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French in line to win World Cup (of container shipping)

Following COSCO's deal for OOCL, now CMA-CGM and Hapag Lloyd are reported to be discussing an all-share merger, though neither company has confirmed the rumour and Hapag-Lloyd has rubbished it.

Is this just the pipe dream of an investment banker high with World Cup fever? Or is the liner business in for another round of M&A activity which would catapult The French Line into global first place just as Les Bleus eye the same lofty position at the World Cup in Russia?

CMA-CGM has fallen to fourth place in the league table of largest container ship operators following the COSCO/OOCL deal, which puts the Chinese in third place behind MSC in second and Maersk in first place.

Hapag-Lloyd is currently fifth. A merger with CMA-CGM would put the new entity in first place, as this table shows:

Containership Capacity Under Control (i.e. both owned and chartered. Data approximate due to rounding, from June 2018 to show the situation prior to COSCO/OOCL)

1. Maersk - 4.10 Mn TEU

2. MSC - 3.25 Mn TEU

3. CMA-CGM - 2.25 Mn TEU

4. COSCO - 1.96 Mn TEU

5. Hapag-Lloyd - 1.61 Mn TEU

6. Ocean Network Express - 1.55 Mn TEU

7. Evergreen - 1.09 Mn TEU

8. OOCL 0.69 Mn TEU

9. Yang Ming - 0.64 Mn TEU

10. PIL - 0.42 Mn TEU

This top 10 controls about 17.5 Mn TEU of a total global container ship fleet of about 21.2 Mn TEU. There are only seven operators left with more than 1 Mn TEU under control. The COSCO/OOCL deal combines 2.65 Mn TEU. A European mega-merger would give the new entity a combined 5.71 Mn TEU, crushing Maersk into second place.

While CMA-CGM has about 275,000 TEU of new capacity on order at the shipyards, Hapag-Lloyd has no orderbook. Thus a merger deal would not add a headache of how to deploy even more new ships, easing the search for synergistic cost savings.

I can see how an investment bank would be willing and able to pitch the idea to both potential parties to a deal. While the timing is perfect for France to win the World Cup, the summer lull in business could be an ideal time for executives to mull over this ambitious deal.

The known unknown of course is how European Union competition commissioners would react to the deal. Not being a gambling man, I don't profess to know the outcome of that roll of the dice.

All in all it's an interesting proposal to consider while France prepare to take on Belgium this evening for a place in the World Cup final, a result I am also unwilling to predict!

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