When Cosco acquired OOCL, we discussed the diplomatic conflict playing out through international shipping lines. Here the international trade saga continues
(Read Part 1 Here!)
Shipping line rankings are the battlefield and TEU capacity is the game. The Chinese state owned Cosco moved to third in the global carrier rankings after the acquisition of the Hong Kong liner OOCL was announced. Cosco overtook the French, CMA CGM who comfortably sat in third for some time. But rumours of Cosco purchasing a 24% stake in CMA CGM presented the French carrier with further worries.
The near quarter stake up for sale comes from the Yildirim family, who originally pumped US$500 million into CMA CGM during the financial crisis. The liner carried billions in debts and the investment was made in conjunction with the Fonds Stratégique d’Investissement (FSI), a publicly owned French company, in order to stabilise the business at times of financial unsettlement. The Yildirim’s asked China’s Citic Bank to oversee the shares transaction, leaving CMA CGM in a vulnerable position for a Cosco take over.
If (or is ‘when’ more appropriate?) Cosco acquire Yildirim’s shares, the Chinese carrier would secure the title of top liner, whilst becoming the de-facto controller of Terminal Link, a terminal subsidiary of CMA CGM in which Cosco already has a 49% stake. Terminal Link operates in France’s biggest ports with addition operations through Europe, Africa and Asia.
This thought must have China licking its lips. Essentially falling upon more port infrastructure would help its long term goal to dominate international trade
. China’s ‘Belt and Road Initiative’ is a Eurasian connectivity scheme to enhance Chinese export profitability. Financing port terminals, railways and public services in economies along the Indian Ocean
and the Red Sea
has opened shipping lanes to Europe’s massive consumer market. The plan will give Cosco ships carrying Chinese exports easy access to expensive markets and adding more European ports, with the new extra capacity, is an attractive prospect for the Chinese.
However, the French government may have a word or two about this. The FSI, who currently have a 6% stake in CMA CGM, is owned 49% by the French government and 51% by the Caisse des Depots et Consignations, a public sector financial group. CMA CGM has a revenue over US$16 billion and employs hundreds across France so it is both the board’s and the government’s best interest to keep the liner alive and in France.
And the French have responded. Splash 247
reported of a rumoured CMA CGM order of nine 22000 TEU capacity vessels. This added TEU capacity should fetch a bronze place for CMA CGM and give them a chance to survive as Cosco are hot on their heels.
But the order book is mostly a vanity project; a big French two fingers up to overcapacity and this could cloud recent optimism from industry analysts, who have predicted a period of profitability for shipping lines.
Nevertheless, if the rumours are true, the new vessels will do one of two things: 1.) genuinely end Cosco’s efforts, or 2.) completely cease European competition if Cosco does acquire CMA CGM.
Splash 247 also added the construction contract will be awarded to the Chinese company, Shanghai Waigoquia Shipbuilding (SWS) or the South Korean, Hyundai Heavy Industries (HHI), giving equal chances to the Far East firms but this French/Chinese conflict is on multiple fronts.
SWS’s owners, Chinese State Shipping Corporation (CSSC) has links to the Italian state owned shipbuilders, Fincantieri whom French President, Emmanuel Macron has recently clashed with. Government representatives on CMA CGM’s board could move the carrier away from Chinese yards to support the conflict in another sector.
Macron and his economy minister, Bruno La Maire temporary nationalised
the Saint Nazaire shipyard, Chantiers de l’Atlantique
to block Fincantieri getting their hands on it. Chantiers de l’Atlantique is the only yard in the world with the knowledge and capabilities of constructing the world’s biggest cruise ships.
2 thirds of the yard were owned by the South Korean firm, STX with the other third by the French state. With STX collapsing, the state bought out 100% of the yard rather than allowing the open 66% go to the Italian shipbuilders, who were the only willing buyers. So it seems the French administration has seen another Chinese threat to French maritime power.
Fincantieri is partners with CSSC, who, together, plan on growing Chinese cruise shipbuilding. 2 cruises are expected to be built on Chinese soil, possibly another 4 after that, and the French Ministers of State believe Fincantieri could take local shipbuilding expertise out of France.
Macron offered Fincantieri a 50:50 share with the government, to which the Italians refused.
Yet, the French President has been criticised. Many have called this ‘protectionist’ and ‘aggressive’ but this is pre-emption rights and the yard is an extremely valuable asset.
Cruises are the most profitable ships to construct. Royal Caribbean International paid US$1.35 billion to construct MS Harmony of the Seas, the world’s largest passenger ship, and Chantiers de l’Atlantique is the only yard capable of handling such projects. Compare that to the US$950 million paid to Samsung Heavy Industries for six, yes six, of the world’s largest container ships, then it becomes obvious why Macron took these measures.
Chantiers de l’Atlantique is key infrastructure wholly unique to France and it is idiotic, not laissez-faire, to let Fincantieri take the yard.
If Fincantieri gets their hands on Chantiers de l’Atlantique they can strip its assets, axe 2000 some French jobs and rip the heart out of Saint Nazaire’s historic shipbuilding tradition. Fincantieri can transfer French shipbuilding expertise to new business ventures in China, where wages are cheap and the steel is close-by. Blocking the sale to Fincantieri is a block against global Chinese maritime monopoly and the same can happen in container shipping. If CMA CGM is swallowed by Cosco this would give China near absolute power in international maritime trade.
The conflict has deepened. The entirety of French maritime power is under threat. Yet, it must be said, outdoing TEU is not a sustainable or effective response. But, for a Cosco competitor it’s a ‘two can play that game’ scenario.