The state-owned shipping companies have told the Chinese media a merger between COSCO and China Shipping will improve their competitive edge in the face of an industry-wide downturn.
Few details are available Friday morning following approval by China’s cabinet of the merger of the country’s top two shipping conglomerates.
Government newspaper People’s Daily has posted a story from the Xinhua news agency saying the State-owned Assets Supervision and Administration Commission issued a one-sentence statement that said, “With the approval of the State Council, the China Ocean Shipping (Group) Company (COSCO) and the China Shipping (Group) Company (China Shipping) will be restructured.”
Xinhua said a joint reply from the chairmen of the two companies to questions it posed contended the move will improve the competitive edge of major Chinese shipping lines by realizing economies of scale, as the global shipping industry faces a long-term downturn.
“Both COSCO and China Shipping have struggled to be competitive, with overlapping investments, high costs, similar business operations and industrial chains,” COSCO chief Ma Zehua and China Shipping’s Xu Lirong said in his reply.
It appears trading in the stocks of the two companies remains halted, and it is remains unclear how the deal will
be structured.
According to ocean carrier schedule and capacity database BlueWater Reporting,
COSCO is the sixth largest container shipping line with an operating
fleet capacity of 859,790 TEUs and and CSCL is the seventh largest with
827,602 TEUs of capacity. With a combined 1,687,392 TEUs of capacity, the merged COSCO/CSCL group
would surpass Hapag-Lloyd as the fourth-largest carrier worldwide, behind Maersk, MSC, and CMA CGM, which earlier this week announced plans to acquire NOL and its APL container shipping subsidiary.
In addition to their container operations, COSCO and China Shipping are also involved in a wide variety of other shipping and logistics activities.
COSCO has annual freight volumes of over 400 million tonnes, with more than 700 ships whose total deadweight reaches 51 million tons. China Shipping has more than 530 ships with 36 million tons of deadweight.
One big uncertainty is whether the combined companies will join the Ocean3 Alliance to which China Shipping belongs or the CKYHE Alliance of which COSCO is a member.
As part of the deal, COSCO’s terminal affiliate COSCO Pacific will acquire all the issued shares of China Shipping Ports Development, Ltd. (CSPD), the terminal arm of China Shipping Container Lines.
Cosco Pacific said it will also sell Florens Container Holdings to China Shipping’s subsidiary China Shipping (Hong Kong) Holdings Co., Limited. Florens has about an 11 percent share of the container lessor fleet.
In November, Triton and TAL International announced they will merge and become the largest container lessor with a 25 percent market share. Even after the merger, however, only the combined Triton/TAL, Textainer (18 percent share), and Seaco (12 percent share) will be larger than Florens.
On a pro forma basis, the capacity of the terminal operations of the two companies would be 103.8 million, according to Cosco Pacific.
How the combined companies rank globally with other terminal operators depends on how they are measured.
“On the basis of the total annual designed handling capacity in the world’s container terminal market in 2014, the total global market share of the terminals in which the Group is interested would, as a result of the Acquisition, increase from 7.7 percent to 10.3 percent, making the Group the world’s largest container operator,” COSCO Pacific explained. “On the basis of total throughput in the world’s container terminal market in 2014, the total global market share of the Group post the Acquisition would increase from 9.9 percent to 11.6 percent in terms of total throughput, the 2nd largest in the world, while its global market share in terms of equity throughput would increase from 2.8 percent to 3.6 percent, the 6th largest globally.”
COSCO Pacific said, “the global container terminals industry outlook is expected to have sustainable volume growth. By acquiring a basket of terminals assets, the Group gears up to increase its global network and market share and advances its leading position in global container terminals industry. With the enlarged terminals portfolio from the acquisition and the management expertise of CSPD, the Group is well-positioned to expand and optimize its terminals network by ‘Going Global’ and to make new investments in the future with a view to further strengthening its global competitiveness.
“Following the acquisition, with an enlarged market share and more balanced geographic coverage, the Group is expected to be well-positioned to benefit from the potential opportunities in the Greater China market,” it added.
China’s State Council approves restructuring of COSCO, CSCL
