China Shipbuilders may Merge to Stay Afloat

The chances of mergers between China Ocean Shipping, China Shipping Container Lines, Sino Trans & CSC Holdings and China Merchants Group  has improved as they now suffer in a lackluster business climate, the Chinese-language Securities Daily reports.

COSCO Shipping and China Shipping Container Line (CSCL) , which control 80 per cent of the Asian country’s domestic shipping market between them, have already agreed to operate together on China’s domestic routes. If the two carriers, both of which are owned by the state, do merge, it would create a box carrier with 1.3 million TEUs of capacity.

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).

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.

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.