Orient Overseas International (OOIL) and its
container unit OOCL have a good track record for above-average
profits in a challenging market and a reputation for being a very
well-run company, earning the moniker "The Perfect Bride" by
Drewry Maritime Financial Research.
Retaining the management team, processes and systems is a wise
move and could be of enormous value to Cosco Shipping Holdings
(Cosco), Drewry said.
OOCL has an owned-fleet of 66 containerships aggregating
approximately 440,000 teu. It is a young and modern fleet with an
average age of 7.1 years and average nominal capacity of 6,600
teu. It is introducing its first 21,000 teu vessel with five more
to deliver and options for another six which it could easily
Based on existing fleet and orderbooks the combined Cosco-OOCL
entity would become the world's third largest container carrier,
overtaking its partner in the Ocean Alliance, CMA CGM (see
Cosco itself has a large orderbook, including newbuilds inherited
from last year's merger with China Shipping Container Lines. As
such, it will have little requirement to order any more new ships
in an already over-supplied market.
OOIL/OOCL has interests in four terminals: 100 percent owned
facilities in Long Beach in the U.S. and Kaohsiung, Taiwan, and
minority stakes (20 percent) in two Chinese terminals (Tianjin
Operationally, fitting OOCL into the bigger company should not be
too difficult as both OOCL and Cosco already belong to the Ocean
Alliance (alongside CMA CGM and Evergreen) that operates mainly
in the East-West container trades. OOCL is not a major player in
the North-South tradelanes that fall outside of the scope of the
The biggest impact will be felt in Intra-Asia, where both
carriers already have a large presence, while the footprint in
the Asia to Middle East trade will also rise significantly.
From a marketing perspective the acquisition of OOCL will enable
Cosco to broaden its customer base, having previously being
perceived, rightly or wrongly, as China-centric. OOCL's
reputation and history with global shippers will provide Cosco
with an inroad to a wider selection of big Western shippers with
As far as terminal ownership is concerned, in Ningbo, Cosco is
also a shareholder in the same terminal as OOCL so this is a
simple consolidation. In Tianjin, Cosco already has stakes in two
terminals, neither of which are the same as the terminal in which
OOCL has a stake, and so some ownership consolidation may take
place here. This may involve Cosco taking an interest at the port
authority level of ownership, as it has done in, for example,
OOCL's Long Beach operation is undergoing a very large
re-development that will see the existing one-berth Long Beach
Container Terminal at Pier F closed and the three-berth Middle
Harbor Redevelopment Project (MHRP) replace it. Phase I of MHRP
went live in April 2016 and has since been in full operation;
Phase II is expected to be operational at the end of 2017.
Cosco already has two terminals in LA/LB so this will be a third
and by 2020 these three terminals will account for nearly 30
percent of the capacity of LA/LB. So while the capacity in LA/LB
remains physically fragmented, the ownership is at least
In Kaohsiung, Cosco has a stake in one terminal (along with China
Merchants, Yang Ming, NYK and Ports America). The OOCL terminal
is a different one.
Cosco Shipping Ports (CSP) is reportedly acquiring a 15 percent
stake in SIPG from Shanghai Tongsheng Investment and this would
make CSP the third largest shareholder in SIPG. This is further
evidence of the agglomeration of the Chinese state-owned
enterprises involved in the port sector. SIPG's involvement in
the OOCL deal is therefore not a left-field move but very much
further evidence of the consolidation and intertwining of
Chinese-owned port sector activity.
Earlier reports suggested the valuation of the deal would be
closer to USD 4 billion, which would be similar to what CMA CGM
paid for NOL/APL. That always seemed undervalued considering
OOIL's better financial performance and reputation, plus the
improving market outlook.
However, at $6.3 billion the price does seem a bit steep.
According to Drewry Maritime Financial Research, OOIL's book
value stood at $4.5 billion based on FY16 numbers, meaning OOIL
was able to extract a sizeable premium.
Regulatory: any likely obstacles? The simple answer is that we
don't know, but recent container M&A such as Maersk Line's
recent takeover of Hamburg Süd and the proposed ONE merger of
Japanese carriers have all encountered minor issues so the
possibility of some conditions being applied by non-Chinese
authorities cannot be entirely discounted.