COSCO plans to extend growth with OOCL

As separate brands the combined companies will complement each other but provide economies of scale.    COSCO said that following last month’s completion of its acquisition of the parent company of container carrier Orient Overseas Container Line (OOCL), the combined companies will be the third-largest container carrier and remain “committed to further growth, with 19 vessels ordered and a total capacity of about 330,000 TEUs, the combined capacity will reach 2.93 million TEUs by the end of 2018.”
   COSCO made the statement in a letter to customers in which it said the two companies will “complement each other’s advantages and jointly develop to provide global customers with products and services of higher quality.”
   COSCO reaffirmed plans for OOCL to be a separate brand and said the two companies will work to implement “four major strategic initiatives, including the optimization of the global and regional network, digital transformation, end-to-end services enhancement and a dual brand model, to leverage the advantages of COSCO SHIPPING Lines’ global network and scale and OOCL’s digital transformation and logistics business capabilities to realize new growth.”
   Captain Xu Lirong, the incoming chairman of Orient Overseas (International) Ltd. (OOIL), the parent company of OOCL, said, “I believe after OOIL becomes a member of COSCO Shipping, we can effectively combine the respective strengths of OOIL and COSCO Shipping Lines and optimize our global network, thereby achieving greater economies of scale and synergies.”
   Meanwhile, OOIL said it incurred a loss in the first half of 2018 of $10.3 million versus restated profit of $53 million in the first half or 2017. Revenue was $3.1 billion in the first half of 2018 compared with $2.8 billion in the first half of 2017. The company noted it had adopted new Hong Kong Financial Reporting Standards.
   Discussing its performance and the outlook for the container industry OOIL said, “Against the backdrop of a healthy global economy, the industry experienced good levels of cargo growth and benefited from moderate improvements in freight rates in many trade lanes. As such, the slow and steady recovery that began in late 2016 continued to provide encouragement to our sector.”
    But it said its financial results for the first half of the year also reflect “some of the significant challenges that we have been facing.”
    “Supply side growth continued at a significant pace, with total capacity levels remaining a risk factor in the future, even if newbuilding deliveries look likely to reduce markedly in the coming two to three years. Increased costs have also hurt profitability: The higher price of oil has increased fuel costs and equipment repositioning costs have been amplified by the increasing imbalance between (1) strong headhaul growth and (2) stable to weakening backhaul growth.
    “While it is true that global economies still appear reasonably robust, not least the USA, the uncertainty caused by the threat of looming so-called trade wars justifies a degree of caution,” OOIL warned. “It may well be that the impact on containerized transport will be less than some fear, on the grounds that goods transported in containers often tend to be higher volume but lower value. However, it would be naïve to be too confident in offering any predictions about how the currently imminent trade wars will impact the industry. Restrictions on trade are clearly not a positive factor: we will need to wait to gauge what their negative influence might be.”
   In a question and answer article posted on its website COSCO said there will be no changes to the ports of calling, schedules and slots arrangement of OOCL, COSCO, and the Ocean Alliance due to the transaction. But it added “in accordance with customer needs, OOCL will consider deepening the cooperation with COSCO Shipping Lines to provide a wider variety of choices for customers.”