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21 Jun 2017
Rumours ripe over COSCO acquiring OOCL, news floats "it is almost a certain deal"
Credit : TSO Bureau

"* China's COSCO Shipping may acquire Hong-Kong based Orient Overseas Container Line in the near future, The Loadstar reported Tuesday. * Talks of COSCO, CMA CGM and Evergreen considering the $4 billion asking price allegedly began as early as January, despite all three companies denying they were in talks. OOCL later joined all three carriers in the Ocean Alliance in April. * Despite the rampant forming of affiliations as a result of the industry downturn, a fissure between those with high market share—such as Maersk with 19% and those without it, such as OOCL with 3.3% — has appeared, causing further adjustments among the alliances, such as Maersk's purchase of Hamburg Sud. As shipping carriers continue a consolidation spree, the likelihood of COSCO's purchase of OOCL demonstrates that industry consolidation is anything but complete. COSCO and OOCL are ranked No. 4 and No. 7 respectively on the Alphaliner Top 100 list, showing that even the largest carriers are not exempt from the industry's financial struggles. The mergers and alliances further indicate the shipping industry's desire to drive down costs and deliver more products with fewer ships. Some shipping lines are pursuing M&As in order to up their revenue: Maersk Line, for example, reported a $1.9 billion loss during fiscal year 2016, then announced its plan to acquire Hamburg Sud, a German container line, in December. This may be COSCO's strategy, as the company experienced a $9.9 million loss in fiscal year 2016. Consolidation may keep some carriers afloat and drive down operating costs in the short run, but in the long run, a decline in competition could hike shipping costs for suppliers and consumers. In January, reports surfaced of a $4bn price tag put on the container line by OOIL as the Chinese state-owned line, French carrier CMA CGM and Taiwanese line Evergreen were touted as potential bidders. However, all parties denied at the time that they were in talks. Subsequently OOCL joined with Cosco, CMA CGM and Evergreen in the Ocean Alliance and saw volumes and revenues improve in the first quarter, year on year. But the gap between the top tier of carriers has widened after a spate of M&A activity in the past two years, leaving OOCL with just a 3.3% global market share, according to Alphaliner data, competing against Maersk Line’s 19% (including Hamburg Sud), MSC’s 14.7%, CMA CGM’s 11.1% and Cosco’s 8.3% share of the container market. Nevertheless, OOCL has done what it can to match its bigger peers and in 2015 placed an order with Samsung Heavy Industries for six 20,000 teu-plus ultra-large container vessels (ULCVs). In the frenzied liner M&A activity – induced by heavy industry losses – Cosco was merged with compatriot state-run China Shipping Container Lines; CMA CGM swallowed up Neptune Orient Lines; Hapag-Lloyd merged with UASC; and Maersk Line is in the process of acquiring Hamburg Sud. OOIL’s shares surged by around 30% in January on expectations of a deal to sell OOCL, which, analyst Drewry suggested, would be a “good buy”, given its long track record of producing above par results, even during industry downturns. COSCO's market share is currently 8.3%; with the addition of OOCL's 3.3%, that will rise to 11.6%, just ahead of CMA CGM’s 11.1% and somewhat behind MSC’s 14.7%. The added share will markedly improve COSCO's standing, particularly when factoring in the pending delivery of six 20,000-TEU plus ultra-large container vessels (ULCVs) that OOCL will bring to the table, which the carrier ordered from Samsung in 2015."
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