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Why there are so few shipping lines and why are companies merging with each other?

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An overly optimistic outlook of trade recovery following the 2008-2009 global financial crisis prompted shipping companies to order ever-larger vessels, with some stretching longer than the Eiffel Tower. As capacity piled up, the companies tried to under-bid each other on freight rates to lure clients, causing levies to drop to unprofitable levels and sinking the global container-shipping industry into losses. Mergers and acquisitions also serves as a tool of survival, LSC’s in the top twenty have to expand continuously in order to keep up with the increasing minimum efficient scale in the industry. Companies that cannot make the required investments to keep up with the increasing scale of operations often become loss-making. Consequently, these firms become attractive take-over targets, unless they serve niche-markets. This finding is consistent with the differential efficiency theory, where take-overs are regarded as a form of market discipline and an alternative to bankruptcy


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