Reflecting on the Tungs’ stunning sale of OOCL

Reflecting on the Tungs’ stunning sale of OOCL

Some stories in this shipping game are harder than others to remain objective about. The sale of Orient Overseas Container Line (OOCL) to Cosco Shipping is a case in point.

For eight and a half years I lived in Hong Kong, regularly popping by 25 Harbour Road in Wan Chai to hear about OOCL’s latest IT wizardry or their financial results, which tended to always be above their peers.

I was fortunate enough to go onboard the OOCL Shenzhen, which when it launched in April 2003 was a pioneering, breakthrough of a ship – at 8,063 teu it incorporated design tweaks that helped usher in the mega boxship era.

Coming full circle, OOCL is once again breaking new ground in the form of the OOCL Hong Kong, launched this year to much fanfare and assuming the mantle of largest boxship afloat at some 21,413 teu capacity.

OOCL has been at the forefront of the digital revolution sweeping container shipping.

Cosco, conversely, has had to play catch up for much of this century. Questionable management decisions in the previous decade brought the group as a whole to its knees. Losses at Cosco were on a scale few others could withstand. Its merger with China Shipping was by no means smooth. And yet through all of this, it is so vital to remember, state-run Cosco marches to a very different drumbeat.

Profits are less important than scale – and Cosco, with the world’s largest boxship orderbook, and OOCL soon to be added to its empire, is zeroing in on the endgame. Said goal is to overhaul might Maersk in to top spot by 2030.

The Tung family, which controls just under 70% of OOCL’s listed parent, have well documented ties with the mainland. They fled Shanghai as the Communists took over, becoming a founding member of the Hong Kong Shipowners Association. In the mid-1980s, it was Beijing who bailed OOCL out. In 1997, Tung Chee-hwa was appointed by Jiang Zemin as Hong Kong’s first leader post-reunification.

Early in to the 21st century saw OOCL sell Cosco its exclusive – and much vaunted – IT systems. And of course, come this April Cosco and OOCL started working together under the new container grouping, the Ocean Alliance.

The Tungs, for whom Andy, the current OOCL CEO, represents the third generation at the iconic line, have always been super savvy at extracting maximum bucks for any deal they do. Arguably, Cosco has been the exact reverse.

Back in 2006, I recall congratulating Nick Sims, OOCL’s CFO at the time, for pulling off a stunning coup in selling four small-ish North American terminals to a Canadian pension fund for $2.4bn, a deal that back then represented a high water mark in terminal sales. Likewise, getting Cosco to agree to a $6.3bn price – or HK$78.67 per share – is simply staggering. Chapeau, as they say in these parts where I currently reside. For the whole of 2016, the OOIL share price never went above HK$33, and its average price for the past five years has been under HK$50.

It is this brilliant hard edged financial decision making that has singled OOCL out from most of its competitors for so long, and is likely to go AWOL as the Tungs pack their luxury bags and hand the keys to Harbour Centre over to Cosco.

For the local shipping community there will be sadness at news of the sale – even though most executives there will have had months to digest this very well telegraphed deal. In a way OOCL’s sale will be akin to when APL was sold to CMA CGM a couple of years back, a sale that one member of parliament in the Lion Republic compared to losing a child.

For all Cosco management’s pledges that the sale will help not hinder Hong Kong’s position as an international maritime centre, I can’t help feeling that this is one chalked up for Shanghai over the former British colony.

Container shipping’s stunning consolidation continues apace.

Sam Chambers

Starting out with the Informa Group in 2000 in Hong Kong, Sam Chambers became editor of Maritime Asia magazine as well as East Asia Editor for the world’s oldest newspaper, Lloyd’s List. In 2005 he pursued a freelance career and wrote for a variety of titles including taking on the role of Asia Editor at Seatrade magazine and China correspondent for Supply Chain Asia. His work has also appeared in The Economist, The New York Times, The Sunday Times and The International Herald Tribune.

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