The collaboration between Chinese shipping companies Cosco and China Shipping Container Lines could ultimately usher in a completely new development for the major container carriers, says partner and CEO of SeaIntel, describing the recently announced cooperation between the two carriers as "very interesting."
SeaIntel has for several years pointed to the two parties as obvious candidates for a merger that could create the necessary consolidation in the market. And this does not create an insignificant player, as a merger between the two companies would result in an entity on par with CMA CGM, effectively becoming the fourth largest container carrier in the world.
However, this collaboration does not yet constitute a merger, though it could very well be an option, Lars Jensen tells ShippingWatch.
"This represents a solid step toward becoming one big unit, and I think that's ultimately where they want to go," he says, stressing that he is speaking exclusively from his own knowledge of the container market, and not the companies' activities in other shipping segments, such as bulk.
"But in terms of container, it makes a lot sense to establish a closer cooperation. There is nothing specific yet about how the collaboration will be formed, but it's important to keep in mind that Cosco is part of the CKYH alliance, while China Shipping is not part of either alliances," he says, referring to G6.
As such, this collaboration could alter the entire alliance structure for container carriers, says Lars Jensen. First of all, the creation of P3 alliance has raised doubts about the stability of the current alliances, G6 and CKYH, which will have a hard time matching the P3 alliance. And SeaIntel has been saying for a long time that a large-scale overhaul of the entire alliance structure would make sense. A change that might have been set in motion now:
"Of course this is going to take time. But it's worth noting that P3 is a ten-year agreement, while the G6 upgrade - recently submitted to authorities in the US - is a two-year deal. If we're not mistaken, CKYH is an old alliance, so the carrier can withdraw from that in a period of some six months," explains Lars Jensen.
He says that the fact that the G6 agreement only runs two years indicates that the members have been unable to agree on sticking together for a longer period than that. Already one year from now the members will have to decide amongst themselves whether they want to continue the partnership or pursue something else.
"And the collaboration between Cosco and CSCL adds further weight to this development. This must send Cosco thinking about whether to stay in CKYH, or if the carrier should work with China Shipping, and possible other partners, to establish something new. And this also has to make the other partners in CKYH think about what to do if Cosco pulls out. This is a clear sign of the instability that's already present," says Lars Jensen.
However, there is no doubt that the increased cooperation serves as lifeline for the two Chinese container carriers, who have been struggling financially for a long time. Another interesting question in terms of the new collaborative agreement deals with China Shipping Container Lines and United Arab Shipping Company (UASC) - who together have ordered half a series of five 18-19,000 teu container ships each. Does the increased cooperation between the two Chinese carriers also include UASC? Or how will these ship orders be dealt with?
"That brings us back to the fact that this pushes a lot of the uncertainty that's already present in the market," says Lars Jensen:
"This is not going to happen tomorrow or the day after that, but if look ahead two years, there is certainly a realistic chance that both CKYH and G6 will no longer exist as we know them today, that instead we'll have a complete different alliance structure."