China creates new shipping giant to battle downturn

CCTV News

Photo: CFP Photo: CFP

China on Thursday launched a challenge to global shippers AP Moller Maersk and Mitsui OSK Lines with a new shipping giant, China Cosco Shipping Corporation (COSCOCS), which was created from the state-driven merger of former rivals China Ocean Shipping (Group) Company and China Shipping Group.

The new company will control one of the world’s largest fleets of dry bulk vessels, container ships and oil tankers after the merge.

Its debut, however, coincides with some of the leanest times for shipping firms already mired in the longest downturn in three decades: maritime consultancy Drewry forecasts the global container shipping industry will make a combined loss of $5 billion this year due to lackluster freight rates and cargo volumes, ship lay-ups and higher operating costs.

“Few liner companies are set up at the moment to handle current challenges. Perhaps the first challenge is to shrink the new combined company. Without that, the bleeding will continue at a faster pace,” said veteran shipping analyst Charles De Trenck.

Shipping firms have endured years of losses since the global financial crisis brought the shipping boom to an end, as new vessels ordered before the downturn created an oversupply and depressed freight rates to record lows.

A pedestrian passes stacked COSCO Pacific Ltd. branded shipping containers behind a perimeter wall in the commercial shipping area of Piraeus Port, operated by Piraeus Port Authority SA, in Piraeus, Greece, on Monday, May 18, 2015. A sale of the port would be a reversal on the part of Greece's Syriza party-led government, which had earlier pledged to block such moves. Photographer: Yorgos Karahalis/Bloomberg

A pedestrian passes stacked COSCO Pacific Ltd. branded shipping containers behind a perimeter wall in the commercial shipping area of Piraeus Port, operated by Piraeus Port Authority SA, in Piraeus, Greece, on Monday, May 18, 2015.  Photographer: Yorgos Karahalis/Bloomberg/CFP.

At the COSCOCS launch event, company chairman Xu Lirong acknowledged the industry was experiencing its worst downturn since 2008 and said mergers were key to riding out slump.

However, he said COSCOCS had told staff that there would be no salary cuts or layoffs, a policy of many Chinese state-owned firms but which industry insiders said made little sense.

“To me they’re missing a huge opportunity there to improve their competitiveness,” said a China-based shipping executive at a rival firm, who wanted to remain anonymous due to the sensitivity of the matter.

COSCOCS currently employ 180,000 workers, more than double the workforce of Maersk.

It also owns 830 vessels including container ships, dry bulk vessels and tankers, almost twice the combined fleet of Maersk and Mitsui O.S.K Lines, according to data from ship valuation firm VesselsValue, which does not take into account chartered-in vessels.

COSCOCS is the latest firm to emerge out of a government campaign to raise the global competitiveness of China’s state-owned firms. Previously, China has merged its state companies to form the railway giant CRRC Corp and nuclear producer State Power Investment Corporation.

Story by Reuters and CCTV News.