Photographer: Lam Yik Fei/Bloomberg

China's Cabinet Approves Merger of Cosco Group, China Shipping

Updated on
  • Cosco-China Shipping consolidation to create four businesses
  • Hong Kong trading suspension to lift for some shares on Monday

China announced plans to reorganize two major shipping groups with combined revenue of more than $40 billion, paving the way for the creation of one of the world’s largest container lines.

China Ocean Shipping Group and China Shipping Group will consolidate operations, the State Council’s State-owned Assets Supervision and Administration Commission said in a statement on its website Friday. Four listed entities will be formed, each focusing on an aspect of the shipping business: containers, financing, terminals and oil-and-gas, according to the official Xinhua News Agency.

The moves extend China’s overhaul of inefficient state-run companies to bolster an economy headed for its slowest growth in 25 years. The plan seeks to shrink industries plagued by overcapacity while creating globally competitive businesses in high-value fields such as aerospace and advanced rail technology.

Two of China Ocean Shipping’s units -- China Cosco Holdings and Cosco Pacific Ltd. -- will restart trading Monday in Hong Kong, along with China Shipping Group’s unit China Shipping Development Co. All were suspended for four months.

In Shanghai, a suspension remains in effect for China Cosco, China Shipping Development and China Shipping Group’s China Shipping Container Lines pending a review of the restructuring by the stock exchange there.

Four Areas

Once the transport businesses are reshaped, China Cosco Holdings will be the listed entity for container shipping, taking over vessels and containers from China Shipping Container Lines on a leased basis, according to exchange filings.

The combined container shipping business would have a 7.7 percent share of the container market, overtaking Hapag-Lloyd AG for fourth place in the industry, according to Alphaliner.

CSCL will assume the mantle of shipping financial services, while Cosco Pacific Ltd will front the combined global terminal business after acquiring wharf assets held by CSCL. China Shipping Development Co. will be the focal point for oil and gas transportation business.

Rail Precedent

Friday’s shipping deal follows the merger in May of CSR Corp. and China CNR Corp. to create CRRC Corp., a train equipment maker that dwarfs Europe’s Siemens AG and Alstom SA. That step signaled China’s intent to create huge companies whose economies of scale would allow them to compete more aggressively for overseas deals.

Earlier this week, China Minmetals Corp., the country’s biggest metals trader, agreed to buy China Metallurgical Group Corp., a government-owned engineering and mining group. SASAC is setting up a state-owned fund to absorb bad debt in the mining sector, people familiar with the issue said Wednesday.

Combining shipping operations could help the transport companies enlarge their presence and improve bargaining power, but wouldn’t immediately address the overcapacity the industry has faced in recent years. Ships with a combined capacity of about 2.9 million 20-foot containers are expected to be delivered this year and next, according to Drewry Shipping Consultants Ltd., even as lines remove vessels on some trades to raise rates during the slow winter season.

Spot rates to haul a 20-foot container to Europe from Asia fell to $275 for the week ended Dec. 4, down 50 percent from a week earlier, according to the Shanghai Shipping Exchange. Rates to the U.S. West Coast dropped to $891 per 40-foot box.

China Shipping Group had revenue of 82.8 billion yuan ($12.8 billion) in 2014, while Cosco Group had revenue of 169.3 billion yuan, according to its website.

— With assistance by Clement Tan

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