Future of container alliances thrown up in the air by Chinese merger talk

Future of container alliances thrown up in the air by Chinese merger talk

The merger talk between two state-run shipping conglomerates Cosco Group and China Shipping Group has caused a stir in the shipping world. Among the most vexing issues brought around this merger, due to be completed in 2017, is what will happen to the firms’ participation in container alliances. Cosco and China Shipping are currently in two different alliances – CKYHE and Ocean3 respectively.

CKYHE was established by Cosco, K Line, Yang Ming and Hanjin with Evergreen joining latterly.  Ocean3 is the world’s newest container alliance, made up of CMA CGM, UASC and China Shipping.

“It’s hard to say if the merger between Cosco and China Shipping would have much influence on the international container trade scene considering the volatility of the sector, the long restructuring process and the restructuring mode, but if they do merge together, they will definitely have a bigger say in the sector,” said Zhen Hong, an expert at Shanghai International Shipping Institute.

Combined, Cosco/China Shipping would have a fleet of 1.57m slots, placing it fourth in the world rankings, according to data from Alphaliner.

“It is a little early to comment on the exact outcome of a possible merger between Cosco and China Shipping,” Jørn Hinge, president and chief executive officer of UASC, told Splash today. “However UASC has a very good relationship and cooperation with China Shipping as well as a number of long term agreements in place, therefore we expect the cooperation to continue, possibly through the new merged identity, for many years to come, providing quality services to all our customers.”

Some officials connected to CKYHE and Ocean3 members also said they are taking a wait-and-see attitude regarding the merger when contacted by Splash.

“We don’t know how long it will take and when it will be finished, so we have to wait and see,” said a Yang Ming spokesperson for example.

The merger talk has also created anxiety between employees in the two groups. Some mid-level officials told Splash that they are worried about the possible reduction in managment roles, considering the unsuccessful merger between Sinotrans and Changjiang Shipping Group.

The potential merger between Cosco and China Shipping is part of a bigger campaign led by the central government to make all large state-owned enterprises (SOEs) more profitable, the South China Morning Post has reported.

The SOEs will be able to make more of their own business decisions in operations especially in human resources management while the State-owned Assets Supervision and Administration Commission (SASAC) will no longer directly intervene in the running of most SOEs.

According to an SOE executive, the new companies were modelled on Temasek, Singapore’s government-owned investment company. Under the new system, SOEs would be under the pressure to perform and be more attractive to private sector investment.

Finally, sources in both Cosco and China Shipping have intimated to Splash that the merged entity could be headquartered and listed in Singapore, in a bid to pursue overseas expansion and get over the intense domestic competition that has characterised the relationship between the two groups over the past two decades. The pair formed a joint venture company – China Ore Shipping – in Singapore this May to operate very large ore carriers bought from Brazilian miner, Vale.

With additional reporting by Katherine Si

Jason Jiang

Jason worked for a number of logistics firms following his English degree, then switched this hands-on experience to writing and has since become one the most prolific writers on the diverse China logistics industry writing for a host of titles including Supply Chain Asia, Cargo Facts and Air Cargo Week. Jason’s access to the biggest shippers with business in China has proved an invaluable source of exclusives.

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