CSCL and Cosco are unlikely to merge their container operations anytime soon, according to leading analysts.
Both state-owned carriers posted major first half losses again this year, and rumors of a merger have circulated for some time, bolstered by the announcement in October that they would launch their first joint domestic service.
The potential merger would create the world’s fourth-largest single carrier, controlling 8 percent of global container shipping capacity. However, Bonnie Chan, an analyst at Macquarie Capital Securities, said that although the two lines have scope for further cooperation in the international market, for example, by CSCL joining Cosco in the CKYH Alliance, a full merger was unlikely in the near term and may not be beneficial for either carrier.
Mergers between shipping companies have historically been fraught with failures and not always benefited shareholders, with acquirers often suffering financially or suffering a sharp loss of market share. “For example, Maersk saw its global market share fall from 18.2 percent to 16.8 percent in 2006 following its acquisition of P&O Nedlloyd, as customers prefer to diversify their exposure away from a single carrier and operational difficulties led to lower customer service quality,” she said.
If precedent was bucked and market share retained, a merged CSCL-Cosco would gain influence on Asia-Europe trades by controling around a quarter of the lane’s capacity, but its impact on other trades would be marginal, she said.
Rahul Kapoor, Singapore-based shipping analyst at Drewry Maritime Equity Research, said the idea of a merger was speculative at this stage, but the Chinese government might support such a move to minimize state losses.
“That said, looking beyond pure trade alliances, I doubt the merger talks have any substance,” he added. “Given the volatile freight markets and subdued container shipping outlook for 2013, I see the two companies forging further trade and operational alliances. But a fully fledged financial merger between CSCL and Cosco should not be on the cards any time soon.
“My key concern is China Cosco's loss making dry bulk business. Unless the company spins off the dry bulk business and creates a pure play container operator, any progress on a merger is unlikely.”
Indeed, the two Chinese carriers would also face a huge task merging or spinning off their tangled net of federal and state subsidiaries and joint venture,s which cover a wide gamut of service companies, not all linked to their core shipping activities.
The domestic market, where CSCL holds a 40 to 50 percent market share and China Cosco holds 20 to 30 percent, seemingly offers more fruitful opportunities. “Any move to better coordinate capacity should help to shore up freight rates domestically, which have been falling in recent quarters,” Chan said.
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