[260117.EN.BIZ] Alphaliner Says Ocean Alliance Partners Best Placed to Buy OOIL

WHILE Drewry believes CMA CGM is the favourite to take over Orient Overseas Container Line (OOCL) either by acquisition, merger, or reverse merger, Alphaliner is putting its money on Cosco Shipping or Evergreen Line.

As speculations by analysts that the parent company of the Hong Kong-based shipping line, OOIL is for sale continue, those being tipped as potential buyers are limited to the carrier's partners in the new Ocean Alliance that starts operating on April 1.

There was no confirmation of any sale from a spokesperson for OOCL. "Many of us have seen a number of changes in the industry landscape over the past year and during this period, many rumors on various topics have spread and speculative reporting have been made from time to time, including those about OOCL. While we appreciate the public discourse, we would not be in any appropriate position to respond to the rumors and speculations."

Talk of a takeover continues to stimulate trading in OOIL stock on the Hong Kong Exchange, with its share price up by around 20 per cent since trading closed at the end of December.

The Tung family owned carrier has consistently managed to remain profitable, although when OOIL reports its 2016 financial results it is expected to post its first loss in seven years. The problem facing OOCL is that it is stuck in the middle in terms of scale with a TEU capacity of 575,561 putting it at No. 8 in the world and with a global market share of less than 3 per cent.

Shipping lines have only two viable paths: Become a scale leader or become a niche player focused on certain trades, according to a Boston Consulting Group report. Companies that haven't adopted either of these approaches will lack sufficient scale to drive down costs and the differentiation that can offer unique commercial value or command premium rates, according to IHS Media.

Even with the consolidation, container shipping remains a very challenging business. Dynamar estimates that the top 12 container lines lost a combined US$13 billion in the first three quarters of 2016. While rates improved in the final three months of 2016, few lines are expected to record a full-year profit.

But the market conditions that resulted in the long-awaited industry consolidation last year have not changed - capacity this year will still outstrip demand by some measure, low rates will persist, and container lines are likely to remain unprofitable. On top of that, Alphaliner said carriers will face a further challenge from rising bunker fuel prices that doubled in 2016.

The analyst said the only consolation for carriers was that charter rates were expected to remain at rock bottom levels in 2017.

So, the quest for scale by the larger container lines will continue in 2017 and more mergers and acquisitions are inevitable. OOCL is an attractive target and if a suitor comes up with the right price, the Hong Kong carrier could be the latest shipping company to jump on the consolidation wagon.

Source : HKSG.