China considers merger of top shipping companies

A possible merger of China's two largest shipping lines by revenue could point the way toward possible streamlining of other State-owned enterprises, and help raise stock market sentiment, industry insiders said on Monday.

The joining of the five major subsidiaries of China Ocean Shipping (Group) Co and China Shipping (Group) Co－including COSCO Shipping Co, COSCO Holdings Co and China Shipping Development Co－was hinted at in a stock exchange filing on Friday which said trading in the firms' stocks would be suspended on Monday.

Ship.sh, a Shanghai-based shipping industry news website, reported the two parent companies planned to set up a reform committee to discuss a joint restructuring plan, which will be submitted to the central government within the next three months.

A press officer of COSCO's headquarters in Beijing told China Daily that the decision to suspend trading was made by the group's stock management department, but there are yet to be specific instructions regarding any merger from the State-owned Assets Supervision and Administration Commission.

The suggestion of the merger, and other State-owned firms' marriages to follow, boosted capital markets, with stocks rising 4.92 percent on the Shanghai bourse on Monday.

Dong Liwan, a shipping industry professor at the Shanghai Maritime University, said such an amalgamation of the two shipping giants could spark an acceleration in other planned areas of the SOE reform.

Last week the State Council approved a long-awaited blueprint to overhaul the SOE sector, which is aimed at optimizing the country's industrial resources.

Particularly the program plans to set up two separate companies whose goals will be to reduce government influence on organizations and increase profits.

"Denmark's Maersk Line and Switzerland's Mediterranean Shipping Co SA formed their 2M alliance last year to offset lower volume growth and overcapacity in the industry.

"The planned merger of these two Chinese shipping giants would be equally practical in helping them compete against some well-established rivals on many overseas shipping routes," said Dong.

The 2M alliance owns 185 vessels with an estimated capacity of 2.1 million 20-foot equivalent units.

There are also two other massive global shipping alliances in place: the CKYHE alliance of COSCO, Kawasaki Kisen Kaisha Ltd (also referred to as "K" Line), Yang Ming Marine Transport Corp, Hanjin Shipping Co Ltd and Evergreen Line; and the G6 alliance consisting of American President Lines Ltd, Hapag-Lloyd, Hyundai Merchant Marine, Mitsui OSK Lines, Nippon Yusen Kabushiki Kaisha (or NYK Line), and Orient Overseas Container Line.

COSCO and China Shipping control 80 percent of China's shipping market and have already agreed to operate together on domestic routes.

Yin Zhen, deputy-director of transport planning at the Institute of Comprehensive Transportation under the National Development and Reform Commission, said if the two companies did merge it would create an entity with 1.3 million TEUs of capacity.

"This would put it in fourth place, closely behind the world's third-largest container line, CMA-CGM Group of France, in terms of global share and ranking," said Yin.

However, Yin said a merger would require huge effort and resources, as the two Chinese shipping companies operate more than 140 separate shipping, port, shipbuilding and finance divisions throughout the world.