Within the next couple of years, China Shipping Group is likely to become one of the world's top five container shipping carriers. Two years after establishing its first long-haul container route between Asia and Australia in 1997, the group entered the top 20 list. By the end of 2001 it should feature in the top five, at least if group president and ex-Cosco guru Li Kelin gets his way.
China Shipping Group is the product of three former offshoots of Cosco and several non-ocean shipping entities. Companies that are within the group structure include Shanghai Ocean Shipping, Guangzhou Ocean Shipping, Dalian Ocean Shipping, China Shipping International Maritime Technique Service and Zhong Jiao Marine Industry.
Fears of overcapacity
It mainly operates local Chinese markets, with most container shipping services working on the coastal trades and the short-haul routes between China and Japan and South Korea. However, the speed of its emergence as a major container line on the long-haul routes to and from Asia, Europe and the US, has raised concerns in the marketplace that it might precipitate world over-capacity and lower freight rates.
In just nine months, China Shipping Group has introduced two new services between Asia and Europe, and entered the trans-Pacific trades between China and the US west coast. Importantly, all three new services – the first was started in April 1999 – are being run independently. There are no alliance partners and no vessel or slot sharing agreements.
To operate these three services, China Shipping Group has taken advantage of low charter rates for medium-sized tonnage, and concluded time-related deals on as many 25 vessels. In a cleverly timed venture, the group secured the vessels at the bottom of the charter market, and ensured that deployment would last for at least three years on most of the vessels. During that period, charter rates are expected to continue to rise.
In the agency business, China Shipping Group has established a host of joint venture companies in northern Europe and, more recently, on the Mediterranean coast. In the UK, joint venture operations have been established with Johnson, Stevens, in the Benelux countries Lampke is being favoured, and in the Mediterranean agency networks have been established in Italy, Spain, France and Greece.
To oversee the US market potential, leading agency Norton Lilly and China Shipping Group have established China Shipping (North America) Agency Inc. In the Black Sea area, the group is looking to set up various joint ventures with locally-established companies. On the Indian sub-continent, a newly-planned feeder service to cater for the markets in India, Bangladesh, Sri Lanka and Pakistan will be introduced by mid-2000. This will primarily cater for local market demands linking to a service expected to run between Asia, India and the Middle East.
Inevitably, any shipping line planning such an entry into the long-haul container shipping business cannot rely solely on short term charter leases for its capacity. New building programmes must be envisaged at some stage.
Predictably, therefore, China Shipping Group made its first foray into this sector in early November 1999. Two new 5,500 teu vessels, ordered by Greek ship-owner Costa-mare Shipping at Hyundai Heavy Industries in South Korea, will be taken on charter in 2001. Two additional 5,500 teu vessels will be chartered from German finance vehicle, Nordcapital. These vessels have already been booked in at the Samsung shipyard in South Korea and delivery is slated for 2001.
On the new building front, China Ship-ping Group is about to emerge as the biggest single purchaser of post-panamax container ship tonnage in China. Eight new 5,500 teu vessels, costing around US$480m, are to be built at Dalian New Shipyard and Hudong Shipyard in Shanghai.
The largest single container ship order so far placed in China was through a Sino-Japanese deal, involving ten 5,200 teu vessels ordered by Cosco, initially with Kawasaki Heavy Industries in Japan. Three of the vessels have been sub-contracted to KHINantong shipyard in Jiangsu province.
Threat to Cosco
China Shipping Group's strength is its coverage of the China marketplace. The company has developed services that link all the big China coastal ports with Europe and the US.
In late November the group decided to terminate one of its two Asia/Europe strings in the Mediterranean, thereby introducing calls in Spain, Italy and Greece. It was always planned that one of the northern Europe strings would be developed to cater for the Mediterranean cargo flow. Over a yet to be decided Mediterranean hub port, China Shipping Group will introduce a series of feeder links through dedicated or common user services, to initiate calls in the eastern Mediterranean and the Black Sea.
These areas are prime Cosco trading locations, and the move is already causing concern. Haifa is a Cosco hub port on the Black Sea and it is a port of call on several Cosco services, including those serving northern Europe, Asia and the US west coast.
China Shipping Group has the potential to develop further, especially the trans-Atlantic trade and the Europe/South America trade lanes, although there are no deals ongoing with potential partners on these new services.
The only time a line made such a rapid impact on the container shipping market was in the 1970s, when Evergreen made its entry. Based in Taiwan, Evergreen is now the world's second largest carrier, with a 1999 volume of 3.2m teu. In the early days it, too, initiated a substantial new building programme. But then ships were much smaller and cheaper to build and Evergreen was able to finance the deals from the Evergreen Group. China Shipping Group's capacity to raise funds to support its multi-million dollar new building programme is less obvious.