The most significant change thought to be coming out of the unprecedented industry downturn will not happen in 2010.
Industry consolidation has long been thought to be the eventual natural outcome of many of the industry’s characteristics like capital intensity, the need to maintain global networks, high fixed costs, and limited product differentiation. However, the recent history-making trough in the industry’s business cycle has produced no consolidation. Although almost all carriers have posted very large losses and carrier financial red ink and horror stories are all over the industry press, there has been no consolidation, and almost no discussion of it. Even carriers under significant financial duress have not been the subject of any merger, sale or takeover talk, let alone any action. Holders of carriers’ equity may change a bit, but it looks like the same carriers will continue operating with fundamentally the same management.
You would think given the industry’s history, and the normal workings of a liberal capitalist system, that there would not only be consolidation but that it would be viewed as positive by both the carriers and the shippers. Consolidation would yield higher rates, lower costs and more leverage for carriers, and for shippers would mean stability, continued excellent service and still competitive rates.
What stands in the way of this deal made in heaven? It appears ownership structure may be the culprit. The overwhelming majority of capacity in the industry is owned or controlled by a state (in a variety of ways, including sovereign funds) or is closely held by private interests. In neither case are the companies subject to value optimization as we generally know it.
This ownership structure does not lend itself to the normal workings of the capitalist system, where the weak stumble and fail or are consumed and the fit grow stronger and larger. Whether the current ownership structure is the best way to serve the needs of carriers, shippers and the world economy is uncertain.