volumes, are cited as a key factor behind the desperate situation faced by even the small producers in the surrounding countryside districts.

Due to their massive market share and their strength in negotiation, the two groups have been able to negotiate rates so far down, at around USD 1,200 for a 40-foot container, that the carriers have instead shifted a large portion of their container capacity to countries such as Chile, Peru, Ecuador, Costa Rica, Argentina, and South Africa, where rates are higher.

Brazil went from a net importer to a net exporter in 2017, leading to an imbalance between exports and imports.

Antonio Dominguez, Maersk Line's director for East Coast South America
Combined, the three groups of carriers will control container freight in and out of Brazil. Maersk Line and Hamburg Süd with around 36 percent, MSC with around 25 percent, and the merger consisting of Hapag-Lloyd, Chilean CSAV, and Arab UASC with around 16 percent.

Maersk Line's director for East Coast South America, Antonio Dominguez, recently explained the situation to ShippingWatch by stating that although imports in Brazil have gone up, they are still far from the level from before the country was hit by an economic crisis in 2014. For this reason, fewer empty containers come to Brazil.

"Brazil went from a net importer to a net exporter in 2017, leading to an imbalance between exports and imports. This means all shipping lines as well as exporters are suffering from a lack of equipment from space on ships to containers. Imports are starting to recover but it is slower than we would have liked but this is nothing more than a mirror image of what is going on in the broader economy, consumption is improving again but more timidly than first hoped. For now, commodities are leading the economic recovery in Brazil," Dominguez said.

English Edit: Gretchen Deverell Pedersen

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