Cosco, CSCL merger gets nod to create world’s fourth biggest box line

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Costco_Building,_BeijingChina’s two biggest shipping conglomerates—China Cosco and China Shipping Container Lines (CSCL)—are officially merging following approval by the Cabinet, a development that will produce the world’s largest oil tanker fleet and the fourth biggest container line.

“With the approval of the State Council, the China Ocean Shipping (Group) Company (COSCO) and the China Shipping (Group) Company (China Shipping) will be restructured,” the State-owned Assets Supervision and Administration Commission (SASAC) said in a one-sentence statement, as reported by Xinhua, China’s national news agency.

The realignment is expected to start next year and to be completed within one year, according to the chairmen of the two companies, Cosco chief Ma Zehua and China Shipping’s Xu Lirong.

Once the restructuring is complete, China Cosco, a listed arm of Cosco, will become the world’s fourth biggest container line, with 8% of global container freight capacity, they added.

The move will improve the competitive edge of major Chinese shipping lines by realizing economies of scale, as the global shipping industry faces a long-term downturn, they added.

“COSCON and CSCL will restructure and integrate in order to become one of the top four container shipping giants in the world. We will combine our quality resources to achieve synergies and provide better service,” said CSCL in an official release December 11 on its website.

“The restructuring and consolidation will create one of the world’s four largest container lines companies, with a fleet of 288 container ships, of which 84 ships are larger than 8,000 TEUs, and total shipping capacity of approximately 1.6 million TEUs,” it added.

Cosco has an annual freight volume of over 400 million tonnes, with more than 700 ships whose total deadweight reaches 51 million tonnes. China Shipping has more than 530 ships with 36 million tonnes of deadweight, Xinhua reported.

Both Cosco and China Shipping have struggled to be competitive, with overlapping investment, high costs, and similar operations and industrial chains.

Four listed firms under the two groups will have their assets reshuffled to focus on different areas.

China Shipping Development of China Shipping will primarily engage in shipping oil and liquefied natural gas. It will have the world’s largest oil tanker fleet by capacity.

China Shipping Container Lines, China Shipping’s box shipping liner, will transform into a provider of financial and other services related to shipping, while Cosco Pacific will focus on terminal operations.

Tens of thousands of employees will be involved in the reshuffle, but there will not be any redundancies, said the report.

The merger will reportedly be China’s most complicated restructuring deal ever, involving four listed firms and over 70 asset transactions.

Both China Cosco and CSCL have seen their financial performance deteriorate since the global financial crisis. Overcapacity in the underlying markets didn’t help either, but their individual operating and financial performance has been far worse than their peers. Between them, the two carriers have lost US$911 million in operating losses from container operations in the previous five years, according to an analysis by Drewry Maritime Research.

Photo: Peter Morgan