OOCL takeover gets green light from Cosco shareholders

OOCL takeover gets green light from Cosco shareholders

At 21,413 TEU, the OOCL Hong Kong is the largest container ship currently in operation.

Shareholders of Cosco Shipping Holdings this week approved the Chinese carrier’s giant $6.3 billion takeover of Orient Overseas (International) Ltd., leaving just a few regulatory approvals to secure before the deal will be completed.

OOIL is the Hong Kong-listed parent company of OOCL and after the takeover, the Cosco-OOCL carrier will step over CMA CGM to become the world’s third largest container line. Cosco will hold 90.1 percent of OOIL and the Shanghai International Port Group will hold 9.9 percent.

The takeover is the latest piece of consolidation that has completely reshaped the container shipping industry over the past two years, but the need for scale is continuing to drive mergers and acquisitions. It remains to be seen exactly how the new Cosco-OOCL tie-up will play out, although both companies have pledged to retain their individual brands.

This is a takeover strategy that CMA CGM adopted after it acquired APL two years ago, and in his explanation of the thinking behind this approach, APL CEO Nicolas Sartini gave an insight on what to expect if Cosco follows the same path.

“There is value in the brand, and APL is celebrating 150 years of operating in the China-US trade. This means working over the years and creating relationships with BCOs and coming up with solutions,” he said at the JOC’s recent TPM Asia conference in Shenzhen.

“The group recognised the value of the brand and is encouraging APL to develop. APL is much smaller than CMA CGM but we constantly try to benchmark our services and that leads to better quality of service from both companies. It is a good way forward and creates value for the company and its customers.”

Sartini said the acquisition had enabled the smaller carrier to take advantage of the larger group and that gave it a better cost base and greater negotiating power with vendors.

Still to come in the wave of consolidation is the merger between the container shipping divisions of Japan’s three carriers, NYK, MOL and “K” Line. However, the approach in bringing the three carriers together will result in a completely new carrier, the Ocean Network Express.

The strategy was outlined by Jeremy Nixon, CEO of the new ONE carrier that will start operations in April 2018. He told TPM Asia that it was important not to get caught up in the politics of the the three Japanese carriers.

“What we wanted to do was create a completely new company, and that allowed us to step back and create this company with a new brand,” he said. “The key was to bring some of the best parts of our legacy companies but not be constrained by some of the things we did in the past. We will still be a Japanese company but we will be an international company with global office in Singapore.”

A danger is that the three carriers each have their own customers, and the challenge will be to hold on to the BCOs and bring them and their contracts across to ONE. Asked how that would be done, Nixon said: “We will honour all those contracts and where the contracts are starting as of April 2, 2018, we will work directly with those customers and negotiate those contracts directly so they have new contracts for 2018.

“But if we have new customers that have contract with 'K' Line or MOL or NYK on a January through December 2018 basis, then the new company will honor those contracts and bring them across.”

The OOCL and Japanese carrier tie-ups will most likely be the end of the mega mergers, but Bill Guo, executive director shipping at ICBC Financial Leasing, said the industry consolidation was not yet over.

“Any carriers outside the Top 10, they could all be merged,” he said. “They don’t have the scale and the bigger partners can take over the smaller ones. The smaller lines can only survive on some of the trade lanes.”

Nixon said consolidation was a necessity. “You couldn’t carry on as an industry with so many companies with damaged balance sheets. We need to have a secure supply chain and a good strong and capable carriers.”

Contact Greg Knowler at greg.knowler@ihsmarkit.com and follow him on Twitter: @greg_knowler.