Tuesday, April 19, 2016

CONTAINER LINES SEEK VARIOUS GOVERNMENT APPROVALS FOR ALLIANCES

Shipping Lines Take New Global Alliance to Regulators

Newly-merged China Shipping Cosco Group and carriers in Asia and Europe are preparing a lineup of five operators to share capacity


Chinese regulators have already approved the Cosco-China Shipping merger which resulted in a new entity called China Shipping Cosco Group. ENLARGE
Chinese regulators have already approved the Cosco-China Shipping merger which resulted in a new entity called China Shipping Cosco Group. Photo: Bloomberg News
LONDON—China Ocean Shipping Co., or Cosco, and China Shipping Group Co. will announce a new shipping alliance as early as Wednesday as they try to win approval from U.S. and European regulators for their recently completed merger, people involved in the matter said.
The world’s biggest operators have been meeting with the Federal Maritime Commission, the U.S. watchdog, the European Commission and China’s Ministry of Transportation on an agreement expected to set a new landscape in container shipping following consolidation moves since the end of last year.
The Chinese watchdog has already approved the Cosco-China Shipping merger which resulted in a new Shanghai-based entity called China Shipping Cosco Group.
“An announcement is expected from Shanghai, likely tomorrow where China Shipping Cosco Group will announce its proposed partners,” one of those people said. “Talks with the regulators are continuing and substantial changes in the composition of existing alliances may happen.”
Two other people involved in the matter said the new grouping may comprise China Shipping, Cosco Group, France’s CMA CGM, Hong-Kong based Orient Overseas Container Line, Taiwan’s Evergreen Marine 2603 -1.24 % and Singapore’s Neptune Orient Lines Ltd. NPTOY 6.03 % The alliance would control around 26% of the trade between Asia and Europe, the world’s busiest container shipping lane.
“This is the likely scenario, but if regulators give out signs they are not happy with the new group, it may change. Talks are continuing as we speak,” one of those people said.
CMA CGM, the world’s third largest container operator, also is seeking approvals by the U.S., European and Chinese regulators for its $2.4 billion acquisition of NOL, announced in December.
The European Commission, the EU’s regulator, has set April 29 as its deadline to decide on the merger of CMA CGM and NOL.
“Chances are that the alliances you see today will change significantly,” William Doyle, a commissioner at the FMC, FMC 4.19 % told The Wall Street Journal this month at a global liner conference in​London.
CMA CGM and China Shipping Container Lines, the container unit of China Shipping Group, currently belong to the Ocean Three alliance along with Dubai-based United Arab Shipping Co. The alliance handles 22% of all cargo moved between Asia and Europe, the world’s busiest ocean trade route.
Cosco belongs to a different alliance, called CKYHE, made up of Asian operators. CKYHE controls 25% of the Asia-Europe trade loop. Industry leaders A.P. Møller-Maersk AMKBY 4.28 % A/S of Denmark and Geneva-based Mediterranean Shipping Co., comprising the 2M alliance, have a 34% market share.
I expect three main alliances instead of four going forward, and anyone not making it into those groupings won’t be able to survive in five years time.
—Lars Jensen, SeaIntelligence Consulting
Shipping executives say regulatory approvals won’t be given to merged entities where their members belong to different groupings.
The people said the 2M Alliance could stay intact but a third member, with strong presence in trans-Pacific routes may be added.
Alliance members share ships, networks and port calls, saving hundreds of millions of dollars in annual costs—critical savings for many carriers as the industry remains mired in one of its worst downturns ever. Anemic economic growth in Europe and falling growth in China has been exacerbated by an estimated 30% overcapacity of ships in the water, which has resulted in freight rates barely covering fuel costs on some trade lanes over the past year.
CMA CGM has told European regulators it will withdraw NOL from another alliance, called G6, which controls an 18% market share in Asia-Europe. NOL’s container unit, APL, expects to stay in G6 until the first quarter of 2017. CMA has declined to comment.
Regulatory reviews can take three months or longer. In the past, alliances got the green light from regulators if their combined market share was below 35%.
“I expect three main alliances instead of four going forward, and anyone not making it into those groupings won’t be able to survive in five years time,” said Lars Jensen, chief executive of Copenhagen-based SeaIntelligence Consulting. “No matter how this pans out in the coming days, I expect more consolidation to come, which will again change the alliances landscape.”
Write to Costas Paris at costas.paris@wsj.com