In International Shipping News 20/04/2015
With the Chinese government stepping up reforms for state-run enterprises, the chances of mergers between the nation’s four state-run shipping-related companies has improved as they now suffer in a lackluster business climate, the Chinese-language Securities Daily reports.
The four are China Ocean Shipping, China Shipping Container Lines, Sino Trans & CSC Holdings and China Merchants Group.
Last year, due to significant drops in oil prices, the three major state-run oil companies Sinopec, CNPC and CNOOC all suffered profit shrinkage. By contrast, as many as 23 out of 24 state-run and private-owned shipping companies in the mainland managed to score increased earnings.
Securities Daily said the shipping firms stood to benefit from the declining oil prices, which helped to reduce their fuel costs.
Since the second half of 2014, international crude oil prices have plunged by over 50% to less than US$50 per barrel from a high of US$107 seen last June. As fuel oil costs account for 20%-40% of total operating costs for shipping firms, the sharp price drop has significantly cut their overall operating costs.
The entire shipping market has remained in a state of oversupply though. The Baltic Dry Index, which is designed to measure changes in the cost of transporting raw materials such as metals, grains and fossil fuels, fell by 8.4% year-on-year to 1,105 points in 2014. In the first quarter this year, the index plunged 22% sequentially to a 30-year low of 509 points.
Besides oil price drops, China Ocean Shipping, China Merchants Group, Sino Trans & SCS all relied on government subsidies to turn profits, China Shipping Container Lines depended on wharf rental income to thicken its profits. Accordingly, all the four companies have suffered business woes, a securities analyst said.
While government authorities are actively proceeding with a merger between China South Locomotive Rolling Stock and China North Locomotive Rolling Stock to boost their international price negotiation capability, the same practice should also be applied to the four state-run shipping companies to maximize their resources and speaking rights and make them more competitive in the international shipping market, the analyst said.
Of the four, China Ocean Shipping and China Shipping Container Lines can be merged, as they boast similar business models and have engaged in exchanges and business cooperation for years. In 2014, both firms signed a strategic cooperation framework, under which they will build comprehensive strategic partnerships, share resources in developing new markets and customers, and undertake joint ventures, warehousing and ship maintenance operations and so forth.
Another merger can be carried out between Sino Trans & CSC and China Merchants, which, in fact, has been under way since 2008. Last year, both firms set up a joint venture, China VLCC, to operate a fleet of very large crude carriers (VLCCs).
