Dive Brief:
- China's COSCO Shipping may acquire Hong-Kong based Orient Overseas Container Line in the near future, The Loadstar reported Tuesday.
- Talks of COSCO, CMA CGM and Evergreen considering the $4 billion asking price allegedly began as early as January, despite all three companies denying they were in talks. OOCL later joined all three carriers in the Ocean Alliance in April.
- Despite the rampant forming of affiliations as a result of the industry downturn, a fissure between those with high market share—such as Maersk with 19% and those without it, such as OOCL with 3.3% — has appeared, causing further adjustments among the alliances, such as Maersk's purchase of Hamburg Sud.
Dive Insight:
As shipping carriers continue a consolidation spree, the likelihood of COSCO's purchase of OOCL demonstrates that industry consolidation is anything but complete. COSCO and OOCL are ranked No. 4 and No. 7 respectively on the Alphaliner Top 100 list, showing that even the largest carriers are not exempt from the industry's financial struggles.
The mergers and alliances further indicate the shipping industry's desire to drive down costs and deliver more products with fewer ships. Some shipping lines are pursuing M&As in order to up their revenue: Maersk Line, for example, reported a $1.9 billion loss during fiscal year 2016, then announced its plan to acquire Hamburg Sud, a German container line, in December. This may be COSCO's strategy, as the company experienced a $9.9 million loss in fiscal year 2016.
Consolidation may keep some carriers afloat and drive down operating costs in the short run, but in the long run, a decline in competition could hike shipping costs for suppliers and consumers.
COSCO's market share is currently 8.3%; with the addition of OOCL's 3.3%, that will rise to 11.6%, just ahead of CMA CGM’s 11.1% and somewhat behind MSC’s 14.7%. The added share will markedly improve COSCO's standing, particularly when factoring in the pending delivery of six 20,000-TEU plus ultra-large container vessels (ULCVs) that OOCL will bring to the table, which the carrier ordered from Samsung in 2015.
