Since deregulation in the 1990s, our industry has witnessed many mergers and there are rumours endlessly flowing about the next big acquisition. The market looks like it’s narrowing until only a handful of shipping lines, and a handful of countries, are competing for control.
The recent deal for Cosco to buy OOCL shows intent for the biggest market share. The $6.3 billion deal hopes to achieve “synergies”- this word appearing in merger press releases all too often. But shouldn’t synergies already be in place considering Cosco and OOCL make up one-half of Ocean Alliance?
This alliance is a 10-year vessel and slot sharing agreement between the French carrier CMA CGM, the Chinese state-backed Cosco, the Hong Kong line OOCL and the Taiwanese Evergreen Line. When Ocean was initiated in April 2017, CMA CGM was its biggest player contributing over 30% TEU capacity on the alliance’s trade routes.
But this changes as Cosco’s global TEU figure overtakes CMA CGM’s with the OOCL purchase. Some have cited political motivations, not synergies, behind the recent acquisition as China attempts to grow its international influence.
China plays the leading role on the global trade stage. It manufactures up to 20% of the world’s consumer products and China believes it should dictate how the theatre is run but they have to get around the European theatre directors first.
The OOCL buyout comfortably places Cosco as the world’s 3rd biggest line based on TEU capacity but Cosco’s goal is to beat European dominance in the industry. So rumours of a Cosco bid for 24% of CMA CGM has made Western shipping lines uneasy.
The raised tensions between shipping lines are playing out in international politics, as Olaf Merk suggests:
“Provided that the acquisitions of OOCL and Evergreen work out, buying only part of CMA CGM (say 24%) would help pushing COSCO beyond the reach of Maersk and make it world’s largest carrier…Over the coming months the Chinese will no doubt test the resolve of the French to block sales of CMA CGM shares to China. The French state might even consider to buy shares in CMA CGM to pre-empt the Chinese from doing so, which might be a logical consequence of the French discussion this year on what constitutes a strategic merchant fleet.”
What Merk highlights seem a trending point. The Japanese companies K-Line, MOL and NYK merging into ONE (Ocean Network Express) was blocked by the South African Competition Commission. They cited the previous collusion from the shipping lines, saying the deal could have anti-competitive effects.
ONE, who will take bookings from April next year, will become the 6th largest liner, with a TEU capacity that puts pressure on their THE Alliance colleagues, Hapag-Lloyd, who takes 5th place.
Don’t tell me that’s anti-competitive. The South African rejection of ONE highlights the West’s fear of an eastern influence which slowly trickles to the top of the freight industry, thus into the strategic control over global trade.
Both the Chinese President, Xi Jinping and the Japanese Prime Minister, Shinzo Abe envision their countries as export-based powerhouses and influential states in the international forum. To do that they must beat the current Western powerhouses. So Eastern shipping lines look to buy European competition to gain control of trade lanes and have a positive effect on Chinese and Japanese economies. Then the East will really challenge the current reign of Western power.
Only time will tell if the East can succeed.
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