In recent years, mergers have played a substantial role in shaping the shipping industry. In recent years, Japan’s three largest shipping companies, two major Chinese shipping groups, France’s CMA CGM SA, and Singapore’s Neptune Orient Lines Ltd. have each merged to form shipping companies with greater power and reach than ever before. Find out why China COSCO Shipping plans to acquire Orient Overseas Container Lines (OOCL) and learn how this could affect the global shipping industry.
Situation: COSCO Seeks New Strategy for Global Competition
Many industries have struggled to recover in the wake of the global financial crisis of 2008-2009, but the shipping industry has faced particular challenges. Decades ago, shipping companies tended to compete with each other by designing larger ships with greater capacities. After the financial crisis, however, many shipping companies tried new tactics, including drastically underbidding their competitors. As a result, many shipping companies began operating at a loss, a trend that still plagues some in 2017.
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Like many shipping companies, COSCO has sought to improve its ability to compete through acquiring or merging with other groups with surplus capacity. The current iteration of the company is the result of a January 2016 merger between the COSCO Group and the China Shipping Group, and just over a year later, COSCO seeks to expand yet again, shifting from its position as the fourth-largest ocean carrier to become the third-largest carrier.
Approach: COSCO Plans to Acquire OOCL
In July 2017, COSCO announced its intention to acquire a majority stake in the parent company of OOCL, Hong Kong’s top shipping company. COSCO’s $6.3 billion offer values OOCL’s shares at HK$78.67 each, which is a 31 percent premium over the stock’s closing price in early July. While OOCL has agreed to the offer, seeking the necessary approvals could delay the close of the deal by several months.
If approved, the new company would have access to more than 400 vessels, along with nearly 3 million 20-foot units. The merged company would also attain an 11.6 percent market share, allowing COSCO to overtake third-place CMA CGM.
Impact and Advantage
While COSCO and OOCL must still agree to contractual terms and obtain regulatory approvals around the globe, the stock markets have already responded. Following the announcement, OOCL achieved its biggest gain in the Hong Kong stock market in eight years, while COSCO’s stock value increased more than 8 percent.
Industry experts have also begun to speculate about possible outcomes of this acquisition. Since this move will enable COSCO to become the world’s third-largest ocean carrier, the acquisition brings the shipping company closer to its goal of surpassing the Swiss Mediterranean Shipping Company (MSC) and the Danish A.P. Moller-Maersk Group to become the world’s largest carrier.
If the COSCO acquisition proceeds as proposed, supply chain executives around the globe should pay close attention to the next moves of the top three contenders in the shipping industry. Subsequent mergers, innovative pricing structures, and cutting-edge technology could all impact how shipping companies compete with each other and drive global supply chains.[/show_to]
