General Electric Predicts Rebound in $173 Billion Market for Overseas Shipping

Coming on the heels of General Electric's (GE) - Get Report recent deal to provide electric systems to 11 vessels of Maersk Line -- the world's largest container shipping business -- the industrial giant said Tuesday that it predicts a rebound in overseas shipping.

The market for containerized shipping, valued at roughly $173 billion by consulting firm Alix Partners, has been depressed over the past few years, largely because of overcapacity and waning demand.

But Tim Schweikert, head of of GE's Marine Unit, said that's likely to soon change.

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GE's Marine unit is not often broken down as a discrete business segment on financial statements, and its sales broadly cut across five GE segments: oil and gas, energy, power and water, transportation, and aviation through an overlapping footprint with gas turbines.

"We always take the longer view," he said in a phone interview with Real Money Tuesday, noting that 90% of all goods are shipped by water at some point in their value chain, whether that be as finished goods or raw materials. "Long-term we're quite bullish, and some of the projections we're seeing long-term are quite bullish," he added.

According to Schweikert, the glut in containerized shipping vessels is a result of a disconnect between diminishing demand and it taking roughly two years for orders of freight vessels to materialize, leading to far more active ships than needed to meet current commercial routes.

But "capacity will resolve itself," he said, highlighting a mounting trend of consolidation among freight carriers, most recently in China's approval of the tie-up between China Ocean Shipping Co., known as Cosco, and China Shipping Group, bringing together a combined annual revenue of about $40 billion. Meanwhile, France's CMA CGM is looking for regulatory clearance for its $2.4 billion bid for Neptune Orient Lines of Singapore.

"No one segment moves the needle in a year's time, but long-term the Marine Unit, particularly as we come out of the bottom of the cycle, has some nice growth upside," Schweikert said, highlighting that subsea drilling businesses also stand to gain from a rebound in crude oil prices.

In February, GE announced a deal with Norwegian oil-and-gas giant Statoil (STO) for new subsea projects through 2025, although the financial terms of the deal were not disclosed, whilch will extend through 2025. GE also acquired Norwegian underwater oil equipment and services provider Advantech last October at undisclosed terms.

Schweikert also pointed to the Maersk deal as a potential bellwether for new partners to follow, especially given the value of GE's burgeoning so-called Industrial Internet, which connects machine sensors with GE's proprietary Predix cloud-based software to optimize efficiency.

By Schweikert's estimates, GE can pare $10 million in production costs per average vessel through use of the fledgling technology, which could also help replace a retiring maritime labor force that is expected to dwindle 15% over the next five to 10 years, he added.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.