KUALA LUMPUR, Feb 21 — The consolidation of big container shipping operating companies into alliances is a right trend to bring significant changes in the Malaysian marine industry, said the Association of Marine Industries Malaysia.

Its Honorary Secretary Nazery Khalid said the formation of bigger entities in reaction to the prolonged downturn in the container shipping sector is another game-changing trend to the industry.

"Being a demand-derived service, the container shipping depends largely on the demand for the cargos they carry, hence is at the mercy of external factors such as economic performance, industrial and business activities and consumers spending,” he told Malay Mail.

He said this has largely been propelled by the slow growth in world trade against the backdrop of a ten-year global recession and downturn in the shipping sector, which facilitates an estimated 90 per cent of the global trade by volumes.

"In reaction to overcapacity in the container shipping sector and low freight rates caused by the severe downturn in their business, some of the world’s largest container shipping operators (or liners) have reconfigured their strategies,” he said.

He said this has caused the formation of alliances, mergers and acquisition activities amongst the shipping operators to reduce competition; to move freight in a more cost-efficient manner and to ensure their business sustainability.

"Alliances feature vessel or slot sharing agreements and capacity consolidation leading to new route networks and port rotation of container ships among the alliance members.

"Their establishment creates a ‘pool’ of container vessels under their fleets to facilitate the movement of vessels on one another’s behalf to expand their geographical coverage and service offerings.”

In short, he said alliances offer liner members the opportunity to carry more cargos using fewer vessels at a lesser cost and higher freight rates arising from their collective ability to control the supply side of seaborne container transport.

The merger leads to the creation of container shipping companies of bigger financial and asset resources, clientele base and scope and extent of service coverage.

Among the recent merger and acquisitions include the mergers of Japan’s three biggest container carriers, K-Line, MOL and NYK; and French liner CMA CGM’s purchase of Hapag-Lloyd and UASC.

Back in early 2017, China’s two largest container carriers, Cosco and CSCL merged in what was considered as one of the biggest and most complicated deals in the history of China’s capital markets.

"The realignment of the playing field through consolidation is especially noteworthy for its far-reaching impacts on port users, shippers of cargos, shipyards, maritime ancillary players, regulatory authorities and global seaborne trade transport as a whole,” said Nazery.

He said consolidation is carried out by beleaguered liners besieged by the deep and long downturn in their business in order to attain economies of scale to optimize the use of available capacity.

Asked about the effects of consolidation, Nazery said the impacts of this trend of consolidation have reverberated across the maritime supply chain the world over.

"Container ports in Malaysia and a host of supporting service providers are no exception. Some have felt the brunt but they also stand to enjoy the boon arising from the wave of consolidation sweeping the container shipping sector.”

For instance the Westport, one of two container terminals at Port Klang which was ranked 12th busiest in the world in terms of throughput handled.

It recently announced recording nine million TEU (20-foot equivalent unit of the container) throughput in 2017, on the back of strong growth in intra-Asian trade and gateway (domestic) cargos.

However, its transshipment volumes of 6.2 million. TEU handled in 2017 is 16 per cent lower than the transshipment volumes recorded in 2016.

This was attributable to the loss of business from the shift of cargos by two of its biggest customers, French container shipping giant CMA CGM and UASC to Singapore Port.

"This should not come as a surprise given the importance and extent of shipping as a conduit to international trade.

"Manufactured goods — including consumer products, equipment, parts and types of machinery of all kinds — and, increasingly, a growing a variety of commodities and raw materials — are transported in containers carried by ships, facilitating the import and export of the majority of trade-oriented countries.”

It is, therefore, a certainty that this profound development in the container shipping sector has a significant imprint on not only the maritime supply chain but also global trade, he said.