22/01/2017
Market watches OOCL closely as takeover rumours swirl
Investors have been piling into Hong Kong-listed Orient Overseas (International) Limited (OOIL) amid mounting speculation that its liner shipping unit, Orient Overseas Container Line (OOCL), will be the latest target in a wave of consolidation that is sweeping over the industry.
Frantic trading in the last three days has seen millions of OOIL shares changing hands on the Hong Kong Exchange, driving up the stock price that is almost 20% higher than it was when trading resumed after the New Year holidays 10 days ago.
According to Alphaliner, COSCO Shipping and Evergreen have been touted as potential buyers for OOCL, although the analyst noted that neither company has publicly expressed any interest in participating in a new round of liner acquisitions. COSCO and Evergreen are OOCL’s partners in the new Ocean Alliance that is due to be launched in April this year, together with CMA CGM.
“OOCL has long been viewed as a prize catch due to its consistently profitable container shipping operations and strong yield management,” Alphaliner said in most recent weekly newsletter. “However, it has not been immune to the liner market downturn and is expected to post a full year net loss for 2016, its first negative annual performance since 2009.”
The analyst speculated that recent moves by OOCL’s rivals to consolidate could prompt the Tung family, which controls some 69% of OOIL’s shares, to consider a divestment of its liner shipping activities as OOCL’s relatively small size, in comparison to its main rivals, could see it struggle to maintain its superior operating margins.
The speculation surrounding an OOCL sale has been around for years, but through all the market rumours the carrier has remained tight-lipped. In December, an OOCL spokesman told IHS Fairplay, “There has been a lot of speculative reporting on a number of different topics in the industry of late, but we won’t be in any position to respond to them.”
The consolidation in 2016 that has changed the face of the industry was driven by container lines searching for scale that enables them to reduce their unit costs and stem the tide of losses. Maritime analyst Dynamar reported that the top 12 lines lost a combined USD13 billion in the first nine months of 2016 as excess capacity and weak demand weighed heavily on rates.
In the brutal operating environment, the carriers fell into mergers and acquisition (M&A) mode. Beijing merged COSCO and China Shipping; CMA CGM acquired NOL and its liner unit APL; Hapag-Lloyd merged with UASC; Maersk Line acquired Hamburg Sud; and the three Japanese lines, NYK, MOL, and ‘K’ Line announced that they would merge their container divisions by 2018.
Flexport chief operating officer Sanne Manders said liner shipping companies could achieve scale by either driving down costs or by using a specific market combination to drive up prices, such as Maersk Line acquiring Hamburg Sud to become the dominant re**er operator on the Latin America trade.
“The top three players all have different strategies on how to increase scale and they are rapidly consolidating the market. MSC is doing it by buying ships and they have a lot on order, CMA CGM is doing it by acquisition and Maersk has done a bit of both,” Manders said.
For Edoardo Podestá, managing director of Dachser Air and Sea Logistics Asia-Pacific, there were two factors driving container lines’ quest for scale. “The never ending quest for cheaper slot costs pushing bigger ships, but a lot of that is ego – my ship is bigger than yours,” he said
