Shipping Consolidation in Asian Shores
The global shipping industry consolidation appears to be picking up, with much of the activity centering on Asia, reports Nikkei. The overcapacity and weaker global trade have fueled talk of a shakeout in the industry.
CMA CGM is in “exclusive” talks with Neptune Orient Lines’ (NOL) largest shareholder, Temask, for the purchase of its APL container liner business. Over in China, the top two state-owned operators are in the final stages of merger talks.
NOL announced that CMA CGM had been granted exclusive negotiating rights, through Dec. 7. Singaporean sovereign wealth fund Temasek Holdings, which owns 68% of the shipping company, has been seeking a buyer since early summer.
The French suitor beat Denmark-headquartered A.P. Moller-Maersk, the world leader, for pole position. The industry is watching closely whether it can strike an agreement before the exclusivity period expires.
Merger talks between state-owned Chinese shipping giants China Ocean Shipping Co., or Cosco Group, and China Shipping Group Co. are now in advanced stages and are focused on combining the groups’ container-shipping units, according to people familiar with the matter.
According to WSJ, if a deal is reached, a combination would create the world’s fourth-largest container operator by capacity and further a push by Beijing to force some state-owned companies to consolidate. It could also help kick start a long-awaited wave of consolidation outside of China in the highly fragmented, container-shipping industry.
Drewry explains that the rationale for a merger is entirely sound from a financial viewpoint as both China Cosco and CSCL have seen their financial performance deteriorate materially since the global financial crisis and have seen major value destruction for stakeholders.
The Chinese government ordered a new giant shipping merger between the state-owned companies China Merchants Energy Shipping (CMES) and Sinotrans, which is part from the plan of reform and improvement of the maritime transport sector.
The two companies already are working together, as in 2014 they created a joint-venture China VLCC, intended for operation of supertankers.
Container shipping, which moves the vast majority of the world’s manufactured goods, is a highly fragmented industry marred by what analysts estimate is a capacity glut of around 30% above demand.
Industry executives have called for years for the industry to consolidate, but mergers are rare. Many owners are either sovereign-wealth funds or deep-pocketed families with emotional ties to their ships that can absorb losses for years on hopes of a sustained recovery cycle, last seen between 2000 and 2008.
