5 September 2017, Global – CMA CGM is close to confirming a 9 mega ships order that would raise its global market share to 12% and the OCEAN Alliance’s combined market share to 28%. This is rather Déjà Vu and could spur the global container shipping industry giants to buy ships and race for market share again.
Investors may do well to start looking at the Asian shipbuilder stocks such as Daewoo DSME (042660:KS), Hyundai Heavy HHI (009540:KS) and Samsung Heavy SHI (010140:KS). China shipbuilders continue to have the largest market share (35%) of the global shipbuilding contracts and we expect further consolidation in the sector.
CMA CGM WILL STILL RANK NUMBER 4 GLOBALLY
CMA CGM is close to confirming its order for nine mega ships from China’s Shanghai Waigaoqiao. This will raise CMA CGM’s orderbook-to-fleet ratio from 6% to 14%, raising its global market share from 11% to 12%. However, CMA CGM will still rank the world’s 4th largest carrier after Maersk (MAERSKB:DC), MSC and COSCO SHIPPING (1919:HK) + OOIL (316:HK) even with these new vessel orders.
Chart: Global container shipping sector current versus future global market share (2017 vs 2019)
LIFTS OCEAN ALLIANCE’S GLOBAL DOMINANCE
The choice of these mega vessels will complement CMA CGM’s OCEAN Alliance partners’ mega vessel fleet. This would help lift the OCEAN Alliance’s global market share by 1ppt to 28%, still below 2M Alliance’s 34% or 36% including Hyundai Merchant Marine (011200:KS) but ahead of THE Alliance’s 17% market share. The three global container shipping alliances will essentially control 80% of the global industry capacity.
Chart: Global container shipping alliance market share (2017)
HOWEVER, HISTORY COULD REPEAT ITSELF IF MORE VESSEL ORDERS COME THROUGH
CMA CGM’s new vessel order could spur competitors to order more ships again to defend and grow their market shares, especially as shipbuilders are hungry for new orders and dangling attractive deals and easy access to financing can be provided by EXIM banks and other financial institutions and lessors.
Among the large container shipping lines, we are likely to see new vessel orders from MSC, Hapag Lloyd (HLAG:GR), Zim, Hyundai Merchant Marine (011200:KS) given their current low orderbook-to-fleet ratio.
Chart: Top 15 container shipping lines orderbook-to-fleet ratio (2017)
This could result in a replay of what happened in early 2011 following the strong rebound in the global container shipping sector when Maersk first placed orders for the Triple E vessels which spurred the entire industry to upsize their vessel fleet in a bid to cut unit cost and defend/gain market share as well.
The delivery of the mega ships subsequently led to industry oversupply and prolonged the downturn of the global container shipping sector. Under such a scenario, the resurgence of multiple ship orders will drive investors to exit the global container shipping equities and to buy the Asian shipbuilding stocks.
CHINA SHIPBUILDERS STILL HAVE STRONG LEAD IN THE GLOBAL ORDERBOOK LEAGUE
China shipbuilders continue to have the largest market share (35%) of the global shipbuilding contracts. This is well ahead of South Korea (22%) and Japan (22%).
Chart: Global market share of shipyards by country (2017)
However, as there are more small/mid-sized yards in China, South Korean shipbuilders Daewoo DSME (042660:KS), Hyundai Heavy HHI (009540:KS) and Samsung Heavy SHI (010140:KS) still rank the world’s largest individually, ahead of Shanghai Waigaoqiao and Imbari SB. The top 15 shipbuilders have a combined global market share of 40%. We expect more industry consolidation going forward.
Chart: Top 15 global shipbuilders market share (2017)
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