In International Shipping News 05/02/2016
Source: Wall Street Journal
China Cosco Shipping Corp., the new shipping leviathan formed by the merger of Cosco Group and China Shipping Group, is expected to change the dynamics in seaborne trade and kick off further consolidation in the industry when it starts operations later this month.
The merger will free the two Chinese shipping groups from competing against each other at home and abroad, in an industry swamped with oversupply and depressed freight rates. China’s economic slowdown has hurt the prices of commodities such as oil, iron ore and coal, damaging the shipping companies’ profitability.
The merged entity, which supplants A.P. Møller Maersk A/S of Denmark as the world’s largest shipping company by ship value, will begin operations Feb. 18. Shareholders and Chinese regulators recently approved the government-inspired merger, which has been in the works for about a year.
Industry executives said that while shipping mergers are rare, when companies of such size come together, further consolidation likely will follow. One example came in December, when French shipping company CMA CGM SA agreed to buy Singapore’s Neptune Orient Lines Ltd. for about $2.4 billion.
“The [China Cosco Shipping] merger will put an end to the two companies competing for the same clients in container trade, but it doesn’t come without challenges,” said Lars Jensen, chief executive of SeaIntelligence Consulting in Copenhagen. “An obvious one is that cargo owners, especially in China, will now have fewer choices to ship their goods and may abandon CCSC if a foreign competitor gives them better pricing.”
Mr. Jensen said shipping mergers usually take years to bring about concrete financial benefits, especially if layoffs aren’t part of the deals. That is the case in most Chinese tie-ups.
Another issue is that Cosco Group and China Shipping Group currently belong to separate global shipping alliances, in which operators pool ships and port calls to cut costs.
Industry executives said this would raise issues with regulators in the U.S. and Europe, which must approve the merger so that China Cosco Shipping can operate globally.
“They will either have to pull out from at least one of the alliances or pull out from both and form a separate alliance hoping to attract other operators to join them,” Mr. Jensen said. “But with capacity commitments and other sharing of assets already in place, it won’t be an easy task.”
China Cosco Shipping executives said the merged entity probably would become part of a single alliance, likely in the first half of this year.
The new Chinese company will own a total fleet of 832 vessels, including container ships, dry-bulk ships and tankers, valued at roughly $22 billion. In comparison, A.P. Møller Maersk’s Maersk Line owns 262 container ships valued at $12.3 billion, according to data provider VesselsValue.com, which doesn’t track chartered ships.
In terms of container capacity alone, Maersk Line’s 262 ships keep it in first place, with a capacity of about two million containers. China Cosco Shipping will be second, with 209 ships and a capacity of 1.6 million containers.
The merger comes as China attempts to restructure its state-owned businesses, aiming to create leaner and stronger national champions that can better compete abroad.
Beijing is also pushing two other state-owned shipping companies, China Merchants Energy Shipping Co. and Sinotrans & CSC Holdings Co., to merge some units, though talks are at an early stage. The Chinese government earlier this year merged two of its biggest train makers—China CNR Corp. and CSR Corp.—into CRCC Corp., in a bid to strengthen their competitiveness when bidding for overseas contracts.
Source: Wall Street Journal
