論文

Proposal for a Conceptual Model Learning from the
Recent Liner Shipping Market
Yutaka YAMAMOTO
Abstract
The shipping industry has contributed to the world economy, especially theliner shipping industry has played important roles to carry products in global logistics and supply chains since containerization ins. However, several criti-

cal incidents and dynamism have been recognized in the pastdents include shipping structure changes, the financial crisis inyears. The inci，new ship-ping deployments and new tonnage, the horizontal integrations of shipping
companies, shipping alliance reformation and possible container terminal integrations. The concerns are that European carriers dominate the global market
on a tonnage basis. This paper aims to examine the incidents and seeks to discover if a causal relation can be identified between them. The conclusion indicates the dynamic had an impact on the shipping market, and a specific business model can be drawn. It is a unique cycle compared with normal supply anddemand in the shipping market, and the perspective helps people in maritime
business and governments understand the complexity. Future research should
be expanded to integrations of container terminals. The research also should include the more practical approach to cover data collection and analysis after
the spring of，when operations of some new shipping company groups andalliances have started.

1. Introduction
The shipping industry has contributed to the world economy. The liner shipping industry has played an important role in carrying products in the global logistics andsupply chains since a containerization in thes. However, several critical inci-

Professor, Departement of International Management, University of Nagasaki, Sasebo, Japan. Visiting Scholar,
Erasmus School of Economics, Rotterdam, The Netherlands. E-mail: yamamoto@sun.ac.jp / yamamoto@ese.eur.nl

長崎県立大学論集（経営学部・地域創造学部） 第 巻 第 号

dents and the dynamics have been recognized in the past

years. The incidents in-clude shipping structure changes, the financial crisis in，
new shipping deploy-ments and new tonnage, the horizontal integrations of shipping companies, shipping
alliance reformation and possible container terminal integrations. The concerns arethat European carriers dominate the global market on a tonnage basis. This paper
aims to examine the incidents and seek to discover if a causal relation can be identified between them.
2. Research method
2.1 Conceptual models and hypotheses
The competitive shipping market consists of supply and demand as other markets
do. The supply is vessel capacity/tonnage and the demand is cargo freight. In thenormal shipping market model, eg., in the case of overcapacity, the market moves
from (1) balanced shipping market to (2) vessel overcapacity, (3) weak market andfight rate down, (4) vessel capacity adjustment (or cargo demand rise), and back to
the normal market situation.

Figure 1. Normal Shipping Market Model

Source: Authorʼs own elaboration.

In the last decade as described earlier, critical incidents, shipping market structurechanges, the financial crisis, new deployment, M&A in the industry and the alliancereformation, have been recognized. The research analyzes the individual incident
by referring to the practical data and also analyzes the relationships between fac-

Proposal for a Conceptual Model Learning from the Recent Liner Shipping Market

tors consequently. Based on the investigation, the cycle will be modified and be
drawn later. The hypothesis proposed and an impact on the market (freight rate) bysign (+­) are those following:a. Market structure changes (­) : more competition and less cooperation in the industry
b. Financial crisis in 2008 (­) : slow world economy and weak cargo demandc. New deployment and new tonnage against weak market (­) : vessel overcapacityd. Shipping companies continued losses. Bankruptcies and mergers in the industry (+) : M&A seeking efficiency by removing ducplicate investmente. Shipping alliance reformation (+­)
2.2 Shipping market structure changes in 2008
Changes of the competitive law in the liner shipping market were made in the US
Shipping Act of 1984 (Figure 2).In addition to the presence of so-called nonconference carriers, the shipping conference in the Trans-Pacific trade lane as a key
in US trade, has accepted carrierʼs independent action (I/A) and time volume rate(TVR) against conference tariff rates. Forwarders have been also allowed as nonvessel operating common carriers (NVOCCs) to issue own bill of ladings (B/Ls) onbehalf of shipping carriers. The US Ocean Shipping Reform Act of 1998 has requested shipping carriers to file a confidential contract between a merchant and acarrier, which has resulted in dissolution of the shipping conference. However, theUS regulatory bodies have approved the existence of discussion agreements such as
Trans-Pacific Eastbound Stability Agreement (TSA) after 1998.
In the EU trades, the liner conference block exemption has been repealed. This has
also applied to discussion agreements in the trades. This was conducted in 2008
when the financial crisis happened, which had an impact on the world economy aswell as the shipping market. After the financial crisis, the shipping market has
moved slowly and the cargo growth ratio has obviously dropped. Under such slow
economic conditions, the EU authorities removed Antitrust Immunity in the liner
shipping industry. Banning both of shipping conferences and discussion agreements
may decrease healthy communication opportunities and international orders be-長崎県立大学論集（経営学部・地域創造学部） 第 巻 第 号

tween carriers, which have historically worked for trade stability in the shipping
market. This resulted in more competition in the market.
Figure 2. Competitive Law in the Liner Shipping Market

Source: Authorʼs own elaboration.

2.3 Slow recovery in liner shipping market after financial crisis
The business cycle is found in the liner shipping industry as in other industries. The
world economic cycle and the ship building cycle may impact cargo demand andvessel supply, which may cause freight rates to rise or fall. The last two decades, inaddition to the business nature of the shipping industry, a critical difference is identified in the cargo volume in the shipping market before and after the financial crisisin(Figure )．Before

container shipment exceeded the world GDP growthratio. The slope of autoregression analysis of world container cargo before．．
On the other hand, it has become a gentle slope at ． afteris(Figure )．

At a similar time as this crisis, shipping structures changed in 2008 as described.
2.4 New deployment encouraged market imbalance
Although the economy has recovered slowly after the financial crisis with the newenvironment in the shipping market structure, a shipping carrier started new deployment against weak market conditions, e.g., Triple E vessels withpacity in

TEU ca-in the Asia-Europe trade lane. Due to competition other global carri-ers should follow the strategy and the carreirsʼ behaviors have helped to keep theProposal for a Conceptual Model Learning from the Recent Liner Shipping Market

Figure 3. Container Cargo Moves in Key Trade Lanes (Unit/million TEU)

Source: Japan Maritime Center (accessed on 2018 Sept 19).

Figure 4. World Container Cargo Growth Before/After
The Financial Crisis (Unit/million TEU)

Source: Japan Maritime Center (accessed on 2018 Sept 19).

長崎県立大学論集（経営学部・地域創造学部） 第 巻 第 号

market imbalance.
Once the shipping carrier deployed larger ships into certain trade lanes, existingships are bumped to other trade lanes, which is called ʻcascading effectsʼ in the industry. This phenomenon caused imbalance in one market after another and also
harmed the balance sheet of shipping companies. According to sources, e.g., over，

TEU vessels increased by

to 39, however, all other classes decreased andespecially 3,000-4,999 TEU vessels decreased by 20 in 2015/2016 in the East Asia/
Middle East, South Asia trade lane (Table )．
Table 1. Cascading Effects in the Liner Shipping Industry
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Source: NYK Line Research Group Container Annual Book 2017: p34.

2.5 Shipping companies continued losses
The shipping market cycle and the ship building cycle may have an impact on the financial performance of shipping carriers. The general shipping company takes this
into account and has several business departments such as bulk shipping, pure carcarrier (PCC), terminal operations in addition to liner shipping. The three Japanesecarriers have taken this strategy. However, the container shipping companies may
make a strong impact on the market. The weak market and overcapacity after thefinancial crisis caused the freight rate to sink, especially in the Asia-Europe trade.
2015 freight rate was only 52% of what was in 2008 (Figure 5).
Shipping carriers can survive by having lower operating costs in relation to low
freight rates in a competitive market. New deployment of ultra large ships may reduce the slot cost subject to fulfilling capacity, however, it is not easy for shipping
companies to reduce terminal handling costs, which require hard negotiation withthe labor unions across the world. Bunker costs are out of control. The relationshipProposal for a Conceptual Model Learning from the Recent Liner Shipping Market

Figure 5. Freight Rate in the Asia-Europe (Westbound) Trade (Unit USD/TEU)

Source: Japan Maritime Center (accessed on 2017 Jan 16).

between shipping company P/L and costs, is identified in Figure ．
The sample liner
shipping company has sustained losses for several years and eventually it mergedwith a European carrier. An industry magazine stated “carriers will probably lose
at least US＄ billion in，
on top of the＄billion lost in sales since(Port

Technology; 17 August 2017）．This results in more than several company mergers
in the industry.
Figure 6. Profit and Loss (P/L) of a Liner Shipping Compnay

Source: published data on APL web page (accessed until 2016).

2.6 Horizontal integrations between with shipping companies
CMA-CGM announced to merge Singapore based NOL/APL in December, 2015.

長崎県立大学論集（経営学部・地域創造学部） 第 巻 第 号

This announcement really began a sense of great mergers and acquisitions in theliner shipping industry never seen before. Container shipping companies could not
accept the continuing losses. On the other hand the European carriers have taken astrategy to survive by economic methods. A holding company can manage different
brands of shipping companies with the collaboration of shipbuilding investment, terminal operations and the purchases of bunker fuel. A similar strategy is found in thecruise shipping industry such as the Royal Caribbean International and the Carnival
Corporation has done. Eventually, in addition to NOL/APL, CSAV (Chile), China
Shipping, OOCL (Hong Kong), Hamburg-Sud (Germany) and UASC (UAE) weremerged. Once shippers and consignees lost a liner shipping company as a logistics
partner, they may be an impact on freight rates, shipping routings and terminal locations. They may owe switch costs of the re-negotiation of shipping lines.
2.7 Discussion and concern: European carriers dominate the market
We discussed the great mergers in the industry. Mergers and acquisitions are not
new to the industry, those have been occurring in the last three decades. The Japanese NYK merged with Nippon Liner System, the liner department of the NavixLine in 1991, the Taiwanese EMC merged with Italian Lloyd Triestino in 1993, theKorean Hanjing Shipping who went bankruptcy in 2016 merged with the German
Senator Lines in 1997 and the Singapore NOL merged with the APL in 1998. However, mergers in the last decade featured European carriers, which have played avery positive role in the market. In this paper the European carriers are defined as
MSL, MSC, CMACGM and HapagLloyd (HHAG), who have deployed in the global
shipping market. The four carriers shared 29% in the liner shipping market by vessel capacity basis in 2004, however, it increased to 40% in 2004 and 50% in 2017 (Figure 7). Now the European carriers dominate the market and the HHI (HerfindahlHirschman Index) also increased from 284 in 2004, to 500 in 2008 and 674 in 2017 accordingly.
In the case of the Danish Maersk Line, the size of vessel capacity increasedLand in． folds of

has in-，when was just before they merged with American Sea-．
MSC, CMACGM and HLAG also increased tonnage (Figure )．

The market domination is opposite to what the liner shipping industry tracked after
containerization, especially when keeping in line with the US shipping act of 1984

Proposal for a Conceptual Model Learning from the Recent Liner Shipping Market

Figure 7. European Carriersʼ Increased Capacities

Source: NYK Line Research Group Container Annual Book 2005, 2009 and 2017.

Figure 8. MSL Increased Tonnage:
2.3 times (1999), 6.2 times (2005) and 13.5 times (2017) Unit/TEU

Source: NYK Line Research Group Container Annual Book every year.

and the US Ocean Reform Shipping Act of 1998. The US deregulation has provided
opportunities to carriers in developing countries, which contributed to more competitive world shipping markets. Concerns have been whether the recent mergers
would jeopardize the balance of regions and the maritime economies.
2.8 Shipping alliance reformation
Shipping alliances and consortiums started in the single trade lane by slot exchange

長崎県立大学論集（経営学部・地域創造学部） 第 巻 第 号

and space chartering between carriers in earlier days. It expanded to multiple tradelanes in 1990s and it was called a global alliance. The mergers and acquisitions in theliner shipping industry had an impact on the formation of the shipping alliances. In
the spring of 2018, nine liner shipping companies have formed into three global alliances (Figure 9). The European carriers take the lead between alliance carriers by
the delivery of tonnage, deployments and terminals/operations.
Figure 9. Liner Shipping Alliances

Source: Ministry of Land, Infrastrucrure, Transport and Tourism.

3. Results/Conclusions
This research focuses on the dynamism of the liner shipping industry in the last decade. Shipping structure changes, the market impact of the financial crisis, mergers
and acquisitions of shipping companies and the shipping alliance reformation havebeen individually discussed. The results indicated that there were casual relations
between them. The structure changes limit opportunities for having a healthy consensus between carriers. New deployment and extra tonnage against the weak shipping market helped market imbalance in the Asia-Europe trade first, and transferred to one after another by cascading effects. Low ocean freight rates caused carriers to keep losses and then some of them went bankrupcy, and several carriers
merged. The mergers resulted in the alliance reformation. To compare supply anddemand in the normal shipping market model and its business cycle, the dynamism

Proposal for a Conceptual Model Learning from the Recent Liner Shipping Market

is illustrated in the unique business model, which is useful in understanding thecausal relations and the linkage between factors (Figure 10).
Figure 10. The Business Model in the Liner Shipping Industry 2008/2018

Source: Authorʼs own elaboration.

The main contribution of this paper to the literature is providing a clear perspectiveon the shipping industry and the shipping market by creating a conceptual model.
The dynamic contained complexty. The perspective helps public managers andmaritime business managers form future plans and strategies.
The mergers and alliance reformation may have an impact on container terminals.
For example, in the case of the Rotterdam World Gateway, container terminals in
Maasvlakte2 has been developed by former alliance members of the TNWA,
CMACGM and DPW (DP World) since 2007. It is a concession agreement for 25
years with the local Port Authority. The port governance and the terminal management in the US west coast ports and Japan main ports are different from the North-長崎県立大学論集（経営学部・地域創造学部） 第 巻 第 号

west European countries. Shipping carriers have traditionally exclusively used container terminals in those countries under long term concession agreements. Theseterminals may more directly impact on the dynamism in the industry. APL, currently a part of CMACGM, operated the Kobe terminal over 40 years but has already closed in June, 2017 and the CMACGM sold the Global Gate South terminal(Los Angeles) to an insurance company in December, 2017, however, we need moretime to examine terminal integrations.
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Acknowledgement

This research is a part of the performance, which the author has taken sabbatical

Proposal for a Conceptual Model Learning from the Recent Liner Shipping Market

leaves to Erasmus School of Economics, Rotterdam. The author is grateful to his colleagues of both the Univesity of Nagasaki and the Erasmus University, who allowed
the opportunity. In addition, the author is grateful to the audiences in his presentation in IAME 2018, Mombasa.