Will the long-rumored $2.4 billion cash purchase by French ocean carrier CMA CGM Group of Singapore-based Neptune Orient Lines Ltd. (NOL), parent of containership company APL, finally begin to stem the tide of overcapacity that has plagued global container shipping for several years?

The transaction, announced yesterday, would combine the world's third and 12th largest container lines. The combined firm would operate 563 vessels and have capacity of 2.4 million twenty-foot equivalent (TEU) containers and US$22 billion in revenue, the companies said in a joint statement.

The combined fleet would hold 11.4 percent of the global container shipping market, according to Alphaliner, a research consultancy. Only Danish carrier A.P. Moeller-Maersk and Swiss carrier Mediterranean Shipping Co. (MSC) have larger market shares. German company Hapag-Lloyd AG is a distant fourth with 4.6 percent of the market, according to Alphaliner.

The merger comes at a time of crisis for the global container-shipping market. Vessel overcapacity and subpar demand on many lanes have caused freight rates to plunge as 2015 has progressed. For example, two weeks ago the noncontractual, or spot, rate for eastbound freight from Shanghai to the U.S. West Coast was quoted at $922 per 40-foot equivalent unit container (FEU). In February, a time of severe West Coast port congestion due to a labor dispute between the International Longshore and Warehouse Union (ILWU) and the Pacific Maritime Association (PMA), spot rates to the West Coast were priced at $2,265 per FEU. Spot rates to the U.S. East Coast, which saw a surge in demand due to container diversions from West Coast ports, spiked to $5,049 per FEU.

An index published in October by Drewry Shipping Consultants Ltd. measuring the balance of vessel capacity and cargo demand has fallen this year to 91, a level not seen since 2000. A reading of 100 indicates equilibrium in the market.

The unfavorable mix of tepid growth and too much vessel space forced Maersk Line, the world's market-share leader, last month to idle one of its 18,000-TEU Triple-E vessels, perhaps the most convincing evidence to date that too much capacity continues to chase too little volume.

In the statement, CMA CGM and NOL acknowledged the problems confronting them and the rest of the industry. The proposed combination, they maintained, would improve vessel productivity, create compelling economies of scale, and create a flexible fleet capable of deploying the most efficient ships "on any given route" as they are needed. It would also give the financially stronger CMA CGM significantly improved exposure on key Asian routes, the companies said.

Thomas Cullen, an analyst for consultancy Transport Intelligence, said in a note yesterday that although shipping lines have no control over short-term demand prospects, a continuing consolidation among major players could be an important step toward controlling vessel oversupply. "Although on paper the largest carriers only control market shares in low double-digit percentages, in reality the market for intercontinental trades is being to revolve around the biggest ships run by the largest lines," Cullen wrote. "This may signal an important change in the structure of the market, and thus its profitability."

The transaction, which must be approved by antitrust regulators in the U.S., the European Union, and China, combines firms with generally complimentary route networks. Marseilles-based CMA CGM is strong on Asia-Europe, Asia-Mediterranean, Africa, and Latin America routes, while APL's strengths are in the trans-Pacific, intra-Asian, and Indian subcontinent trades. The combined company would hold market share of between 7 and 19 percent on the routes it operates, CMA CGM and NOL said. NOL operates under the APL brand.

Acquisition discussions have been underway for some time, initiated by NOL, whose APL unit has been a big money-loser in the most recent years. However, the two sides couldn't agree on price until word of yesterday's announcement, according to Transport Intelligence.