Global Shipping Companies Set to Merge, Ship Volume to Increase
Two Chinese state-owned shipping companies—China Ocean Shipping Co. (COSCO) and China Shipping Group—are currently working to merge, which would create the world's fourth-largest container shipping line, according to Seeking Alpha. The merger is a part of the Communist Party of China's plan to reform state-owned enterprises and compete internationally.
According to The Wall Street Journal, the Chinese government is expected to approve the merger by January 2016. The deal has been in the works for months, and the two companies are looking into merging tanker, dry-bulk and port operations as well.
Neptune Orient Line, owned by Singapore's state fund Temasek Holdings, announced that it entered talks with France's CMA CGM over a potential takeover, according to CNBC. If that plan goes through, it would result in the biggest container shipping deal in years.
The trend of consolidation in the global shipping industry is a result of a collapse in freight rates as growth in China slows, which has reduced the country's demand for commodities.
"There is definitely a consolidation trend going on," Singapore Shipping Association president Esben Poulsson said to CNBC. "At a difficult moment of the cycle, consolidation is obviously a way for these players to gain greater market share and greater strength toward the customers."
CNBC reported that Drewry, a London-based shipping consultancy, said that the container shipping industry is on track for another three years of overcapacity and financial troubles due to a slowing global trade.
Drewry added that 1.6 million twenty-foot equivalent units of capacity are being added to the world's shipping container fleet this year, which equates to a container shipping growth rate of 7.7 percent. Another 1.3 million units will be added in 2016.
The Wall Street Journal added that the new "ultra-large container" ships entering the global fleet are 40 percent larger than the biggest ships were 10 years ago.