A slowdown in China has sent commodity prices swooning and dealt a blow to global growth. Now a stuttering recovery in the world's second-largest economy could spark the biggest shipping union in years.
Neptune Orient Lines (Singapore Exchange: NEPS-SG), owned by Singapore's state fund Temasek Holdings, over the weekend announced that it has entered exclusive talks with, France's CMA CGM—the world's third largest container shipping line—over a potential takeover.
If it goes through, NOL and CMA's merger would be the biggest container shipping deal in years.
Analysts say the deal is a sign of further consolidation in the global shipping industry on the back of a collapse in freight rates as growth in China slows, reducing the country's appetite for commodities just as a backlog of large vessels come into service.
"There is definitely a consolidation trend going on," Singapore Shipping Association's president Esben Poulsson told CNBC's The Rundown on Monday.
"At a difficult moment of the cycle, consolidation is obviously a way for these players to gain greater market share and greater strength toward the customers."
Even so, the price of the merger will "no doubt the price will reflect that we are in a difficult period," said Paulsson.
The Baltic Dry Index (Exchange: .BADI) (BDI), a measure of freight rates for shipping bulk cargoes such as iron ore, coal and grains tanked to a new record low last week, reflecting slowing global trade.
"There's simply too much capacity and obviously at these current rates, it's not a sustainable business, it cannot continue on a long-term basis but it is a function of the market," said Paulsson.
In an report in October, London-based shipping consultancy Drewry said container shipping is set for another three years of overcapacity and financial pain due to slowing global trade and a bloated order book of large vessel capacity—placed when China was gobbling up large amounts of raw material imports that are now slowing.
China October imports fell 18.8 percent in value from a year ago, the General Administration of Customs said in early November. Exports also declined.
While import volumes for some commodities rose on stockpiling, iron ore import volumes fell 4.9 percent on year, hitting the BDI as dry bulkcarriers ship more iron ore than any other commodity.
Drewry said that an additional 1.6 million twenty-foot equivalent unit (teu) of capacity is being added to the world container fleet this year, which is equivalent to container shipping growth rate of 7.7 percent – far above its forecast of just 2.2 percent.