This just in: Cosco and CSCL were seen walking into a chapel

Feb 26, 2014, 4:24AM EST
China’s lines have signed another cooperation pact, rebooting speculation that they are headed for a merger. Rings, please Elvis.

Cargo volumes will not grow enough this year to use up all the capacity flooding into service, and bargain basement freight rates are driving the carriers towards route-sharing alliances.

Not to be outdone, China’s top two lines, Cosco and China Shipping, added a new pact to a domestic partnership signed late last year and that has raised a couple of questions: Will the two lines merge, and will China Shipping’s container unit join the CKYHE Alliance?

China Shipping announced today that the alliance with Cosco would be in some key business areas, such as ports, logistics and shipbuilding. The pact was apparently signed earlier this month.

So will the two carriers merge? It appears they are heading in that direction. Apart from this deal, the usually feuding carriers put aside their differences late last year to start jointly operating trade routes from northern and northeastern China to Fujian Province and Shantou in the southern province of Guangdong. They control 80 percent of the domestic shipping market between them, anyway, so why not hold hands.

Cosco is the world’s fifth biggest container shipping company and China Shipping is the ninth, but don’t let their global box operations fool you. Both carriers are giant state owned enterprises with tentacles stretching into everything from property to ports to shipping to finance. Together, the companies operate a complex web of at least 140 diverse interests that would challenge even the most tenacious spider.

Merging the container units of Cosco Container Lines and China Shipping Container Lines would create a 1.3 million TEU capacity carrier and would make the new entity number four in the world. Sorting out the state owned parents would be a mammoth task, but perhaps it would be possible to separate the container business from the rest and slap that together under a new name.

There is little to lose. Between them, the lines have lost billions in the past six years, especially Cosco, which bought a bunch of bulk carriers just as the bulk carrying market collapsed. Only after selling assets will Cosco’s parent will make a 2013 profit and CSCL expects its 2013 losses to top US$430 million. Not exactly the hottest stocks in town.

So what about the second question: Will CSCL join the CKYHE alliance? Cosco put the “C” into the CKYHE and now that it is working closer with CSCL it makes sense to bring the line into the fold. CSCL also operates services with fellow CKYHE members Yang Ming and “K” Line, and the partnerships run deep. If it joined up, that would make it the CKYHEC alliance.

Then what will become of UASC and Zim that were working with CSCL, also independent of the big alliances? It makes little sense for an independent carrier to operate in competition with the mega groupings. There is no way they can offer the same service frequency or port coverage.

So UASC may even join the party, too, making it the CKYHECU alliance, followed by Zim to turn the name into CKYHECUZ.

Maybe we could just call it the Big Eight, or B8 to keep the alliance in step with the P3 and G6.

 
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