China’s shipping giants plan to create the fourth-largest container line, a deal that could touch off industry consolidation
The Chinese government is expected to approve by January a merger between its two state-owned shipping giants, creating the world’s fourth-largest container-shipping line, people with knowledge of the matter said Wednesday.
China Ocean Shipping Co., or Cosco Group, and China Shipping Group Co. have been working out a deal for months, centered on combining the two companies’ container-shipping units. They are also looking into merging tanker, dry-bulk and port operations, the people said.
The tie-up is part of Beijing’s strategy to consolidate state behemoths in many industries so they compete effectively with international peers. In creating a global shipping giant, a merger could also touch off consolidation in the highly fragmented world of container shipping.
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Discussions in China have dragged on as the companies look for a way to combine overlapping operations without eliminating jobs, which would make winning government approval difficult.
“The thumbs up from Beijing could come by the end of the year or in January, and a formal announcement of the merger will follow,” one of the people said. “It’s been a complicated matter, with one of the priorities being to avoid any layoffs from the merger overlaps.”
The value of the merger could exceed $20 billion depending on which units combine, the person said.
Over the past five years, the container units of both companies have incurred losses totaling $911 million, according to London-based shipping analyst Drewry Shipping Consultants Ltd.
Cosco Container Lines operates 175 container vessels and China Shipping Container Lines operates 156, making them the world’s sixth- and seventh-largest container companies, handling about 8% of global volumes. China Shipping Group controls CSCL.
The size of the merged entity would trail only Denmark’s A.P. Møller-Maersk A/S, Geneva-based Mediterranean Shipping Co. and France’s CMA CGM SA.
Container-shipping rates have tumbled as available ship capacity exceeds demand by 30%. On some routes, freight rates barely cover fuel costs.
Mergers are rare, but at least a handful appear to be in the works. CMA CGM and Maersk are in talks with Singapore’s Neptune Orient Lines Ltd., with the French carrier the favorite to buy the company. “I think we are standing in front of a new wave of consolidation for the first time in 10 years because the market is very weak,” Maersk Line Chief Executive Soren Skou said in an interview.
China is also pushing two other shipping companies, China Merchants Energy Shipping Co. and Sinotrans & CSC Holdings Co., to merge some units, though talks are still at an early stage, a person familiar with the talks said.
A combination of China Merchants and Sinotrans would double their revenue, creating a significant logistics-service competitor in China. The merged entity would also become the world’s biggest tanker company, according to Citi Research.
Some analysts say consolidation among China’s shipping lines won’t make them more efficient or profitable, as a larger state-controlled company would have even less incentive to change.
“This is not a plain-vanilla merger of two companies, but of two large companies, where the large get larger with preferential access to cargoes and a quasi-sovereign blessing,” said Basil Karatzas, whose New York-based Karatzas Marine Advisors & Co. works with some of the world’s biggest shipping companies.
Source: The Wall Street Journal
Source: The Wall Street Journal