China on Thursday launched a challenge to global shippers AP Moller Maersk and Mitsui OSK Lines, but analysts said the giant company must slim down its workforce and order book to weather one of the industry's worst-ever slumps, according to Reuters.
Created from the state-driven merger of former rivals China Ocean Shipping (Group) Company and China Shipping Group, China Cosco Shipping Corporation (COSCOCS) will control one of the world's largest fleets of dry bulk vessels, container ships and oil tankers.
Its debut, however, coincides with some of the leanest times for shipping firms already mired in the longest downturn in three decades: maritime consultancy Drewry forecasts the global container shipping industry will make a combined loss of $5 billion this year due to lackluster freight rates and cargo volumes, ship lay-ups and higher operating costs.
"Few liner companies are set up at the moment to handle current challenges. Perhaps the first challenge is to shrink the new combined company. Without that, the bleeding will continue at a faster pace," said veteran shipping analyst Charles De Trenck.
Shipping firms have endured years of losses since the global financial crisis brought the shipping boom to an end, as new vessels ordered before the downturn created an oversupply and depressed freight rates to record lows.
At the COSCOCS launch event, company chairman Xu Lirong acknowledged the industry was experiencing its worst downturn since 2008 and said mergers were key to riding out slump.
However, he said COSCOCS had told staff that there would be no salary cuts or layoffs, a policy of many Chinese state-owned firms but which industry insiders said made little sense.
"To me they're missing a huge opportunity there to improve their competitiveness," said a China-based shipping executive at a rival firm, who wanted to remain anonymous due to the sensitivity of the matter.
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