Asia/Pacific News
Drewry: COSCO-CSCL Merger Would Leave "Major Void" in a Container Alliance, Damage Competition on East-West Trades
Drewry Shipping Consultants Limited (Drewry) says if a rumoured merger between China Ocean Shipping (Group) Company (China COSCO) and China Shipping Container Lines Co., Ltd. (CSCL) goes ahead, it could cause a "domino effect" on carrier alliances and future carrier mergers in Asia, with the potential to be damaging to industry competition.
Alphaliner currently ranks China COSCO and CSCL as the sixth and seventh largest carriers by capacity respectively, and a merger would see them jump ahead of Hapag-Lloyd and Evergreen Line (currently 4th and 5th respectively) into fourth place behind CMA CGM Group.
"Based on today's fleet the combined entity would comfortably move into fourth place with a total fleet in excess of 1.5 million TEU, giving a world share of around 8 percent," states Drewry.
Drewry notes that a merger would also result in changes to alliances that participate on the East-West trades.
"A merger of the Ocean Three [CMA CGM, UASC, CSCL] and CKHYE [China COSCO, K-Line, Hanjin, Yang Ming, and Evergreen] alliances would mean a combined market share above 40 percent and unlikely to be approved by regulators.
"Instead, both the CKYHE and Ocean Three will be faced with a major void to fill were they to lose either COSCO or CSCL to the other carrier group."
As of July 2015 China COSCO and CSCL made up about a quarter of deployed vessels for their respective alliance in the East-West container trades.
"Depending on which alliance wins or loses its Chinese member, the Ocean Three alliance and the CKYHE alliance will decline to a market share of just 13 percent or rise to a market share of 28 percent."
Merger?
As to the question of whether the merger will take place, Drewry says that it "makes little sense" as to why China has kept the two carriers separate for so long.
The carriers have also made a combined operating loss of $911 million (EBIT) over the last five years, a performance Drewry notes as being far worse than their peers, so a merger would allow the carriers to make some much needed financial synergies.
"There of course remain many obstacles to the merger taking place, but assuming the will of the Chinese government is strong and does not waver, there seems every chance that it will happen at some point in the near future," said Drewry.
Earlier this month Ship & Bunker reported that merger speculation heated up after large portions of both companies ceased share trading "pending an announcement."
