Probability in Cross Border M&A: The Case of Shipping Industry After Global Crisis of 2008

Table of Content


The shipping industry is one of the leading mode of transportations that moves more than 80% of the goods transactions generated around the world. The technological advances increase the number and size of vessels, reducing operational costs generating great economies of scales. However, the high operational costs affect the profitability when crisis comes and open a field to improves M&A on the industry. On this study we analyze the probability of M&A after the economic crisis of 2008 and test the hypothesis through the data bases analysis of the sector.


The maritime transportation belongs to a system that is divided basically into three types, depending over the surface the mobile transport asset travel: land, water, and air (Rodrigue, 2016). It is the oldest technological way of transport and the modal that carry more than 80% of the world trade goods transaction (Vince_V, 2003). Since 2000 the worldwide seaborne transportation rises in an average of 3,0% every year (UNCTAD, 2017) and still in expansion, this convert the maritime transport in the most used and globalized modal of transportation.

The shipping industry, that uses the maritime transport for mobility, rapidly growth due the increment of the load capacity of the vessels, generating economy of scale and reducing the transportation cost to decimal values. In 1995 the freight transport cost per Ton/Mile was calculated in $0,01, compared with $0,25 of Road Transportation and $0,59 of Air Transportation (Rodrigue, 2016). After this date a lot of investment and improvement on the sector was developed to increase the capability of the vessels and increment the power efficiency pushing the transport cost down. In the beginning of the vessel’s containerization process, the vessels barely carry up to 1,000 TEU’s*, in the 80’s the “Panamax” era push the capability to near 5,000 TEU’s per ship, the 90’s capability rises to almost 8,000 TEU’s per ship and the latest Mega-Ships released after 2013, can carry in average 19,000-20,000 TEU’s (Rodrigue, 2016). All this technological advance pushes the other actors of the shipping industry to improve their structure, such as ports, river channels, trucks and rail transport terminal sizes.

However, in the last decades the development of the industry brings to many ships into the water, operated by many operators, some of them with insignificant market share for the industry. The needs of survive, sparkling a war price spread all over the world forcing operators to down the prices to gain or simply keep markets. This action conduct to various operators to bankruptcy and create a wave of Mergers and Acquisition (M&A) as never happen in the industry before. The top twenty ocean carriers shrink to eleven, and it’s expected this number be smaller for the coming years (Costas Paris, 2018).

Despite the challenges, the shipping industry still growing. Between 1974-2014 the seaborne trade volumes increase in +3% in average annually (covering the negatives results of the 2008 global crisis). 2015 and 2016, increase +1,8% and +2,6% respectively and UNCTAD drives a projection of an average +3,2% from 2017 to 2022 (UNCTAD 2017). So far, the prediction was not wrong, the seaborn trade increase +4% effective in 2017 (UNCTAD 2018).

The sustainability of the shipping sector is not under question on this article, the numbers above mentioned proves the sector is a rich field of investment. What the authors want to demonstrate on the present research, is after the crisis that affects the seaborne trade, be created an open field to improves M&A on the industry. Through an investigation on the official databases, we will apply concepts of M&A to support the hypothesis of the present study.

In the coming sections we will expose the literature review, conceptual model, sample analysis source, discussion and conclusion. For the purpose of this article (easy) we will not develop the method, simply mention the sources.


The shipping industry is not immune from an economic recession. This fact was known from the global financial and economic crisis of 2008 and 2009, which had a strong impact on the shipping market (Kalgora and Christian, 2016) and other sectors of financial investment. The strong global crisis of 2008 and the worst global recession in 2009 caused a 4,5% decrease in maritime trade at that time, caused mainly by the collapse of economic and trade growth, according to data extracted from UNCTAD. As a result, this situation caused a slow development in the global economy and many companies have had to reduce the request for shipping industry transport and related services, for example, the case with many companies in the Asian continent.

We define M&A as a “M&A activity has become common in today’s economic environment and can vary in size from very small businesses to enterprise corporations. A company acts as seller or buyer for each transactional exchange and represents their interests depending on their position in a deal” (Grave, Vardiabasis and Yavas 2012). During the global crisis, M&A suffered the consequence of the economic changes that affected the environment, causing this type of acquisition to become a high-risk investment.

Therefore, the M&A contribute to increasing the benefits obtained through the relationship between the shipping industry providing new evidence that contradicts the negative results of a prior theory how concluded (Alexandrou, Gounopoulos and Thomas 2014). This theory provide evidence that the M&A in different types of situation, including the less favorable ones, such as global crisis would obtain additional benefits for the economy of both firms. (Grave, Vardiabasis and Yavas 2012) argued in their article “The Global Financial Crisis and M&A” that from crisis comes change and new behaviors. New participants, creative and innovative approaches and new industries and deal targets are designed to make M&A work for new reasons to support hyper competitive global resource re-balancing.

Furthermore Andrade, Mitchell and Stafford in his article found that “If mergers come in waves, but each wave is different in terms of industry composition, then a significant portion of merger activity might be due to industry level shocks. Industries react to these shocks by restructuring, often via merger. These shocks are unexpected, which explains why industry-level takeover activity is concentrated in time, and is different over time, which accounts for the variation in industry composition for each wave.”, (2001). Therefore, this could mean that during the global crisis a restructuring forced by a cross-border M&A would result in a possible innovation and means the exit from the state of slow economic development because of the crisis in the shipping industry.

Álvarez-SanJaime, Cantos-Sánchez, Moner-Colonques and Sempere-Monerris discussed and analyze land and water transport. It studies the implications of a structural change in the shipping line industry. A theoretical model has been developed where the maritime sector, assumed oligopolistic, competes for freight transport with a competitive road transport industry (2013). The results establish enough conditions to ensure that user surplus and social welfare increase after M&A. this theory indicates that both M&A and shipping industry obtain mutual benefits by being developed together.

In another hand, distance has a negative effect on the takeover flows between pairs of regions because the search costs could be greater for potential acquisition firms that are located far away from the acquirer argued (Aschcroft, Coppins and Raeside 1994). This may be concluded that the greater the geographical distance, the higher the investment cost, the more difficult it is to control the operations of the company, as opposed to those where the geographic distance is relatively shorter.

Cross-border and short distance M&As will be supported if the target or an acquiring firm possesses an asset whose common utilization increases efficiency and profit, as indicate (Hee-Jung, 2013). This could mean that the greatest chance of success could result from cross-border M&A at the short geographic distance, which would indicate that the greater the geographic distance, the greater the risk of failure.

In addition, Hee-Jung (2013) found that distant M&As are riskier because they are based on more imprecise information compared to the close M&As. Ellison and Glaeser (1997) found that domestic mergers are an important factor, which affects the concentration of economic activity within industries. Therefore, both authors in their theories concluded that the greater the geographical distance, the greater the risk of failure between M&A and the shipping industry can be due to the lack of control of remote operations.

In contrast to the emerging market, multinationals have become far more assertive in their M&A activities on the global stage over the past decade. Save a dip during the global crisis in 2008 and 2009, the overall trend in cross-border M&A has been upward, especially in the post-dot-com period since 2001 by Mansoor Dalilami, Sergio Kurlat and Jamus Jerome Lim (2012), and this growth has had a positive impact on the emerging economies, starting restructuring of some companies, including the shipping industry, which could obtain high values.


In this study, we want to focus on the cross-border M&A in the shipping industry after de global crisis of 2008 until 2013. The impact that the recession has on the global economy and its influence in seeking new ways to overcome the economic difficulties presented by the deterioration of trade. Which factors influence cross-border M&A in a global crisis scenario?, what would be the probability of success of cross-border M&A within the shipping industry? and would be the consequences for the shipping industry of restructuring in order to integrate the cross-border M&A? dues to this question, we have developed the following research question:

“How could impact the probability in cross-border M&A in the shipping industry after the global crisis of 2008?”

Moreover, through an investigation of different theories of authors who have done previous research. (Álvarez-SanJaime, Cantos-Sánchez, Moner-Colonques and Sempere-Monerris, 2013), they argued that the investment and innovation of involving the M&A within the shipping industry sector in order to obtain development and added value. However, their results conclude that both factors developed and applying the strategies properly the shipping industry can obtain an economic development, a favorable diversification and continuous increase of the economic activity within the sector.

On the contrary, with the crisis factor presented and a period of economic recession applied worldwide where the market of values in shipping industry decade 22.9% in the period of 2008-2010 to its lowest level in a long time according to statistical data of UNCTAD, creating an unfavorable scenario to market trade. This leads us to develop our first hypothesis:


Due to the global crisis both the shipping industry and cross-border M&A underwent major changes, during the crisis a restructuring of both sectors could have a positive impact that includes, as a result, a probability of success. It is understandable that in this state of global crisis large companies refrain from making large investments. However, M&A has shown in the past to obtain benefits higher than expected and based on these results the probability of success of cross-border M&A within the shipping industry are greater regardless of the investment cost.

On the other hand, geographic distance plays an important role in the success of cross-border. Other theories proved negative effect in relation to long geographic distances and the cross-border M&A, due to the inability to handle the right information. However, in an economy facing a global crisis where similar markets no longer represent an economic benefit, the need to expand the maritime industry can find other results by including large geographical distances in their economies of scale. Shipping Industry deal with geographic distances since remote times, and it’s correct to say the global market is the field of the shipping industry, this mean factors like culture, developing markets and foreign resources are common routines of vessel operators. The theories insist that geographic distance has meant a factor that influences the success of cross-border M&A, but at a time of global crisis and where new markets can be an advantage to take and control new areas over the competitors, this leads us to develop our second hypothesis:



In this section, we will describe in a short and summarized way how we could obtain the necessary data for our research. We would like that the acquirer target is a public listed in the stock market and the firm size will be taken by the value of the total assets and the statistic value of the shipping industry. We want to focus on the impact of the shipping industry after the global crisis of 2008 and the probability of cross-border M&A success.

We will test our first hypothesis by analyzing the values of the cross-border M&A with success or failure event after the crisis for the next 5 years (2008-2013). The net value of the acquirer, public debt and the profitability will be our control variables on the analysis to determine if the high value of the transaction matter at the time to close the cross-border M&A. For our second hypothesis, we will analyze which factors of geographic distance between acquirer and target firms could influence the success of failure that exists within the shipping industry and the cross-border M&A.


In order to collect the data to our study, we will collect information of cross-border M&A and shipping industry from 2008 to 2013, based on the following data bases:

Refinitiv, a Thomson Reuters’ Merger & Acquisitions Database (
Federal Communications Commission, agency dependent of US Congress (
The Institute for Mergers, Acquisitions and Alliances (IMAA) (
UNCTAD databases


The shipping industry is an important field of study in constant development due technological advances and new commercial rules often revised to attend a globalized market. This mean that every study is not a final true and need to be further and deeply analyzed again. Some authors as Yeo, 2013 that study cross-border M&A on shipping industry during 2006-2007, evidence that “geographical closeness is a characteristic of great importance for M&A”. Penayides, 2011 that study strategic alliances during 2008 and 2010, evidence alliances between distant shipping lines to can achieve “geographic diversification”.

On the same rational line, Alexandrou, 2014 analyses the value and number of global shipping M&A from 1984 to 2011 an evidence a significant decrease during 2008 and 2009, but immediately increase during 2010 and 2011 taking the same level of the previous year before global crisis.

This simply analysis, contributes with more data about the behavior of shipping industry on M&A and gives to lecturer a slight idea about the synergies between shipping lines to gain competitiveness and diversify the market service. The shipping industry involves alliances and co-operations and not all the activities drives to a M&A. This article requests further development with more dept study on M&A during and after crisis and economy deceleration. Many authors that study shipping industry agrees that more empirical analysis with multiples context need to be done.


In this study, we are focus in the effects that the global crisis after 2008 had in the shipping industry and the role of the cross-border M&A. We based our research on the necessity of restructuring the shipping industry to avoid the increasing deterioration of the economic. The shipping industry involve the most important sector in the global economy, that means that its growth and development is of great importance to the world economy.

The effects of the global crisis began the increase of new strategies that favor the recovery of the economy, this includes maritime trade which increased its participation in M & A. In the beginning, this business strategy provided positive results in the strategies of economies of scale applied by maritime trade and as in its article “Competition and Horizontal Integration in Maritime Freight Transport”, (Álvarez-SanJaime, Cantos-Sánchez, Moner-Coloques and Sempere-Monerris 2013) proved that cross-border M & A obtained results above what was expected in an integrated business structure. To conclude that in effect, an increase in M & A investment would provide a successful recovery from the existing crisis.

On the other hand, in relation to geographical distance we can conclude that our results in this time of crisis can be favorable, this is thanks to the fact that crossing long distances would provide us with new investment routes, technological advantages and resources with unique qualities that in this period of recession would provide an economic advantage within our market as well as that emerging economies are becoming an attractive market to make investments that would have widely tested positive results within the shipping industry.


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