Episode Transcript
[00:00:00] I'm Akhil Nayar, Global Head of freight forwarding at logisteed. In 2019 I argued that container shipping would consolidate from 22 carriers to 12 in four years.
[00:00:11] Not by mergers, but by game theory.
[00:00:14] Seven years on the count is 12 and today I'll explain how it happened, what I got wrong and why the equilibrium that's held for seven years is about to break.
[00:00:31] Three things have happened in the last 12 months that make this audit actually timely.
[00:00:36] First, Hapag Load's $4.2 billion acquisition of Zim. This is the largest carrier on carrier merger since Maersk acquired hamburg suit in 2017 nearly a decade ago.
[00:00:48] Shareholders have approved it in April 2026 and completion is expected later this year.
[00:00:53] Second, and potentially more concerning, Iran has declared a maritime management zone in the Strait of Hormuz reaching waters off Fujairah and Khorfakat. These are UAE ports and while UAE and four other GCC states have rejected this at the imo, this is potentially an asymmetric shock that single corridor disruptions do not produce.
[00:01:16] And third, the EU's consortia bloc exemption regulation.
[00:01:20] This is the automatic antitrust safe harbor that carrier alliances have relied on since 2009. This expired in April 2024 and it has not been renewed. Alliances are not banned, but they now have to self assess case by case under general EU competition rules. Each one of these stresses a different load bearing assumption underneath the equilibrium that is held since 2019.
[00:01:47] Let me start with what I actually argued in 2019. The conventional view at the time was was framed that the path forward was only one of two outcomes either consolidation by force through mergers or continued fragmentation sprinkled along with the periodic bankruptcy. I argued for a third path cooperative equilibrium without ownership consolidation. This is game theory. A Nash equilibrium is simply the state a system settles into when no player can do better by being the first to break rank.
[00:02:18] It holds whenever three conditions are met.
[00:02:21] The cost of competing must be high. Cooperation must be enforceable through repeated interaction. A defection must be visible to everyone.
[00:02:29] Container shipping satisfies all these three. So the 22 to 12 number was never a forecast of mergers. It was a forecast of how many carriers would matter operationally once alliance discipline took hold.
[00:02:44] Now let me walk you through what actually happened. The ocean of Zions extended twice. The 2M dissolution in 2023 was not a breakdown, it was a restructuring. Maersk launched Gemini, cooperation with Hapag Lloyd and MSC doubled down on fleet led independence. The alliance reconstituted as Premier with Oni, Hyundai and Yangning by February 2026, the major alliances controlled 61% of global capacity, with MSC now adding another 20%.
[00:03:16] So that brings us to a sum total of over 80% of the global fleet now sits under cooperative discipline or under its single dominant independent player. The 22 to 12 prediction was met and then overshot. But two things I didn't see coming in 2019. First, MSC's choice to operate independently at 5 million tuition, using scale, not partnership to enforce equilibrium.
[00:03:42] And second, the return of M&A. The 2019 thesis assumed cooperative discipline would make ownership consolidation unnecessary. And for seven years that held apic Lloyd buying Zim is the first signal that cooperative only phase is ending. Two of the underlying conditions strengthened actually across the cycle. The cost of Competing rose with IMO 2020. Low sulfur fuel rules, fuel price volatility, Red Sea diversion, Panama Canal constraints and defection actually became more dangerous and more visible. No carrier executive who lived through the engine collapse in 2016 was going to start the next price war.
[00:04:23] But a Nash equilibrium isn't a permanent state. It's the configuration the system rests in when no actor has an incentive to move first.
[00:04:32] Five of those incentives are now in flux. Three of them are actually under live stress today as I speak.
[00:04:38] One geopolitical choke point risk has been manageable thus far. However, Iran's maritime management control zone extending over waters approaching UAE gateway ports tests that war risk insurance, vessel routing flexibility and surcharge application are already today diverging across alliance members.
[00:04:59] And if the costs decoupled, the symmetric assumption underneath cooperative discipline begins to crack.
[00:05:05] Second, ownership consolidation has been the exception. Epic Lloyd and Zim is the largest carrier deal since 2017.
[00:05:13] If we see two or more of these close in the next 18 months, cooperative equilibrium gives way to ownership consolidation. And that has a very different stability in terms of product.
[00:05:24] Plus three more conditions watching for stress, the Red Sea opening cleanly and the slack returning simultaneously to all alliances.
[00:05:32] MSC strategic continuity under family ownership. The regulatory question of whether cooperative capacity sharing remains workable at today's scale now that the EU safe harbor is gone, all point to cracks. The pushback I hear most is that consolidation outcome is settled. The system is concentrated, the alliances are entrenched and cargo owners should just adjust and move on.
[00:05:55] My opinion that misreads what an equilibrium is. An ash equilibrium isn't a permanent state.
[00:06:02] It's the configuration a system rests in while conditions hold. Today's system is more concentrated than it was in 2019, yes, but it is also more fragile.
[00:06:13] Five conditions held the equilibrium together.
[00:06:15] Three are now under live stress. The Hormuz choke point, the M and A return and the regulatory framework in the eu. The other two Red Sea reopening, msc, strategic continuity, those are coming. That's why this is fragile, even though it looks settled. So how would I go about contracting 2026 and beyond? I can only offer my personal position, but I would consider three basic principles when contracting now and into the future.
[00:06:42] First, 2026 contracts I would actually count on an alliance discipline holding. The cooperative equilibrium is still in place and it will hold through the end of the contracting cycle. That's where I am at. I wouldn't price for a breakdown that isn't coming yet.
[00:06:58] Second, for 2027 and 2028 contract structures, I would actually consider building in optionality, especially around alliance composition. I'd assume that the alliance map I contract against in 2026 is not the alliance map operating in 2028. And finally, I would really watch out for the next two or three MA announcements closely. If two more deals close in the next 18 months, the cooperative equilibrium gives way to ownership consolidation and the contract risk profile changes material.
[00:07:30] To me, that's a signal to renegotiate, not a signal to wait.
