China is soon going to establish its leadership in the Pacific shipping trade. State owned shipping company COSCO Shipping has made a bid to acquire Orient Overseas International. The smaller rival of the Chinese giant has been offered a $6.3 billion deal on Sunday. The deal price comes at a 31.1 percent premium to the last close of Orient Overseas. Shares of both the companies jumped on the deal in early trades. Here are three things you must know about Pacific shipping.
Pacific Shipping Was Dying
The shipping industry went through a global slump, which it still has not been able to recover. The biggest problems for the industry were overcapacity and falling charges. Hyundai Merchant Marine Co. and Maersk announced earlier this year that they could charge higher fees from customers. However, this was the result of annual rate-negotiations with the customers on trans-pacific routes. Experts suggest that shipping trade is dying because of fragmentation. Consolidation of companies could be a great way to bringing more competition and organization in the industry. This could eventually result in its revival.
China Will Dominate America’s Shipping
The busiest shipping route in the world is between Europe and Asia. The second most active trade route goes to the Americas. When COSCO and Orient Overseas International merge operations, they will emerge as the biggest player on this route. This will make COSCO the most dominating force in the shipping industry, highlighting China’s plans to take over the slumping shipping market. The new combination will now be able to move 77,208 containers between North America and Asia. However, it would still not be able to become the biggest player in the Asia-Europe market. There, the combination will become the third largest shipping name.
More State Control in Hong Kong
Hong Kong will cease to be a bright spot in the shipping industry. The news of the merged emerged days after Chinese President Jinping visited Hong Kong on the 20th anniversary of its acquisition. As the Hong Kong based Orient Overseas International is acquired, the city will lose its 3.2 percent market share. Shanghai, Guangzhou, and Shenzhen have emerged as new centers for shipping trade. However, for Orient, there is more to gain than lose. It will better access to the mainland which could boost its business further.
The COSCO-Orient Combination will hold more than 11 percent of the global shipping trade. As Pacific shipping struggles to gain profits, this new deal could usher the shipping industry into a new era.