Con­tain­ing losses, sail­ing to­gether

Trade woes are push­ing con­tainer ship­ping firms into new al­liances, re­shap­ing the trou­bled in­dus­try

China Daily (USA) - - BUSINESS - By ZHONG­NAN in Shang­hai zhong­nan@chi­nadaily.com.cn

As global trade flows shrank over the last five years, red ink blot­ted con­tainer ship­ping lines’ fi­nan­cial re­sults, push­ing them into al­liances that are re­shap­ing the mar­ket, cre­at­ing new buzz phrases like re­source in­te­gra­tion, big size, op­er­a­tional ef­fi­cien­cies and route spe­cial­iza­tion.

Han­jin Ship­ping Co, South Korea’s largest ocean ship­ping com­pany by fleet size, launched bank­ruptcy pro­ceed­ings fol­low­ing years of losses in Septem­ber. This has rocked the global trad­ing sys­tem, which in­cludes for­eign govern­ments. Cred­i­tors seized ships, ports re­fused to han­dle Han­jin-linked cargo.

“Con­tainer ship­ping firms’ al­liances have be­come crit­i­cal as the global ship­ping in­dus­try has been con­fronted with both cum­ber­some over­ca­pac­ity and vol­ume slow­downs,” said Wang Haimin, man­ag­ing di­rec­tor of COSCO Ship­ping Lines Co Ltd, the con­tainer unit of China COSCO Ship­ping Corp Ltd, a State-owned en­ter­prise and the coun­try’s big­gest ship­ping com­pany by fleet size.

De­spite the cur­rent good de­mand glob­ally, Wang said the con­tainer ship­ping sec­tor may con­tinue to suf­fer in the short term as freight rates have dropped quickly in re­cent years, prompt­ing a wave of con­sol­i­da­tion in the con­tainer in­dus­try.

“Un­der an al­liance or part­ner­ship, mem­bers can share port calls, net­works and ships. There­fore, they can cut costs. This can re­sult in a large amount of fi­nan­cial sav­ings each year,” said Wang.

Ocean Al­liance, formed by main­land’s China COSCO Ship­ping, France’s CMA CGM SA, Tai­wan-based Ever­green Line and Hong Kong’s Ori­ent Overseas Con­tainer Line, an­nounced ear­lier this month that they will de­ploy 350 con­tainer ves­sels to the global mar­ket to fur­ther chal­lenge 2M and the Al­liance.

With a to­tal car­ry­ing ca­pac­ity of 3.5 mil­lion twenty-foot equiv­a­lent units or TEUs, Ocean Al­liance will be able to pro­vide a ser­vice cov­er­age on a num­ber of trade lanes in­clud­ing 20 trans-Pa­cific and six Asia-Europe ship­ping ser­vices.

For its part, 2M, formed by Den­mark’s Maersk Line and Switzer­land’s Mediter­ranean Ship­ping Co SA, started its op­er­a­tions in 2015, and con­trols more than 2.1 mil­lion TEUs, and man­ages more than 200 ves­sels.

With each firm star­ing at fi­nan­cial losses due to over­ca­pac­ity, three ma­jor Ja­panese con­tainer ship­ping lines said they plan to merge their ship­ping and overseas ter­mi­nal op­er­a­tions.

Wang Hamin, man­ag­ing di­rec­tor of COSCO Ship­ping Lines Co Ltd

Mit­sui OSK Lines, Nip­pon Yusen KK and K Line plan to form a joint ven­ture to com­bine their ship­ping op­er­a­tions. They are also merg­ing ter­mi­nal man­age­ment busi­nesses out­side Ja­pan. They an­nounced their plans be­fore the Ocean Al­liance re­leased its ini­tial five-year plan ear­lier this month.

Fol­low­ing the move by Ocean Al­liance, another part­ner­ship, sim­ply called the “Al­liance”, com­pris­ing firms in Europe and Asia, came into be­ing on Nov 8. It has in­dus­try ma­jors such as NYK Lines, Mit­sui OSK Lines, Ha­pag-Lloyd AG, United Arab Ship­ping Co, Kawasaki Kisen Kaisha Ltd and Yang Ming Marine Trans­port Corp. The Al­liance will launch joint op­er­a­tions from April.

Un­der the plan, the six ship­ping com­pa­nies will of­fer 31 ser­vices on the main East- West trade lanes us­ing their 240 ships, cov­er­ing more than 75 ports.

With mul­ti­ple al­liances in place, the in­dus­try’s fo­cus is now on ser­vice qual­ity and sched­ule re­li­a­bil­ity, said Lee Mong-jye, pres­i­dent of Ever­green Marine Corp (Tai­wan) Ltd, a mem­ber of the Ocean Al­liance.

The Ocean Al­liance will con­tinue to work closely with the au­thor­i­ties con­cerned to en­sure full com­pli­ance with ap­pli­ca­ble laws and reg­u­la­tions, and se­cure the nec­es­sary reg­u­la­tory ap­provals for the al­liance to com­mence op­er­a­tions from April.

“Un­like other ship­ping al­liances, Ocean Al­liance has its nerve cen­ter in Hong Kong, which will mon­i­tor its op­er­a­tions and col­lect mar­ket in­for­ma­tion,” said Andy Tung, chief ex­ec­u­tive of­fi­cer of OOCL.

Rodolphe Saade, vice-chair­man of CMA CGM, said mem­ber com­pa­nies of the Ocean Al­liance will have an at­trac­tive se­lec­tion of fre­quent de­par­tures and di­rect calls to meet their sup­ply chain needs, in­clud­ing ac­cess to a vast net­work with the largest num­ber of sail­ings and port ro­ta­tions con­nect­ing mar­kets in Asia, Europe and the United States.

CMA CGM, a key driver in the al­liance, will de­ploy 35 per-

Un­der an al­liance or part­ner­ship, mem­bers can share port calls ... This can re­sult in a large amount of fi­nan­cial sav­ings each year.”

cent of con­tainer ships within the al­liance’s ser­vice net­work in the ini­tial stage.

The French com­pany will also speed up plans to of­fer a wider range of ser­vices in China be­cause more Chi­nese com­pa­nies are keen to move to emerg­ing mar­kets to ben­e­fit from boom­ing bi­lat­eral trade, pref­er­en­tial trade tar­iffs and in­vest­ment op­por­tu­ni­ties.

Huang Shengqiang, di­rec­tor of the Gen­eral Ad­min­is­tra­tion of Cus­toms’ port man­age­ment of­fice, said the ship­ping mar­ket in China will con­tinue to grow, and one of the most im­por­tant changes is the com­po­si­tion of its for­eign trade.

“Growth in trade with ma­ture mar­kets in the United States and the Euro­pean Union is mod­est, while trade with new mar­kets in coun­tries along the Belt and Road Ini­tia­tive is surg­ing fast,” he said.

Ea­ger to fur­ther en­hance its earn­ings abil­ity, China COSCO Ship­ping will con­tinue to di­ver­sify its busi­ness op­er­a­tions, said Xu Lirong, the group’s chair­man.

The new moves will likely con­tinue to strengthen its op­er­a­tions from Chi­nese ports to Europe via the Arc­tic North­east Pas­sage by spe­cial­ized cargo ships. They will also en­able dig­i­tal­iza­tion tech­nolo­gies and help de­velop overseas port fa­cil­i­ties such as Pi­raeus Port in Greece, op­ti­mize their re­sources and cre­ate new mar­ket growth points, es­pe­cially in the port ser­vice busi­ness in overseas mar­kets.

In terms of de­vel­op­ing the con­tainer ship­ping busi­ness, China COSCO Ship­ping will raise the op­er­a­tional ca­pac­ity of TEUs to over 2 mil­lion by the end of 2018, to scram­ble more mar­ket share from its three Euro­pean ri­val son East-West and South-North routes.

The Chi­nese com­pany is con­sid­er­ing buy­ing a num­ber of con­tainer ter­mi­nal as­sets of the trou­bled Han­jin Ship­ping Co. It has al­ready agreed to spend $738 mil­lion on a new port in Abu Dhabi in the United Arab Emi­rates.

REUTERS

A worker walks past a con­tainer ship at Mun­dra Port in the west­ern In­dian state of Gu­jarat in this file photo.

REUTERS

A man works at a con­tainer area at the Yang­shan Deep Wa­ter Port, south of Shang­hai in this file photo.

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