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Monday, 10 August 2015

Chinese port slowdown drives planned Cosco and China Shipping merger

Two of the world’s largest shipping and port conglomerates  – China Ocean Shipping Group  (Cosco) and China Shipping Group  - are reportedly set to merge, according to Chinese news agency the South China Morning Post.

The Chinese government has reportedly ordered the move in response to a weak global demand and a projected slump in the country’s port sector. Industry analysts now suggest that China may face a prolonged slowdown in its port and shipping sector after years of intense growth

“Drewry has cut its 2015 growth forecast for Greater China port throughput from 5.8% to 4.9%, which represents a shortfall of approximately 1.85 million TEU, or roughly 1% of world traffic in 2014,” analysts at research firm Drewry said.

“These are still numbers that most other economies can only dream of, but the slowing trend has prompted Drewry to downgrade its outlook for Greater China, and subsequently, world container traffic.”

The proposed merger between Cosco and China Shipping would be designed to streamline the sector and improve efficiency but the coordiantion of the deal is likely to be highly complex as together the two state-run behemoths control 11 listed entities in Shanghai, Shenzhen, Hong Kong and Singapore.

“Unlike the merger between China CNR and CSR, which took a bottom-up approach to pen a deal and were combined via an asset swap at the listed companies’ level, the shipping companies will have to study a top-down avenue, consolidating the parent companies first,” an unnamed source told the South China Morning Post.

The Chinese government is desperate to see a return to historic growth rates as it has heavily-backed a strategy focused on prodigal port investment, not only in domestic Chinese ports but also in ambitious projects such as its $42 billion New Maritime Silk Road.

“The latest WTO data suggests that China’s merchandise imports were down by 15.5% in the first six months of 2015, whereas merchandise exports managed a 1.0% rise,” Drewry said.

This month the government introduced new laws  prohibiting certain port service charges in a bid to further cut costs and  drive demand. The new regulations will restrict charges on all services besides pilotage, towage, berthing, oil boom, feeders, special trimming, waste disposal, water, bunker, and power supply.


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