Cosco Merger May Change Industry Dynamics

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. 

The new world leader in shipping industry is likely to own 832 ships including containers, dry-bulk vessels and tankers amounting to almost $22 billion. In comparison, AP Moller Maersk owns only 262 containers ships, which have a total value of $12.3 billion according to VesselsValue.com. 

However, in terms of capacity, Maersk Line is still the world leader with space of close to two million containers on its 262 vessels. China Cosco Shipping’s capacity comes in at a close second to Maersk Line, with 1.6 million containers of total space offered for cargo shipment.

While shipping mergers are rare, when companies of such size come together, further consolidation likely will follow, say industry observers. 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.

According to Lars Jensen, chief executive of SeaIntelligence Consulting in Copenhagen: “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. 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.”

The new entity could face is the separate global shipping alliances that its parent companies used to have. This would mean confusion in dealings with the operators that pooled ships and port calls for cutting costs for the two merged companies. 

China Cosco Shipping Corp. executives believe that they will be able to pledge their allegiances to a single alliance before the first half of 2016 ends.