PARIS (REUTERS) - The global container-shipping sector is in its strongest position in years thanks to sweeping consolidation and stronger economic growth, leaving it well placed to withstand competition from trains on major Asia-Europe routes, France's CMA CGM said.
Container lines, which transport everything from televisions to fresh fruit and dominate global freight volumes, are emerging from a severe downturn that culminated in last year's collapse of South Korea's Hanjin Shipping.
CMA CGM, the world's third-largest container line, last Friday (Sept 15) reported better second-quarter profits and said it expected operating profits in the second half of the year to exceed its first-half performance.
"Last year was a bad year, 2017 is a good year and 2018 should be a pretty steady one," CMA CGM chief executive Rodolphe Saade, 47, told Reuters in an interview in Paris. "With the consolidation in the sector, the development of alliances and the favourable market conditions, I can't see a crisis coming."
Based in the Mediterranean port of Marseille, CMA CGM is controlled by the Saade family. Chairman Jacques Saade, who founded the firm in 1978 after leaving his country of birth, Lebanon, handed the CEO role to his son Rodolphe this year.
A series of major acquisitions, including CMA CGM's US$2.4 billion takeover of Singapore-based APL and market leader Maersk Line's US$4 billion deal to acquire Hamburg Sud, have curbed overcapacity. Vessel-sharing alliances between container lines have also helped cut slack. That said, consolidation in the sector has probably run its course for now, Saade said.
Demand is expected to grow by 4-4.5 per cent this year, outstripping an expected 3 per cent rise in supply.
Reflecting the strength of the turnaround, CMA CGM confirmed in its quarterly results that it was ordering nine new vessels, all among the largest ever built in the sector.
Saade rejected criticism that the orders risked recreating a supply glut, saying the vessels were tailored for busy Asia-north Europe routes where scale was crucial and its partners in the vessel-sharing Ocean Alliance already used extra-large ships.
Existing vessels used on Asia-Europe routes would be transferred to other markets such as the trans-Pacific, he said.
CMA CGM declined to disclose the value of the order, which press reports have put at $1.2 billion, but said it would finance the deal through bank loans and its own funds.
The group will decide in the coming weeks whether to use liquefied natural gas (LNG) to power the vessels in what would be a first for large-scale container ships, Saade said.
LNG has been touted as a solution for shipping firms as an alternative to bunker fuel before new international standards on fuel emissions take effect in 2020.
CMA CGM would take into account in its decision the need to develop an LNG supply chain for vessels, Saade noted.
Improved company results along with asset sales meant CMA CGM was financially secure and saw no need to list on the stock market, at least for now.
A move by the group's second-largest shareholder, Turkish conglomerate Yildirim, to sell its 24 per cent stake would raise the possibility of a listing among other options. But Saade said Yildirim had not discussed such a sale with him, despite media reports this year that he was looking to sell.
Although shipping is highly volatile, it remains the predominant means of moving goods around the world. Competition is emerging from rail, particularly with China's efforts to advance its "One Belt, One Road" infrastructure project.
But while railways may be able to move freight from Asia to Europe in two weeks, half the time of container ships, shipping remains far more economical and has greater scale.
CMA CGM itself aims to expand into land routes, seeing services along the supply chain as key to finding growth after the overhaul of the container shipping market. But Saade said it was too early to say how it would develop the market.