Stonecutters Island in Hong Kong used to be a favored habitat for poisonous snakes and eye-catching birds such as the white-bellied sea eagle. Thanks to Hong Kong’s rapid development, it is no longer so hospitable.
Its sky is full of gantry cranes, stacking 20-foot-long shipping containers in multicolored tessellations, like giant Lego bricks. A cluster of decorative containers, daubed in graffiti, line the perimeter of Container Terminal 8, which is partly operated by Cosco, a state-owned Chinese shipping giant. In bright-yellow lettering, one slogan instructs passers-by to “Respect Past, Embrace Future.”
Few Hong Kong companies have as much to tell about the past as Orient Overseas Container Line, the world’s seventh-biggest container-shipping line. Its founder, Tung Chao-yung, owned the first Chinese-crewed steamship to travel from Shanghai to France, in 1947, and went on to build a shipping empire of more than 150 vessels. His eldest son and successor, Tung Chee-hwa, survived the financial strains of the early 1980s, with the help of Chinese money, and became Hong Kong’s first leader after it was handed back to China in 1997.
The future, however, looks uninviting. The world’s shipping fleet, replenished by ever-bigger vessels, has grown faster than the globalization it serves. Reckless expansion by some companies, in an industry which overvalues market share, has hurt more prudent competitors. This has pushed OOCL into the arms of Cosco. Recently, OOCL’s owners announced its sale to Cosco for $6.3 billion, pushing their Chinese rival from fourth into third place among the world’s container-shipping lines.
If the merger is approved by antitrust regulators in America and Europe, it will be the latest in a string of big consolidations, including Maersk’s acquisition of Hamburg Süd, a proposed tie-up among Japan’s three biggest carriers and Cosco’s earlier merger with China Shipping Container Lines.
Cosco’s offer price of $10.07 per share certainly seems full of respect, valuing OOCL at 40% above its book value. The premium partly reflects a nascent revival in OOCL’s fortunes: Its revenues increased by 6.4% in the first quarter, compared with a year earlier. The industry is recovering. Thanks to the demolition of many smaller ships, the global container fleet grew more slowly than traffic last year for the first time since 2011, according to Bimco, a shipping association.
However, OOCL chairman Tung Chee-chen, the founder’s second son, believes that the recovery is vulnerable to a variety of dangers, including potential trade frictions and the remaining “supply overhang.”
© 2017 Economist Newspaper Ltd., London (July 15). All rights reserved. Reprinted with permission.
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