Drewry, UK’s maritime analysts have reported that the possible merger of both Chinese state owned container carriers, China Shipping Container Lines (CSCL) and Cosco could have a very serious impact on running carrier alliances and future shipping lines mergers.
The analyst believes that although the merger financially would make sense for both Chinese container carriers, it could also increase competition amongst carriers which could lead to realigning of current alliances. Share of both Chinese carriers were already suspended from trading on August 10th.
The last five years both State owned carriers faced losses amounting to us dollar 911 million. This situation looks little bit uncomfortable for both Cosco and SCSL competing with each other on the same trade lines while facing operational losses.
The Drewry report added: “A merger would likely entail much better financial efficiencies and prudent use of the capital. The combined entity will be able to get access to better financing synergies from banks and capital markets.”
In comparison the three Japan’s container lines, MOL, NYK Line and ‘K’ Line, lost us dollar 550 million cumulatively over the last five years in EBIT while Korean shipping lines, HLMM and Hanjin Shipping only lost us dollar 400 million.
Nevertheless, the potential merger would shake up the state of play involving the four key alliances between container lines since both companies are in separate alliances. Cosco is part of the CKYHE while CSCL is part of the Ocean Three Aliance, and both together are contributing around one quarter of their alliance’s fleet in teu on the East-West trades.
The loss of CSCL would leave the Ocean Three with only 13% market share and the analysts speculated that this may explain why fellow member, United Arab Shipping Company (UASC) is the current industry favourite to acquire American President Lines (APL).
Drewry also noted the “double standards” in the Chinese competition regulators’ vetoing of the potential P3 alliance last year while its authorities appear happy for the Cosco-CSCL merger to proceed.
The analyst considers a decrease in the number of competitive shipping lines to be a “more serious competition risk” than operational alliances.