Cosco and China Shipping seek closer business ties

Mainland giants Cosco and China Shipping can no longer go it alone and are looking for more ways to weather lower freight rate environment

PUBLISHED : Thursday, 18 October, 2012, 12:00am
UPDATED : Thursday, 18 October, 2012, 4:47am

The mainland's two largest shipping companies, China Ocean Shipping (Group) and China Shipping, are exploring ways to deepen their business relationship, Cosco president Ma Zehua confirmed yesterday.

He said the two sides would "conduct more dialogue and research" to strengthen their co-operation across various shipping sectors and not just the container shipping business.

"Working on our own can no longer work," he told about 600 shipping executives at the Journal of Commerce transpacific maritime conference in Shenzhen.

He indicated the co-operation would go further than the deal a week ago when Cosco Container Lines and China Shipping Container Lines said they would operate joint services between northern China and provinces in the east and south. The two carriers have a combined 80 per cent of the domestic container shipping market.

Ma said there was speculation about how the two shipping giants would deal with the massive losses the firms had posted as a result of the downturn in global shipping. "I can't give you a satisfactory answer," he said before confirming the two sides were exploring options.

Some insiders have suggested there could be a merger between the two. Another alternative being suggested is that China Shipping Container Lines could take over Cosco Container Lines, especially as CSCL chairman Li Shaode is seen as a rising star. Yet another option is that China Cosco Holdings, Cosco's Hong Kong- and Shanghai-listed container and dry bulk shipping subsidiary, would sell its loss-making dry cargo business to its parent.

After several years in which the delivery of new container ship tonnage has outpaced the growth in cargo volumes, thereby depressing freight rates, Ma said the supply of new tonnage and increase in cargo demand "would be close to balance … Next year will be better than 2012".

But he conceded the container shipping industry would still have to "digest overcapacity" and that it would "still be some time before the market fully recovers".

Ma's forecasts though were seen as overly bullish by Tan Hua Joo, executive consultant with specialist market intelligence outfit Alphaliner, who forecast demand growth of up to 6 per cent this year and in 2013. By comparison, the amount of new container ship tonnage would climb by 9 per cent this year and surge again next year.

Tan estimates that container ships totalling 1.4 million teu (20-foot equivalent units) would be delivered by the end of this year. Tan said a further 1.7 million teu of box ship capacity would be delivered next year. These vessels "are one of the biggest dangers carriers are facing next year" because 40 per cent of this tonnage comprised ultra-large container ships of more than 10,000 teu, Tan said.