COSCON asks FMC for simplified transfer of service contracts from China Shipping

Chinese ocean carrier COSCON plans to take over the container shipping assets of fellow state-owned conglomerate China Shipping as soon as March 1, according to a filing with the U.S. Federal Maritime Commission.    COSCO Container Lines Company Limited (COSCON) is asking the United States Federal Maritime Commission for an exemption to its rules requiring individual service contract amendments when it takes over the vessel operations of fellow state-owned ocean carrier China Shipping Container Lines Co.
   In a petition to the FMC, COSCON says “on or about March 1, 2016” it “will acquire by time charter the containerships and certain other assets of China Shipping,” and “take over the vessel operations of China Shipping.”
   The filing is one of the first indications of how rapidly COSCO and China Shipping want to combine.
   Howard Finkel, executive vice president of COSCON Americas, said more information on the merger of the two companies should emerge after meetings in mid February. He also noted how quickly the companies combine operations in the U.S. will be dependent on regulatory rulings from the FMC.
   In its petition to the FMC, filed Jan. 15 and revealed in the Federal Register yesterday, COSCON said, “Among the assets being transferred to COSCON are China Shipping’s service contracts with its customers, which will be assigned to COSCON in accordance with their terms and applicable law. There are approximately 700 such contracts.”
   Instead of filing an amendment for each of the 700 service contracts that will be assigned to COSCON, the company proposes to send electronic notice to each shipper. The notices will say the existing China Shipping tariffs will be taken over by COSCON, but that “terms of service contract will remain unchanged and you will receive the same service you presently receive.”
   COSCON notes the FMC has given permissions to other companies including Crowley, Hanjin, and CSAV for similar electronic notifications.
   One big unknown about the COSCON-China Shipping merger is how it will affect the large scale carrier alliances and vessel sharing agreements to which they belong.
   COSCON is a member of the CKYHE Alliance while China Shipping is a member of the Ocean3 Alliance.
   FMC Commissioner William P. Doyle, who participated in the U.S.-China Maritime Bilateral Talks in November and met with representatives from both lines, noted last month that COSCON and China Shipping “are looking for flexibility including transition periods for determining which Alliance a newly formed entity could join, if any. Indeed, these companies are mindful that shippers and customers are not disrupted during any merger phase.”
   Some shippers like to split their business among several alliances. One drawback of a tie-up from the perspective of those shippers that had split business with COSCON and China Shipping so that their cargo was being carried on ships operated by different alliances, is that they might have a lot of business concentrated in a single alliance after the two Chinese companies combine.
   One NVOCC noted, however, that interest in the benefits of spreading risk in this fashion must also be balanced against how good a price a shipper can negotiate in its service contracts.