A CHINA Cosco-CSCL merger makes financial sense, but would have huge implications for competition in the container shipping industry, according to Drewry Maritime Research.
If a merger did happen, Drewry said it expects it would have a domino effect on the existing alliance structure of the container shipping industry and could see other Asian countries follow China's lead.
The London research house expects Japanese and Taiwanese carriers to seek consolidation of their national carriers, strategies that could undermine competition in the sector.
The two Chinese state-owned giants, the world's sixth and seventh biggest container lines, saw shares in their listed units suspended recently as reports that they were in talks over a possible merger.
A combined Cosco-CSCL entity would be the world's fourth largest container shipping company and generate huge financial efficiencies - the two carriers have racked up $911 million in operating losses (EBIT) from container operations over the last five years.
"The rationale for a merger is entirely sound from a financial viewpoint and calls into question why China has persisted with the two-carrier strategy for so long," said Drewry. "It makes little sense to have two national carriers competing fiercely against one another and against non-Chinese carriers in the same markets."
"There is a hint of double-standards about this story as it was Chinese competition regulators that blocked the proposed P3 alliance between the world's three largest carriers Maersk Line, MSC and CMA CGM in 2014," added Drewry. "It seems now that China is happy for the number of major carriers to shrink by one.
"Operational alliances, which arguably maintain competition and help reduce costs, are the subject of misdirected criticism by some regulators and some shipper groups. A more serious competition risk - the reduction in the number of carrier competitors - seems to be encouraged by governments."
Source : HKSG.