This week the two largest Chinese shipbuilding groups China State Shipingbuild Corporation and China Shipbuilding Industry Corporation announced their intention to merge. If combined the Chinese mega yard’s orderbook will become the largest in the world when measured by number number of orders, dominating Capesizenewbuilding orders. Currently there are 205 capsize vessels on order, with CSSC and CSIC building 71 or 33% of the entire on order fleet.

The merger of CSSC and CSIC is likely a good thing for the shipping industry as a whole.

This is because consolidation should lead to increased efficiencies and cost reductions, the savings of which could be invested in technological innovation and development. Improved vessel designs, fuel saving and other technologies is a good thing for the industry.

Additionally, the merger will create a larger and stronger single financial entity, making it a more attractive yard to build at for owners (especially if the new merged entity can offer a higher percentage of refund guarantees).

The merger of CSSC and CSIC will also provide an entity to compete with the recent merger of Hyundai Heavy Industries and DSME. This should further drive up technological innovation and drive down newbuilding prices as the new mega S.Korean and Chinese yard groups compete against each other. Daewoo and Hyundai announced their merger earlier this year, and have a combined orderbook of 336 vessels or 40.0 million GT. CSIC and CSSC would merge to create a shipbuilding group with a combined orderbook of 434 vessels or 25.7 million GT.

Alternatively, it could be argued that the merger may reduce competition amongst the major Chinese yards which could in turn cause increase in newbuild prices. However, VesselsValue does not believe this will be the case for the reasons given above.

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