China’s new shipping giant faces many challenges
Print Edition
THE creation of China Cosco Shipping Corp, which debuted yesterday, is a direct challenge to global shippers AP Moller Maersk and Mitsui OSK Lines, but analysts said the giant firm must trim its workforce and order book to survive one of the industry’s worst slumps.
Formed in a 610 billion yuan (US$93.6 billion) state-driven merger of rivals China Ocean Shipping (Group) Co and China Shipping Group, the firm will control one of the world’s largest fleets of dry bulk vessels, container ships and oil tankers.
Its debut, however, coincides with some of the leanest times for shipping firms already mired in the longest downturn in three decades. Maritime consultancy Drewry forecasts the global container shipping industry will make a combined loss of US$5 billion this year due to lackluster freight rates and cargo volumes, ship lay-ups and higher operating costs.
“Few liner companies are set up at the moment to handle current challenges. Perhaps the first challenge is to shrink the new combined company. Without that, the bleeding will continue at a faster pace,” said analyst Charles De Trenck.
Shipping firms have endured years of losses since the global financial crisis, as new vessels ordered before the downturn created an oversupply and depressed freight rates.
At the Cosco Shipping launch event, Chairman Xu Lirong acknowledged the industry was experiencing its worst downturn since 2008 and said mergers were key to riding out the slump.
However, he said workers have been told there will be no pay cuts or layoffs.
“To me they’re missing a huge opportunity there to improve their competitiveness,” said a China-based shipping executive, on condition of anonymity.
Cosco Shipping employs 118,000 people, more than double the workforce of Maersk, and owns a total of 830 vessels, or almost twice the combined fleet of Maersk and Mitsui OSK Lines, according to data from ship valuation firm VesselsValue.
Cosco Shipping’s sheer size works to its advantage as it allows it to better compete for market share than if it had remained as two separate, loss-making companies, an expert said.
“The merger gives them a fighting chance,” said Shanghai-based Essence Securities analyst Jiang Ming.
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