CHINA’S MEGA SHIPPING GROUP IS NOW OFFICIAL

Greg Knowler, Senior Asia Editor | Feb 18, 2016 6:03AM EST

Journal of Commerce (JOC)  Thursday February 18, 2016

CHINA COSCO SHIPPING CORPORATION was officially launched in Shanghai, bringing together the mainland’s two largest carriers and amassing a huge armada of container ships, bulk carriers and tankers that far out strip those of its rivals.

The combined fleet owned by the new carrier, a merger of China Cosco and China Shipping Container Lines, will be 832 vessels, almost three times those owned by Maersk Line and almost double their value at $21.9 billion, according to VesselValue.com. 

In fact, if the owned fleets of Maersk, MOL and NYK Line were added together, they would still be about 80 ships short of those owned by China Cosco Shipping. Although Maersk Line, with a container fleet comprising 285 owned vessels and 305 chartered ships remains the world's largest container carrier.

At the Shanghai launch, scale was very much on the mind of Xu Lirong. The chairman of China Cosco Shipping told reporters that mergers were the key to riding out the worst downturn the shipping industry has experienced since the financial crisis.

"Our two firms had similar operations, we did not have many advantages in the various sectors we operate in and could not count on economies of scale. The merger is crucial to the development of both companies,” Reuters reported Xu saying.

Beijing was the driving force behind the merger of China’s two biggest shipping lines, trying to streamline and improve the efficiency of the giant state-owned entities as the country moves into a period of slowing exports and increasing domestic consumption. 

The merger involves a complex set of asset swaps worth more than $9 billion and financial restructuring that will see some units undergoing a complete metamorphosis of their operations. China Shipping Container Lines, for instance, will cease to be a container carrier and become a ship leasing and finance company.

In a filing with the U.S. Federal Maritime Commission in late January, Cosco asked the FMC for permission to provide a universal notice to the commission and to customers that would avoid the need to file an amendment for each of the 700 China Shipping service contracts that Cosco will renumber and republish when it takes over the group’s container transportation business.

In addition to the universal notice, Cosco proposes to provide each shipper with an electronic notice of the change. Cosco also seeks a waiver to avoid amending each contract with the new tariff number, by publishing a notice of the change in the existing China Shipping and Cosco tariffs.

The east-west alliances are also facing restructuring and according to Alphaliner, CMA CGM and Cosco areplanning to create a new vessel-sharing alliance that could include Evergreen and OOCL. 

CMA CGM now is a partner with CSCL and United Arab Shipping Co. in the Ocean Three Alliance. Cosco is part of the CKYHE Alliance, along with “K” Line, Yang Ming, Hanjin and Evergreen. APL and OOCL are in the G6 along with Hapag-Lloyd, Hyundai, NYK and MOL.

A new alliance would challenge the 2M Alliance of Maersk Line and Mediterranean Shipping Co., the two largest container carriers, and would distance the new alliance from weaker members of other alliances, Alphaliner noted.