Dive Brief:

• China’s two biggest state-owned shipping companies plan to merge 11 shipbuilding yards into a single entity in one of the industry’s biggest consolidation moves yet as ship orders hit record lows, The Wall Street Journal reports.
• The two companies had already combined their fleets and port operations last year to create China Cosco Holdings, the world’s fourth biggest container operator in terms of capacity, but the combination of their shipbuilding arms would yield China’s third biggest shipbuilding group.
• The move is an attempt to reduce operating costs without slashing too many jobs, since China frowns upon such cuts during merger proceedings, according to the Journal. The report speculates this merger may also be an experimental model for a potential merger between China's two largest shipbuilders. 

Dive Insight:

The maritime freight industry is rapidly transforming in the face of growing economic strains and slowing freight, and workers as well as companies are suffering. Less and less ships are being ordered each month as the industry faces overcapacity, and while ship repairs are still vital for the industry, ship building is the main role of shipyards worldwide.

Some may say the industry did this to itself: the expansion of the Panama Canal, among other forces, led to an industry-wide arms race to build bigger, better ships and capture a greater share of the market. As part of the same strategy, Maersk Line and the Mediterranean Shipping Company devised a plan to increase scale and decrease rates to force their competitors out, but this backfired. Instead, various shipping alliances have sprung up worldwide, and their vessel-sharing agreements further decrease the need for shipbuilding.

This is the new reality for the shipping industry, one in which a top-seven shipping line's inability to join an alliance and drive for competitiveness can cause a worldwide freight crisis due to bankruptcy.

So what's next?

In the short-term, expect increased consolidation and consistently low prices. Logistics companies are likely already using the lowest-priced shipper, which more than likely belongs to an alliance (unless it is a regional shipper), but if they do not the shipping line may suffer the same fate as Hanjin. Transparency and communication is key, as well as ensuring buffers and backup plans in case a similar shipping crisis occurs with your carrier.