18 April 2016

[180416.EN.SEA] Mergers to Remake Shipping Alliance Structure as Carriers Make Plea to Regulators


MAJOR shipping alliances could become much bigger by month's end as carriers vie for regulatory approvals for new tie-ups, reports the Wall Street Journal.

Cosco is considering joining Ocean Three or leading a new alliance with CSCL, people familiar with the situation said. The Cosco-CSCL merged entity is called China Cosco Shipping Group, based in Shanghai.

CMA CGM has told European regulators that it will withdraw NOL from another alliance, called G6, which controls an 18 per cent market share in Asia-Europe.

NOL's container unit, APL, expects to stay in G6 until the first quarter of 2017. CMA declined to comment.Industry executives said changes are coming as China Ocean Shipping Co, or Cosco, and China Shipping Group are seeking approval for their merger from the European Union and US regulators.

French shipping giant CMA CGM also seeks regulatory approval for its US$2.4 billion buyout of Singapore's Neptune Orient Lines, whose principal holding is its container line APL.

"Chances are that the alliances you see today will change significantly over the next two weeks," said William Doyle, a commissioner of regulatory Federal Maritime Commission.

"The alliances have in fact changed already because of the recent consolidation among four major carriers," Mr Doyle said. "We are expecting their proposals for regulatory approvals."

The European Commission, the EU's regulator, has set April 29 as its deadline to decide on the merger of CMA CGM and NOL.

CMA CGM and China Shipping Container Lines, the container unit of China Shipping Group, currently belong to the Ocean Three alliance along with Dubai-based United Arab Shipping Co.

The alliance has a 22 per cent market share of all cargo moved between Asia and Europe, the world's busiest ocean trade route.

"We are becoming a larger shipping line and we are in the position to select the partners with whom we want to do business," said CMA CGM vice chairman Rodolphe Saade.

"We are discussing with the new China Shipping group, but we are also discussing with others."

Cosco belongs to a different alliance, called CKYHE, made up of Asian operators. CKYHE controls a 25 per cent share of the Asia-Europe trade loop.

Industry leaders Maersk Mediterranean Shipping Co (MSC), of the 2M alliance have a 34 per cent market share.

"Regardless of the regulators, the alliances themselves can't accept merged entities where their members belong to different groupings," said Chris Welsh, secretary-general of Global Shippers' Forum, which represents cargo owners.

Alliance members share ships, networks and port calls, saving hundreds of millions of dollars in annual costs as the industry remains mired in one of its worst downturns ever.

Anemic economic growth in Europe and falling growth in China is exacerbated by an estimated 30 per cent overcapacity, resulting in freight rates that barely cover fuel costs.

"The only alliance which will likely stay intact is 2M because of their dominant position," Commissioner Doyle said.

Regulatory approvals can take up to three months or longer. In the past, alliances got the green light by regulators if their combined market share was below 35 per cent.

"I expect the four existing alliances to become three after the merger shake-up and some carriers being left out of the new alliances," said Lars Jensen, chief executive of Copenhagen-based SeaIntelligence Consulting.

Source : SN-TR, 18.04.16.

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