Liner mergers to impact Westports transshipment

Liner mergers to impact Westports transshipment

The impact of the impending merger between China's state-owned shipping giants Cosco and China Shipping on Malaysia's Westports would be cushioned by CMA CGM's planned buyout of Neptune Orient Lines, according to CIMB Securities.

France line CMA CGM announced Dec. 7 its plan to purchase NOL, which operates its liner division under the APL brand.

Westports operates a container terminal in Port Klang, which is a hub port in Southeast Asia for CMA CGM and China Shipping Container Lines. CMA CGM plans to make a voluntary offer for 100 percent of NOL, which is majority owned by the Singapore government's investment firm Temasek Holdings.

CIMB Securities analyst Raymond Yap said with Temasek giving an irrevocable undertaking to tender its entire 66.8 percent stake, CMA CGM would easily clear the acceptance condition of 50 percent plus 1 share. “Hence, the acquisition is basically a done deal, subject to regulatory approvals by the U.S., EU and China, expected by mid-2016,” he said.

Yap expects the acquisition to clear the regulators and be completed around August. NOL will join the Ocean Three Alliance comprising CMA CGM, CSCL and United Arab Shipping Company. Yap said this would help to increase O3’s exposure to the trans-Pacific and intra-Asia trades, while also providing a buffer for a likely exit by CSCL to the CKYHE Alliance after the impending CSCL-Cosco merger.

Despite CMA CGM's vice-chairman Rodolphe Saade saying his company would establish its Asia base in Singapore and reaffirmed his commitment to the shipping hub, some of NOL's transshipped cargoes could still move from Singapore to Westports.

"Westports offers much lower tariffs than Singapore, and cost efficiencies are key to survival in a tough container shipping environment, and secondly, Temasek will make a clean exit from NOL, meaning that it will not have any leverage on the business decisions of the merged entity,” he said.

However, CMA CGM affirmed the need for “dual-hubbing”, meaning it will not forsake either port for the other, preferring to spread its business across the two ports. Capacity limits are a reality that need to be managed. Westports is expected to handle 9 million TEU this year, 82 percent of its 11 million TEUs per year capacity. When the alliance merry-go-round should take full effect in 2017, its capacity will rise to 13.8 million TEUs after CT8 Phase 2 is completed, with utilization forecast at 73 percent, or 10.1 million TEUs.

"The theoretical spare capacity of 3.7 million TEUs in 2017 is insufficient to handle the more than the 4 million TEUs handled by CMA CGM and NOL in Singapore this year. CMA CGM is committed to Westports, but CSCL may not be. Westports will not lose out as CMA CGM remains entrenched at Westports,” Yap said.

"In the spirit of ‘dual-hubbing.’ if it consolidates its Asia-Europe transshipment cargoe at Westports, its trans-Pacific cargo may be consolidated at Singapore. The net effect of the exchange may be neutral to slightly positive in the near term.”

However, if CSCL joins the CKYHE alliance, which transships in Singapore, Westports could see a 6 to 7 percent fall in its volumes, mainly on transshipment.

Yap expects the regulatory authorities to give the go-ahead for the CMA CGM acquisition of NOL, as it will not disturb the competitive position of the alliances too greatly.

After CMA CGM buys NOL, and NOL is migrated to the O3 Alliance, the O3’s capacity market share of the trans-Pacific trade will rise from 14.5 percent to 18.8 percent, still below CKYHE’s 34.5 percent share and the G6’s reduced share of 24.6 percent. If and when CSCL leaves the O3 to join the CKYHE, O3’s capacity market share would drop back to 14.6 percent and be hardly changed from the original share of 14.5 percent.

Yap thinks Westports could see an exchange of transshipment cargoes with Singapore. "We project that Westports will handle 9.03 million TEUs in 2015. NOL is forecast to handle 4.87 million TEUs this year, of which 4.44 million TEUs will be handled on its Asia-based trades. Some of the transshipment cargo handled at Westports could be switched to Singapore, and vice versa.

“Our guess is that Westports’ transshipment volumes on the Asia-U.S. trades will be consolidated in Singapore, whereas the Asia-Europe and Oceania transshipment volumes will be consolidated in Westports. This is because CMA CGM has traditionally been strong in the Asia-Europe trades, whereas NOL has been strong in the trans-Pacific.”

However, the long-haul intra-Asia transshipment volumes could go to either Westports or Singapore, since NOL is also strong in the Middle East and the Indian Subcontinent.

Yap concluded Westports stood to gain slightly over Singapore in the upcoming service restructuring between CMA CGM and NOL, as Westports was still the cheaper port of call.