The Chinese government has approved the merger of the country’s top two shipping conglomerates – the state-owned COSCO and China Shipping, according to Xinhua new agency.
“With the approval of the State Council, the China Ocean Shipping (Group) Company (COSCO) and the China Shipping (Group) Company (China Shipping) will be restructured,” the State-owned Assets Supervision and Administration Commission said in a one-sentence statement.
The move will improve the competitive edge of major Chinese shipping lines by realizing economies of scale, as the global shipping industry faces a long-term downturn, according to a joint reply to Xinhua’s questions from the chairmen of the two companies.
“Both COSCO and China Shipping have struggled to be competitive, with overlapping investments, high costs, similar business operations and industrial chains,” COSCO chief Ma Zehua and China Shipping’s Xu Lirong were quoted as saying by Xinhua.
COSCO has an annual freight volume of over 400 million tonnes, with more than 700 ships whose total deadweight reaches 51 million tonnes. China Shipping has more than 530 ships with 36 million tonnes of deadweight.
This is the latest merger among China’s state-owned enterprises (SOEs).
Muted global trade growth and the economic slowdown in emerging markets is expected to exacerbate overcapacity, leading to declining and volatile freight rates, Fitch Ratings said earlier, as it revised the global shipping sector outlook for 2016 to negative from stable this year.
China’s slower growth and economic transition will pose particularly significant risks for the shipping sector due to its key role in global trade, accounting for two-thirds of global iron ore imports and 20% of world coal imports, Fitch said in a report, adding the performance will vary across the segments, with dry-bulk and container shipping under pressure, while tanker and LNG shipping fare better.
According to Fitch, shipping companies will continue to implement defensive measures including cost-cutting, which will be helped by lower bunker prices, slow steaming, idling and the cancellation of sailings to achieve profitability. “But we believe these measures are insufficient to lead to a protracted recovery in the sector. Rigorous capacity discipline along with a pick-up in demand would be necessary to reach a sustained equilibrium,” it said.