China Cosco Shipping Corp., the new shipping giant spawned by the merger of Cosco Group and China Shipping Group, will trigger further consolidation in the industry when it starts operations later this month, according to The Wall Street Journal.

The merger will allow the two Chinese carriers to stop competing against each other domestically and overseas. China’s economic slowdown has hurt the prices of commodities such as oil, iron ore and coal, hurting the shipping companies’ profitability.

WSJ reports that the merged entity, which will supplant Maersk Line of Denmark as the world’s largest shipping company by ship value, starts operations Feb. 18.

Industry executives said that while shipping mergers are rare, when companies of such size come together, further consolidation likely will follow. One example came in December, when French shipping company CMA CGM made a deal to buy Singapore’s Neptune Orient Lines for about $2.4 billion.

Biggest pulls
«The [China Cosco Shipping] merger will put an end to the two companies competing for the same clients in container trade, but it doesn’t come without challenges,» said Lars Jensen, chief executive of SeaIntelligence Consulting to WSJ. «An obvious one is that cargo owners, especially in China, will now have fewer choices to ship their goods and may abandon CCSC if a foreign competitor gives them better pricing.»

Another issue is that Cosco Group and China Shipping Group currently belong to separate global shipping alliances, and the merger will likely kick off anti-trust concerns.

«They will either have to pull out from at least one of the alliances or pull out from both and form a separate alliance hoping to attract other operators to join them,» Jensen said. «But with capacity commitments and other sharing of assets already in place, it won’t be an easy task.»

For more of The Wall Street Journal story: www.wsj.com