Cartel fears are rising and shippers are getting concerned by the dramatic drop in choice of carriers, in the wake of unprecedented liner shipping consolidation.

Just weeks after HAPAG-LLOYD’s merger with UASC created the fifth-largest liner shipping company, COSCO and port operator Shanghai International Port Group (SIPG) could make the 3rd largest, by jointly offering $6.3bn to acquire the Hong Kong shipping line OOCL – Orient Overseas International Ltd.

The Offer is dependent upon the satisfaction of pre-conditions, which include the necessary regulatory approvals as well as approval from COSCO Shipping Holdings shareholders. The controlling shareholder, who currently holds 68.7% of OOCL, has irrevocably undertaken to accept the Offer.

If successful this latest acquisition is one of the largest in a series of major container shipping events including CMA CGM’s $2.4bn acquisition of NOL in 2016; the merger in 2016 of COSCO and China Shipping; the 2016 bankruptcy of Hanjin Shipping; Maersk’s $4bn acquisition of Hamburg Süd; the announced ONE merger of Japanese lines and the merger in June of Hapag-Lloyd and UASC which is outlined at the bottom.

COSCO pledged to keep the OOCL brand and its Hong Kong headquarters, and provided assurances that jobs are safe for at least 24 months.

The combined COSCO/OOCL will operate more than 400 vessels over a much expanded network, with capacity exceeding 2.9 million TEUs including order-book.

Analysts fear that with the COSCO deal the market share of the top four carriers would rise to 53.8% and there is a real danger of the market becoming an oligopoly,

James Hookham, deputy CEO of the UK’s Freight Transport Association and a director of the Global Shippers Forum, has vocalised the potential danger for shippers. “The choice and quality of service available to Asian shippers is under threat from the convulsions that are transforming the container shipping sector.”

Hookham said the Global Shippers Forum was determined that the mergers are not used to “smuggle back discredited cartelising behaviour”.

The offer of HK$78.67 ($10.06) in cash per share represents a premium of about 30% on OOCL’s Friday closing price and values the company at around $6.3bn.

COSCO will hold a 90.1% stake in OOCL and SIPG 9.9%.

Combining COSCO’s container fleet with that of OOCL will see the merged carrier leapfrog CMA CGM to become the world’s third-largest container line with a market share of 11.5% for a total capacity of 2.42m teu, together with an orderbook of 640,000 teu.

COSCO and OOCL will “continue to operate under their separate brands” said a joint press release on Sunday. “Both companies are members of the Ocean Alliance and will continue to work together under this framework,” it said.

Analysts say the merger will change the balance of power within the Ocean Alliance, where CMA CGM is currently the largest member.

Commenting on the deal, Lars Jensen, CEO at SeaIntelligence Consulting, said the merger was “the next logical progression in the continuing consolidation among carriers and that with the decision to continue with the OOCL brand, COSCO is proceeding down the same path as Maersk and CMA CGM in terms of having a multi-brand strategy, as opposed to MSC and Hapag-Lloyd which are both pursuing more of a single brand strategy.”

Mr Jensen concluded his remarks with a warning that the three remaining global carriers outside of the new group of six mega carriers, Evergreen, Yang Ming and HMM need to consider their longer term options in the face of the size advantages held by the six super carriers.

MERGER UPDATE

Hapag-Lloyd-UASC merger creates younger, bigger and more efficient fleet

HAPAG-LLOYD’s merger with UASC has created the fifth-largest liner shipping company in the world, with a combined fleet of 230 vessels and a capacity of 1.6 million boxes.

The combined line expects to achieve $435 million in annual synergies by 2019 and limit its need for new-building investment.

The”new” Haag-Lloyd will have the youngest fleet among all of its large competitors, that means they can sail in a more fuel-efficient manner and minimise emissions further.

The two companies will be integrated into the Hapag-Lloyd brand but, for the time being, will continue operating with both Hapag-Lloyd and UASC Bills of Lading and systems to avoid any confusion.

To ensure a smooth integration of the two merging companies UASC personnel will undertake 1,700 days of training, covering topics such as processes, applications and company structure

The commercial Cut-Over process which starts mid-July is due to be completed in October 2017.

Source: Norman Global Logistics

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