Drewry: COSCO, CSCL Merger Could Cause Chain Reaction in China

Photo: Sheila Fitzgerald / Shutterstock.com
Photo: Sheila Fitzgerald / Shutterstock.com

 

By Drewry Shipping Consultants

Having blocked the P3 Alliance on competition grounds, China could now merge China Cosco and CSCL and, as a result, cause a domino effect on existing carrier alliances and further carrier mergers in Asia damaging to industry competition.

Shares in China Cosco, China Shipping Development (CSD) and China Shipping Container Lines (CSCL) were suspended from trading on Monday 10 August following news reports that the Chinese government is preparing to merge these state-owned shipping entities.

Details remain patchy but it seems Cosco and CSCL are part of a much broader effort to consolidate China’s state-owned enterprises that was announced earlier this year. Leading executives from the companies are understood to be working on a preliminary plan to be released before the year is out.

There is a hint of double-standards about this story as it was Chinese competition regulators that blocked the proposed P3 alliance between the world’s three largest carriers Maersk Line, MSC and CMA CGM in 2014. It seems now that China is happy for the number of major carriers to shrink by one.

In other words, operational alliances, which arguably maintain competition and help reduce costs, are the subject of misdirected criticism by some regulators and some shipper groups. A more serious competition risk – the reduction in the number of carrier competitors (APL is also up for sale) – seems to be encouraged by governments.

In the container market, Cosco and CSCL currently sit in sixth and seventh place respectively in the rankings of carriers by operated teu. 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%.

Source: Drewry Shipping Consultants. Read full article here.