Transform your supply chain, and start seeing forward.

COSCO has found a way to make headlines yet again, in an even bigger way than it has before. Economists and transportation leaders may grow tired of typing out those 5 letters, as the holdings company makes another of many big moves in past months. On Monday, the shipping and logistics giant offered to purchase Orient Overseas Container Line (OOCL) for HK$49.23 billion (6.3 billion U.S. dollars). While the deal has been accepted, it is not yet official. The two companies still require approvals from regulatory bodies and COSCO shareholders, but COSCO’s stocks have already started to climb as a result of the bid.

Still recovering from the massive hit that the global container industry took in the 2008 financial crisis, this move is big news for transportation as a whole. As companies compete for shipping routes in the still-convalescent industry, we’ve seen consolidations across the world, allowing for greater efficiency and major cost reductions for carriers.

If the deal is approved, COSCO will soon control OOCL’s more than 320 offices in roughly 70 countries around the world. The holdings company has made it clear that they plan to keep OOCL’s brand and employees due to a great admiration for Orient Overseas International Limited (OOIL), parent company of OOCL, in saying, “We respect OOIL’s management team and its expertise, not to mention its people, brand, and culture,” according to Man Win, Chairman of COSCO Shipping Holdings (Splash 247). In combining the assets of both companies, COSCO will have a fleet of more than 400 vessels around the world with a capacity just shy of 2.9 million twenty-foot equivalent units.

COSCO, a Beijing-based holdings company, was fully formed just last year with the merging of two carriers. With the addition of Hong-Kong-based OOCL, COSCO will rise to hold a market share of 11.6%, overtaking French company CMA CGM. All three of the aforementioned firms are members of the Ocean Alliance partnership, which was formed in 2016 with intentions to rival Maersk Line and Mediterranean Shipping Co. (MSC). The COSCO-OOCL acquisition will also make the company the largest Asia-North America carrier, reducing competition for the largest and longest route for container shipping. According to Reuters, this may be bad news for Maersk and MSC, the only two companies that will hold more market share than COSCO. Sources close to COSCO told Splash 247 that the holdings company has intentions to eventually overtake Maersk as the world’s largest container line.

According to the Business times, this move signals a major slowdown of the recent trend of mergers and acquisitions in the industry as feasible and appealing acquisition targets are scooped up. Troubles within the industry (yes, we’re referencing Hanjin) have forced the consolidation of powers, leading to a reduction in competition in the industry. The recent mergers and acquisitions that we’ve seen among transporters have created an alarming drop in the number of carrier options available, causing economists to hint at oligopoly. These consolidations, piled on top of recent cyberattacks, indications of surge pricing, among other news, means nothing less than uncertainty for shippers as peak season approaches. As we approach the holiday season, flexibility and leverage are key for those trying to avoid price hikes. At Navegate, we work day and night to get your cargo where it needs to be at the fairest price possible through our key partnerships and data-driven transport planning.

“At Navegate we are always trying to keep clients informed when things like this happen. Speculation abounds on what impact this will have, but we’re already looking into ways to mitigate potential price changes that this may cause.”
– Mark Toth, International Freight Division Manager

 

Illustration by Jordan Lundquist