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The geopolitical implications of OOCL as next domino (post Hamburg Süd)

Sounds like a Cold War title. But that’s just it. It’s not so much that Trump is elected that warrants a need to look at ‘trade wars’. We will likely get some growing trade friction, yes. But what we have in container shipping is a real China brute force dominance chasing Maersk dominance scenario getting set up following Maersk’s purchase of Hamburg Süd.

Evergreen and OOCL are getting seen as the next liners to get merged, which tends to imply Yang Ming and Wan Hai could get mixed into the pot somewhere. I tend to think Wan Hai could do just fine on its own for the time being. Evergreen has had weak hands at corporate HQ, we have seen, but is also a bit of a political hot potato despite developments in South Korea and Japan. And, of course, we have all watched rejected overtures for OOCL over the years.

But OOCL now is getting squeezed nearer to a head at a time when the chips have been completely rearranged from 10 to 20 years ago.

Hamburg Süd and the Oetker family was a kindred spirit to OOCL and the Tung family. And, subject to regulatory approvals, this will now be consumed into the Maersk collective. Which is a good thing for Maersk and market.

OOCL is smaller than Evergreen, but could prove a more interesting prize for investors who trade shares, as we saw on Friday already with an 8% upward move (which did not move right at market open!). There is value to be unlocked somewhere within the ships, ports, IT and logistics (but remember to exclude properties and some of the cash).

The Cosco-CSCL and CMA CGM-APL domino is set up already and China has ignored basic capitalist laws with Cosco subventions at every level and every stage. Cosco would not be a good integrator of OOCL. But CMA CGM would, if it wanted to figure out how to hedge the network overlaps between CMA CGM, APL and OOCL. Once achieved, we would have Cosco and its new friend, CMA CGM, set up comfortably in the global top two or three. The global systemic risks to global shippers, retailers and governments would be that much greater. And China would have that much of a fatter finger on the global trade system! Some might like that. Some might not.

Charles de Trenck

Charles de Trenck began his study of China in 1980 and eventually got in on the ground floor in China's equities boom of the early 1990s through work in Hong Kong and China shares. By the mid-90s he shifted to containerised trade, ports and shipping, eventually leading Citi to #1 rankings in Asia transport equities.


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