Scale is the key - but even buying NOL twice CMA CGM would still be smaller than Maersk

The word scale came up repeatedly from both Rodolphe Saadé
vice vice chairman of CMA CGM, and NOL president and ceo Ng Yat Chung.

From his opening statements to his closing ones Saadé consistently emphasised scale. For example his comment that, “We operate in a fragmented world with many players. We believe more than ever scale is important to profitable growth.” And there were many more such comments.

To a certain extent it is a scale that CMA CGM already had with 8.8% global market share making it the world’s third largest container line.

A graph of size versus profitability shown NOL’s Ng clearly illustrated the problem with CMA CGM and Maersk line up in the right, a few niche players such as Wan Hai doing quite nicely on the left side, and clustered altogether in the unprofitable or marginally profitable zone are a lot of mid-sized players like NOL/APL with a 2.8% market share.

“NOL along with a lot of mid-sized players lacks the scale to compete effectively,” he stated.

Ng revealed NOL had looked at other options to upscale its own business, noting its attempt to buy Hapag-Lloyd a few years back, and had looked at other acquisition prospects, mergers and selling assets. In the end it was decided the size of capital investment required to grow the business itself was too high, and at the same time year-long negotiations with CMA CGM and NOL and main shareholder Temasek Holdings felt was fair and the best option in terms of the company’s future and shareholder value.

While in slot capacity terms the French line’s buy of NOL is the largest ever in container shipping it hardly has a seismic effect on the over all container shipping market globally. CMA CGM stays as the world’s third largest container line by capacity, but does at least make it into double figures with an 11.5% global market share. However, it is still significantly behind Maersk and MSC, with 14.9% and 13.4% respectively.

It is worth noting even buying two NOL’s would not take CMA CGM past Maersk in capacity terms.

Where it is more interesting is in relation to individual trades, specifically the transpacific where APL has strong presence due to its heritage as American President Lines, prior to NOL acquiring it in 1997. On completion of the acquisition CMA CGM will have a 13% market share in the transpacific.

Asked where this would place the company in the trade Saadé did not say a word, merely smiled and raised a single finger indicating number one. Enough said really.

It is of little surprise then that CMA CGM plans to maintain the APL brand, which indeed Saadé noted, was a “great brand” which it would like to develop “especially in the US”.

In keeping with the scale theme he said that the company plans to integrate APL into its Ocean 3 alliance with UASC and China Shipping, although the latter is also subject to a potential merger with Cosco, throwing its long-term participation into potential doubt.

For all the talk of scale and rationale behind the acquisition Ng did acknowledge NOL’s place in Singapore’s development as a maritime centre, especially in its earlier days.

However, he added, “The change of ownership of NOL will not impact Singapore’s journey as a maritime centre.”

Much like NOL’s once distinctive headquarters building, shaped like a ship’s funnel, already under redevelopment the company has been a victim of a rapidly changing marketplace.