Obstacles lie in wait for China’s mega shipping merger

Obstacles lie in wait for China’s mega shipping merger

The potential mega merger between two state-run shipping conglomerates, China Shipping Group and Cosco Group, which could be the largest ever merger in China’s shipping industry, has drawn varied opinions on its impact.

Industry observers reckon the merger would be much more complex than the tricky merger between the other two state-run shipping groups, Sinotrans and Changjiang Shipping Group.

The combined assets of China Shipping Group and Cosco Group is about RMB530bn ($83.8bn) and half of the assets are based outside the mainland. The two groups also control eight listed companies in total.

Liu Bin, director the World Economic Research Institute at Dalian Maritime University, thinks there are three possible ways of the merger.

First, a professional integration – the two groups integrate their bulk, container, and tanker assets separately, to expand their market shares and global ranks respectively.

The second possibility is that the two groups merge as one super group, which will have a larger scale of assets to compete in the market.

The final avenue is for the two groups to integrate the whole industrial value chain and make investments in both upstream and downstream companies to generate serious economies of scale.

Liu reckons that the second and third way are more advantageous.

A team of five – three from China Shipping and two from Cosco – are currently studying the potential restructuring and will report on their findings to Beijing within two months.

Meanwhile, Cai Jiaxiang, vice director of the China Shippers’ Association, told Splash: “I don’t think the merger will bring much influence to the cargo owners in China and the international shipping world. The combined capacity of China Shipping Group and Cosco is still much less than Maersk, and their fleet only accounts for less than 10% of world’s total capacity, while the overcapacity problem still exists.”

Yang Hua, vice secretary general of the Liaoning Shipowner Association, said the merger probably needs a long time to show its full effects. “The merger might improve the competitiveness and profitability of the two groups in the future, but don’t forget the restructuring costs could be very high too,” he said.

Splash is providing full coverage of this potential mega merger from all angles all this week.

 

With additional reporting by Katherine Si.

Jason Jiang

Jason is one of the most prolific writers on the diverse China shipping & logistics industry and his access to the major maritime players with business in China has proved an invaluable source of exclusives. Having been working at Asia Shipping Media since inception, Jason is the chief correspondent of Splash and associate editor of Maritime CEO magazine. Previously he had written for a host of titles including Supply Chain Asia, Cargo Facts and Air Cargo Week.

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