Tuesday, April 12, 2016

WHAT IS AHEAD FOR CONTAINER LINES AND ALLIANCES?

Shipping Mergers to Remake Global Alliances

Deals involving Cosco, China Shipping, CMA CGM and Neptune Orient Lines to bring major changes, U.S. official says


The China Ocean Shipping Co. merger with China Shipping is one of several carrier consolidations that are restructuring ocean carrier alliances. ENLARGE
The China Ocean Shipping Co. merger with China Shipping is one of several carrier consolidations that are restructuring ocean carrier alliances. Photo: Bloomberg News
LONDON—Some of the world’s biggest ocean shipping alliances could be much bigger by month’s end, as top container operators vie for regulatory approvals of new tie-ups, industry executives said on Tuesday.
The changes come as Chinese majors China Ocean Shipping Co., or Cosco, and China Shipping Group Co. are trying to get their recently completed merger approved by European Union and U.S. regulators. The Chinese watchdog already has given a thumbs-up to the merger.
France’s CMA CGM SA also is seeking regulatory approvals by all three regulators for its $2.4 billion acquisition of Singapore’s Neptune Orient Lines Ltd. NPTOY 1.39 % , announced in December.
“Chances are that the alliances you see today will change significantly over the next two weeks,” said William Doyle, a commissioner at the U.S. watchdog, the Federal Maritime Commission.
“The alliances have in fact changed already because of the recent consolidation among four major carriers,” Mr. Doyle said. “We are expecting their proposals for regulatory approvals.”
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The European Commission, the EU’s regulator, has set April 29 as its deadline to decide on the merger of CMA CGM and NOL.
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 has a 22% market share of all cargo moved between Asia and Europe, the world’s busiest ocean trade route.
“We are becoming a larger shipping line and we are in the position to select the partners with whom we want to do business,” Rodolphe Saade, vice chairman of CMA CGM, said in February. “We are discussing with the new China Shipping group, but we are also discussing with others.”
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Cosco belongs to a different alliance, called CKYHE, made up of Asian operators. CKYHE controls a 25% share of the Asia-Europe trade loop. Industry leaders A.P. Møller-Maersk AMKBY -3.76 % A/S of Denmark and Geneva-based Mediterranean Shipping Co., comprising the 2M alliance, have a 34% market share.
“Regardless of the regulators, the alliances themselves can’t accept merged entities where their members belong to different groupings,” said Chris Welsh, secretary-general of Global Shippers’ Forum, which represents cargo owners.
Alliance members share ships, networks and port calls, saving hundreds of millions of dollars in annual costs as the industry remains mired in one of its worst downturns ever. Anemic economic growth in Europe and falling growth in China is exacerbated by an estimated 30% overcapacity of ships in the water, which has resulted in freight rates barely covering fuel costs over the past year.

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Cosco is considering joining Ocean Three or leading a new alliance with CSCL, people familiar with the situation said. The Cosco-CSCL merged entity is called China Cosco 601919 1.44 % Shipping Group, based in Shanghai.
CMA CGM has told European regulators that 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 declined to comment.
“The only alliance which will likely stay intact is 2M because of their dominant position,” Mr. Doyle said.
Regulatory approvals can take up to three months or longer. In the past, alliances got the green light by regulators if their combined market share was below 35%.
“I expect the four existing alliances to become three after the merger shake-up and some carriers being left out of the new alliances,” said Lars Jensen, chief executive of Copenhagen-based SeaIntelligence Consulting.