Cosco Shipping’s intentions to overtake Maersk as the largest container line is perhaps the world’s worst-kept secret. And here’s a warning to the shipping industry — do not take Cosco’s intentions with a pinch of salt. It’s not simply an ambition. It’s an advisory.
With mergers and acquisitions happening left and right during the prolonged economic downturn a few years ago, the state merger between China Shipping and China Ocean Shipping was necessary at the time. As it turns out, Cosco has proven much better at managing and utilizing China Shipping’s assets and business than China Shipping ever was.
The big picture
In the few years since, Cosco has undertaken a series of investments and expansions that serve as evidence that it’s pressing on strong with its ambitious aim.
To understand Cosco’s agenda, one must look at the larger picture.
Mainland China is an enormous driving force in internal trade and has been looking to establish itself as a financial power. It goes without saying then that an ocean carrier that’s backed and funded by the Chinese government should have the same goal.
Cosco’s stated ambition is to be the world’s top liner. But I hardly think it will stop at that. Its end game will be to push to increase its dominance in the overall market. And with the advantage of the world’s largest market behind it, this means lots of potential for growth — especially if it continues to build on the infrastructure.
Its acquisition of OOCL, which finalized this year, saw it leapfrog CMA CGM as the world's third-largest container line. It also gave it firm control of Ocean Alliance. With OOCL’s fleet under its name, Cosco now reportedly owns 49 percent of the alliance’s fleet in terms of value, 54 percent of the alliance’s overall TEU, and 51 percent of the alliance’s vessels.
Making ground in Europe
Cosco has also just recently finalized its takeover of the Zeebrugge terminal in Belgium — the country’s second-largest port.
This may mark the Chinese firm’s first ever strategic entry into northwestern Europe. But looking at this by taking a step back to see the bigger picture — it was the latest in a series of acquisitions in Europe recently — shows it was just a piece in the larger picture of Beijing’s plans to link mainland China to Europe by sea, rail, road, and pipeline.
It’s interesting to note, at this point, that Chinese companies have stakes in as many as 13 ports in Europe. As a matter of fact, Chinese state firms now reportedly own about 10 percent of all European port capacity.
With Maersk soon within Cosco’s sights, the Danish liner should be wary. But let’s not forget that while Cosco appears to be well on its way to fulfilling its ambition, there’s still Mediterranean Shipping Company to contend with.
And perhaps overtaking MSC is not that far out on the horizon. Alphaliner data show that once the current order books clear, Cosco will be just less than half a million TEU away from that sweet second spot.
But naturally, this isn’t simply a numbers game. Larger and more complex challenges lie ahead before Cosco can further close in on Maersk.
A question of sustainability
Cosco has frightening options right now with the strong backing that it has from the state. So one option it has is to simply invest its way into world dominance. But the main question is: can Cosco sustain this path it has embarked on?
Large investments are one thing. But profiting from them is another matter. We’ve seen, in the past 10 years, that the industry is no stranger to carriers increasing capacity and then struggling to fill it later. Chances are, this will be one of the foremost challenges Cosco faces.
Cosco is diversifying by investing in terminals and railroads and searching for new sources of revenue. But obstacles still lie ahead. Maersk and MSC are certainly not going to give up their spots without a fight. There will also be competition from other carriers, who will be keeping an eye on Cosco.
There may also be political roadblocks where governments may begin to refuse to sell to Chinese companies for fear of Chinese dominance.
And let’s not forget about the ongoing trade war, which could also affect Cosco’s bid for supremacy. After all, it is the biggest carrier in a lane that’s currently going into a period of time with a high level of insecurity.
No doubt Maersk is fully aware of the challenge and will be wary. But this is not unfamiliar ground for Maersk, as it’s far from the first time it has been challenged. However, Cosco does present a more legitimate threat than others have in the past, especially given its solid financial and state backing.
Maersk has been number one for a very, very long time and this has not just come from investments. Although acquisitions have played a large role, Maersk has traditionally been a force to be reckoned with in the shipping industry. And you can be sure it’s not just going to roll over.
MSC has also worked hard to get to the position it’s in today and has undergone a huge transformation over the last 10 to 15 years, while gaining on Maersk. No doubt it is on its own path to push to catch up with Maersk.
Maersk has announced its plans to become more of an integrator, as seen from its latest mergers to create Sealand and the Damco merger to integrate a forwarder to offer a more end-to-end supply chain solution. So at this stage, it looks like one of its bets is to increase the service portfolio overall.
But of course, it always has the option of investing in more acquisitions to strengthen its grip or construct more terminals.
More to come from Cosco
It’s more than evident that Cosco has been making large strides. Even then, the industry can and should expect more from it. Recent indications show that Cosco is slowly but surely getting there.
According to Alphaliner data, Cosco overtook Maersk as the top container shipper for the first time ever in third quarter 2017. Figures published show the Chinese liner handled 5.49 million TEU compared with Maersk’s 5.26 million TEU.
One possible option for Cosco will be to follow in Maersk's footsteps with the freight forwarding integration. Most shipping lines do have a logistics sister company, so it’s not entirely new for carriers to integrate with a forwarder. However, depending on the extent of the integration, it may just completely change the game.
There lies, however, a common threat to the challenge of becoming the world’s largest shipping line — whichever company this may eventually be: cyber attacks.
The ransomware attack on Cosco’s business operation systems earlier this year and — who can forget it? — the more severe Petya attack on Maersk just last year, should serve as reminders of the vulnerabilities of their systems to potential damages.
If Cosco wants to realize its dream of being the world’s largest liner, it will definitely need to beef up its security system. Its expansion makes it an extremely attractive target for cyber attackers and more likely than not its bound to become a target again.
The same can be said of Maersk, who will certainly not want to relive the $200 million disruption it experienced with Petya last year.
Klaus Lysdal is vice president of operations for iContainers.