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Container Shipping & Trade

Container Shipping & Trade

COSCO head and shoulders above Ocean Alliance partners with OOCL merger

Wed 20 Jun 2018

COSCO head and shoulders above Ocean Alliance partners with OOCL merger
COSCO will dominate the Ocean Alliance if its merge with OOCL goes through Frans Berkelaar

If COSCO’s merger with OOCL goes through as expected, it will dominate its alliance and significantly increase its power in the container ship sector 

COSCO will dominate the Ocean Alliance in terms of size if the merger with OOCL concludes by the end of June this year, and it will narrow the gap between its position and Maersk.

Post takeover, COSCO will own 49% of the Ocean Alliance fleet by value, 54% by TEU and 51% of the vessels by number. It will be head and shoulders above its Ocean Alliance members, with 225 vessels at 1.76M TEU (comprising of 164 provided by COSCO and 61 by OOCL). This dwarfs CMA CGM and Evergreen, which have fleets consisting of 97 vessels at 769,967 TEU and 94 vessels at 467,268 TEU, respectively.

The takeover will see COSCO inch closer to Maersk Line, the world’s biggest shipping line. VesselsValue staff writer Court Smith commented “If the merger of COSCO and OOCL concludes as expected, it will bring COSCO closer in capacity to the Maersk Group in terms of total TEU capacity.”

The gap has certainly narrowed between the two, with COSCO and OOCL’s combined fleet of 225 vessels creeping up on Maersk’s 311 vessels at 2.27M TEU. And the gap will narrow even more, when COSCO’s newbuilding orderbook is taken into account. Its 370,534 TEU on order will push its fleet to 2.13M TEU. Maersk’s newbuilding orderbook is considerably smaller than COSCO’s, at 96,016 TEU. Once added, they will boost its fleet to 2.37M TEU. Interestingly, OOCL has nothing on its orderbook.

Mr Smith commented “COSCO’s aggressive ordering has already nudged the carrier into the number two slot when ships yet to be delivered are considered, but the addition of a large number of ships on the water will move them firmly into the number two position behind the combined Maersk Group.”

Moving back to the Ocean Alliance, CMA CGM and Evergreen also have healthy orderbooks. CMA CGM’s is very close to, but still behind, COSCO’s at 18 vessels at 241,063 TEU. Evergreen’s orderbook stands at 25 vessels at 231,128 TEU.

He emphasised that this merger is a “significant step that increases COSCO’s power in the container markets”.

Mr Smith noted that the fleet profiles of OOCL and COSCO are fairly similar in terms of age and size breakdowns. He said it looked like some of the older COSCO ships in the Atlantic and Pacific Basin might be candidates for replacement by age and size, which would help moderate overcapacity on the primary routes.

The takeover of OOCL by COSCO will see the biggest impact in intra Asia, while the footprint in Asia-Middle East trade will also rise significantly, said UK’s Drewry Shipping Consultants.

The consultancy dubbed OOCL the “perfect bride” for its good track record for above-average profits in a challenging market and a reputation for being a very well-run company – therefore retaining the management team, processes and systems “is a wise move and could be of enormous value to COSCO,” it said.

It added “From a marketing perspective the acquisition of OOCL will enable COSCO to broaden its customer base, having previously being perceived, rightly or wrongly, as China-centric. OOCL’s reputation and history with global shippers will provide COSCO with an inroad to a wider selection of big western shippers with volume.”

The OOCL/COSCO deal is important in other ways: it is likely to signal the end of the recent consolidation activity in the container ship sector, because the size of the top seven box shipping lines would make it difficult for them to obtain approval for future mergers.

 

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