Maritime 2025 Annual Review & Outlook
In Perspective
A tough nut to crack
By Jeremy Masters
It ’ s difficult to imagine a new entrant to the industry being able to buy into the top echelons .
The industry has , in recent years , produced some eye-popping profits .
It hasn ’ t always been that way . For a very long period since the advent of containerization , carriers made very poor average returns on investment .
The consolidation of the industry after the 2016 demise of Hanjin Shipping started to tip the scales more in favor of the carriers , but the COVID-19 pandemic and the Red Sea crisis with their attendant implications for capacity demand exceeding supply , opened the door to mega returns , albeit temporary .
The cyclical nature of the business has not changed — and it would not be surprising to see some red ink next year — but we have reached a point now where the big carriers can look forward to good long-term returns on investment and investor parties outside the industry taking note .
There are limited routes to ownership , however . The most obvious observation is that the barriers to entry are now high to starting a new carrier , particularly if the aspirant wants to acquire new capacity and operate in the major east-west container trades .
Even if a new carrier emerges , with the possible exception of the Premier Alliance , it is unlikely that the other consortiums would entertain a new entrant . Slot charters may be possible , but a new entrant would have to bring sufficient tonnage to the table that Mediterranean Shipping Co . and the three consortiums would see it in their interest to cooperate .
The bill to get to critical mass is massive . Fourteen 24,000-TEU ships to support a single Asia – Europe loop will cost approximately $ 3.5 billion at current newbuilding prices . Secondhand ships could be targeted , but older vessels operating conventional fuels are going to be an increasing issue in many trades . The charter market is expensive and particularly constrained in the larger , newer-built sizes .
Then there is the matter of operating such large ships . Running a carrier is a complex task and expertise will be required in general management , finance , marketing and sales , vessel operations , container management , etc ., some of it in multiple geographies .
Buying a major stake in an existing top 10 carrier is a possibility , avoiding an injection of new disruptive capacity . But if a controlling interest is desired as well as freedom from government incumbrances , then the list of potential targets will likely be small or even nil .
Of course , if red ink really starts to flow among the major carriers , the selling price will tend to be more reasonable and home country governments and other interests will have to be more flexible , although their preference will undoubtedly be to find a domestic solution .
A more viable approach might then be to enter regional trades by launching a new carrier or buying existing ones , and then stealthily advance into deep-sea route . For example , an entrant could serve intra-Asia routes first before expanding to regional trades such as in intra-East Mediterranean and the Black Sea . A new entrant could then launch a deepsea service between the two trades once operations are stable and could go on to gradually connect more markets with the same formula .
Existing carriers have employed similar techniques but from the top down , with the main trades driving regional acquisitions or setting up regional networks to strengthen the overall network .
Venturing into the territory of the carriers outside the top 10 may be more financially manageable and more easily achievable but it doesn ’ t necessarily offer a competitive edge . For the more risk-accepting investors , the route to more rapid penetration and high returns would be to bring a new business model to the market .
One area that is ripe for a disrupter is the ongoing conflict between carriers and their clients in the selling / buying of assured future space at an assured rate . Any carrier that can present a reliable , flexible model that ties both sides in will attract not just regular business but also some degree of speculative hedging business .
The bottom line is that the biggest carriers are in a very strong position now and it ’ s difficult to imagine a new entrant to the industry — even a cash-rich one — being able to buy into the top echelons . There is still room , however , to enter the regional trades in a substantive way and to build outward . Alternatively , for those prepared to challenge the existing commercial model there could be a very successful future .
The joke used to be that you could make a small fortune in container shipping by starting with a big one . Today , there really is the possibility of going the other way .
email : jeremy @ shippingmastershk . com
36 Journal of Commerce | January 6 , 2025 www . joc . com