Are COSCO and OOCL Merging?

Hanjin’s downfall spread shockwaves throughout the global shipping industry which impelled the major carriers to form three global alliances. Trying to grapple with this issue while also hoping to address the worst downturn the industry has faced in more than three decades remains an intimidating test. Overcapacity and a diminished demand in the worldwide trade have forced the individual players in the container shipping industry to share vessels and consolidate to find some profitable during this current cycle.

As a result, a new wave of consolidations began earlier this year along with the advent of the new shipping alliances. Hapag-Lloyd completed the acquisition of the United Arab Shipping Company (UASC), and Maersk purchased Hamburg Sud. Another potential merger seems to be coming to fruition, even though both Carriers are denying this possibility. Several rumors suggest the China Ocean Shipping Company (COSCO) is close to acquiring Hong Kong-based Oriental Overseas Container Line Co. (OOCL) for $4 billion.

If these reports are accurate, China’s government-owned COSCO, the fourth largest container company in the world, will merge with OOCL, the seventh largest firm, to create the second largest carrier serving the United States. The merger would offer serious competition to the Mediterranean Shipping Company (MSC), the leading service provider to the U.S. market The unification of these two companies makes sense based on the vessel-sharing alliances and capacity, as well as being Chinese companies.

Remarkably, OOCL was one of the few medium-sized operators to remain healthy during this downturn in the ocean container market. If current trends continue in the industry, smaller lines like OOCL, Yang Ming, and Zim Integrated Shipping Services will eventually be gobbled up by a larger one.

Skeptics of this potential deal point to the timing of it being too close with COSCO’s merger last year with state-owned China Shipping. However, some indications suggest COSCO is already preparing to close the deal. China Development Bank was able to offer $26 billion in multiyear financing to the Chinese shipping conglomerate. After losing $1.4 billion in 2016, COSCO rebounded with a first quarter profit of $39 million, reporting significant increases in container business revenue and volume.

Additionally, COSCO suspended its stock trading status on the Shanghai Exchange because the company was restructuring its assets after it joined with Chinese Shipping and obtained other global acquisitions. Shareholders have expressed their concerns regarding the limited information released about the suspension of the company’s stock trading status. However, they may have answers soon if COSCO keeps to its plans for reestablishing trading of the stock in mid-July.