There are two factors that must be carefully considered when making predictions about the future of the container shipping industry: carrier consolidation and China’s thirst for maritime shipping dominance.
At the moment nearly every aspect of the logistics chain is feeling the effects of container shipping consolidation. Domestic shipping companies are seeing a decline in the frequency of shipping service, ports are experiencing a loss of calls, and terminals are feeling the stress of larger peak times. Albeit it is challenging, particularly operating within container shipping’s current business model, consolidation is necessary for the industry to continue to be profitable.
Since 2014 the international shipping community has witnessed frantic merger activity, which has resulted in rapid disappearance of smaller carriers. It has been predicted that by 2020 there will be no more than six global carriers, each with its own comprehensive shipping/logistics network. The few smaller global carriers that remain are from Hong Kong (OOCL) and Taiwan (Evergreen and Yang Ming). COSCO has the resources to buy these two and OOCL.
Maybe the most important reason for COSCO to purchase OOCL, Evergreen, and Yang Ming is geopolitical. Especially with the region being an economic hotspot, the Chinese simply would not accept a European competitor buying a shipping line from their own “backyard.” This attitude also extends to carrier alliances and partnerships.
The proposed P3 alliance would have forged a partnership between the three largest global container carriers: Maersk, MSC, and CMA CGM – all European. The European Commission announced that they would accept the agreement, however the Chinese authorities did not give the regulatory approval needed to proceed with the alliance. Although officially it was said to be because it would distort competition, many industry-watchers believe it was quite likely done for geopolitical reasons; namely to avoid the emergence of a European champion.
Provided that the company’s acquisitions of OOCL and Evergreen are completed successfully, COSCO will likely begin buying-up shares of CMA CGM. Even purchasing only a portion of the French carrier would help move COSCO beyond the reach of Maersk, and make it world’s largest carrier.
Image source: BusinessInsider.com