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Aug.7, 2017

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BENEATH THE SURFACE 34 THE JOURNAL OF COMMERCE AUGUST 7.2017 Gary Ferrulli FEW SHOES LEFT TO DROP COSCO S H I PPI N G H O LD I N G S a nd Sh a n g h a i I nt er n a t ion a l Por t Group's purchase of Orient Over- seas Container Line (OOCL) is the last apparent opportunity for those container carriers wishing to grow by taking over large, well- managed, and profitable competi- tors. To be sure, some potential remains with the two Taiwanese firms, Evergreen Line and Yang Ming, but after that you have to stretch to the relatively smaller entities or really stretch to the larger carriers. A glimpse into the latter scenario came up at about the same time the Cosco-OOCL deal was announced; Cosco was rumored to be buy- ing the Robert Yildirim shares of CMA CGM. Yildirim announced he wants to sell his roughly 25 per- cent stake in CMA CGM and pursue other opportunities. I'm not sure why Cosco would want a 25 percent share of own- ership. Maybe it's the opening salvo in eventually trying to acquire CMA CGM in pursuit of becom- ing the largest container line in the world. Cosco has a $26 billion purse-string from the Chinese government and has spent about $12 billion. The OOCL purchase v aults Cosco into third place in in terms of global vessel capacity, ahead of CMA CGM. Theoret ica l ly, t a k i ng over CMA CGM would make Cosco the largest container carrier with a fleet capacity 1 million TEU larger than Maersk Line, after each car- rier finalizes its current order book and buyouts. Is that Cosco's intent? It's purely rumor and speculation at this time, just as the OOCL deal was a few months back. On the other end of the spec- trum, combining relatively smaller entities such as Evergreen and Yang Ming has some logic. Although each is among the top 10 container carriers in size globally, they aren't close to the top five with the recent buyouts. And like OOCL before them, within their alliances, they aren't close to their current part - ners in size. Evergreen has a similar his- tory to OOCL, starting as a virtual tramp operator and growing into what was the fifth-largest container line, and family owned. But it finds itself now as the smallest participant in the Ocean Alliance by a wide margin, with no mega-ships in its fleet or on order (18,000-TEU ves- sels). The Ocean Alliance gives Everg reen access to the larger vessels and the cost savings on the longer routes, but that's not a very comforting thought, and within the Ocean Alliance, how much leverage does it have? Combining Yang Ming with Everg reen would g ive the new entity more capacity, but the com - bination wouldn't move them in terms of ranking of size or in hav- ing any larger vessels of their own. But there should be synergies that could help the cost structure by reducing redundancies and, with access to the larger CMA CGM and Cosco vessels, lower slot costs on the Asia-Europe lanes. Again, pure speculation. What does any of this mean? Well, it would get us closer to the top 10 carriers having 90 percent of global capacity and market share. In my mind, that's a milepost that should signal a new norm, for a while at least. Any new kid on the block would have a rather large hur- dle to get over to get close to that top 10 group. It also would start to change the mentality among carriers that "we can only get larger market shares with low rates" that has been clearly demonstrated for the past six-plus years. They should be thinking in terms of profitability, enough so to upgrade services, including systems that their customers are clamor- ing for; and to move forward with assisting in a significant improve- ment in the overall supply chain, and not being the slow cog in the wheel that stretches it out and incurs additional costs through inefficient services and processes. The facts are that the carriers have created the existing norm of low pricing and mediocre to poor services. They have educated ship- pers that this is the way it is. Many shippers want improved services and modernizing the technology pieces to give them a better over - all supply chain, and some will pay slightly more for that. But frankly, they are in the minority. Most shippers want the low rates to continue, along with improved services and advanced technology. They simply don't want to pay for it. Have they paid atten- tion to the financial results of the industry the last six-plus years? Most don't care, because they think it's not their problem. Their senior management wants lower costs to improve their bottom line, not higher costs to improve the bottom line of their service providers. So how will this work out? Ship- pers fear the fewer choices they're left with, because less competition means higher rates most of the time. Will it here? We can't really look at history and say one way or another. The industry hasn't seen the amount of consolidation of the past two years and widespread differences between the top tier carriers and the others, so it's a wait and see how it plays out. JOC Gary Ferrulli is president-North America for Unicon Logistics. Contact him at

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