China to consolidate shipping operations at two state firms

BEIJING (BLOOMBERG) - China announced plans to reorganize two major shipping groups with combined revenue of more than US$40 billion (S$56 billion), paving the way for the creation of one of the world's largest container lines and demonstrating the country's intent to create national champions that are globally competitive.

China Ocean Shipping Group Co (Cosco) and China Shipping Group will consolidate operations, the State Council's State-owned Assets Supervision and Administration Commission said in a statement on its website Friday. Terms of the restructuring weren't announced.

China is overhauling inefficient state-run companies to bolster an economy headed for its slowest growth in 25 years. The plan aims to cut down sectors plagued by overcapacity while creating globally competitive firms in high-value sectors such as aerospace and advanced rail technology.

If the group's two main shipping lines merge, the combined entity would have a 7.7 percent share of the container market, overtaking Hapag-Lloyd AG to become the fourth biggest in the industry, according to Alphaliner. CMA CGM, which earlier this week bought Singapore's Neptune Orient Lines Ltd., would retain its third spot with 11.5 percent market share, Alphaliner said.

Bloomberg News reported the possible combination of the two Chinese companies Aug. 7. Three days later, at least eight listed units of China Shipping Group and Cosco Group suspended trading in Hong Kong and Shanghai, citing possible "major transactions" by the parent companies.

Friday's shipping deal follows the merger in May of CSR Corp. and China CNR Corp to create CRRC Corp., a train equipment maker that dwarfs foreign rivals Siemens AG and Alstom SA. That step signaled China's intent to create huge companies whose economies of scale would allow them to compete more aggressively for overseas deals.

Earlier this week, China Minmetals Corp., the country's biggest metals trader, agreed to buy China Metallurgical Group Corp., a government-owned engineering and mining group. SASAC is setting up a state-owned fund to absorb bad debt in the mining sector, people familiar with the issue said Wednesday.

Combining operations could help the shipping companies enlarge their presence and improve bargaining power, but wouldn't immediately address the overcapacity the industry has faced in recent years. Ships with a combined capacity of about 2.9 million 20-foot containers are expected to be delivered this year and next, according to Drewry Shipping Consultants Ltd., even as lines are removing vessels on some trades to lift rates during the slow winter season.

China Shipping Container Lines, the world's seventh-largest container line, according to the Alphaliner website, is in an alliance with CMA CGM and United Arab Shipping Co., while Cosco, the world's sixth largest by capacity, is part of CKYHE. Both Chinese companies have port-terminal operations as well as container shipping and dry-bulk shipping businesses.

China Shipping Group had revenue of 82.8 billion yuan (S$17.9 billion) in 2014, while Cosco Group had revenue of 169.3 billion yuan, according to its website.