The demand and supply of dry freight containers is largely driven by China's growing foreign trade, explains CIM Containers' company secretary Mr Yao Bin. While growth has been strong over the past 15 years, it could accelerate in future. "China's entry to the World Trade Organisation, whenever it happens, will give foreigners greater access to the domestic market and thus stimulate foreign trade even further. We believe that we can ride high on the increasing containerisation for the next 10 years."
China: the dominant force
China's fast-growing foreign trade and its on-going process of standardising container shipping is already a dominant force in shaping the world market for freight containers. China's total production of 600,000 teu in 1996 represents 60 per of the world total. This is a five fold-fold increase on the 120,000 teu manufactured in 1991 in China which then accounted for only 13 per cent of the world total.
CIM Containers, which is heading towards a 17 per cent global market share in 1996, hopes to realise net profits of almost Yn200m (US$25m) for the year. This would represent an increase in profits of 43 per cent over 1995. By the end of 1996, the company was expected to have produced and sold in excess of 180,000 teu ? about 30 per cent of the domestic market.
Growth through acquisition
The company, which is headquartered in Shenzhen, was originally a 50-50 joint venture between East Asiatic of Denmark and an American partner. It was set up during China's first wave of enthusiasm for container shipping in the early 1980s. When the US partner pulled out, it was replaced by China Merchants Development, a Beijing-backed Hong Kong company. Later, China Ocean Shipping Co. (Cosco) took a stake in the company. The two newcomers have, after A- and B-share offerings in the past two years, become the largest shareholders in the company. Cosco and China Merchants Development each own a 23.7 per cent stake.
The seemingly quick returns on investment and relative ease of market entry (container manufacturing is highly labour intensive) has resulted in a mushrooming in the number of China-based manufacturers in the past few years. But most of them are small-scale and only 10 have an annual production capacity of more than 50,000 teu.
CIM Containers achieved its economies of scale by aggressively acquiring stakes in other small manufacturers along the China coast. Apart from a solely-owned company in Shenzhen, it now boasts a 52 per cent stake in Nantong Smooth Sail Container in Jiangsu province; a 51.2 per cent stake in Dalian Containers Manufacturing in Liaoning province; and a 40 per cent stake in Xinhui CIMC Container in Guangdong province.
Economies of scale
According to Yao, it is always cost-effective for shipping companies to buy containers locally, and therefore the company attracts both domestic and overseas clients. Chinese exports, such as raw materials, textiles and toys, tend to be bulky, so that the demand for containers in the China trade is growing faster than would be suggested by the growth
in trade value. For this reason, many overseas container manufacturers are seeking to enter the Chinese market.
Economies of scale have allowed the company to reduce costs and offer competitive prices. The increased sales which these prices produce allows the company to acquire smaller competitors. "Acquisitions will be our best way to further increase our capacity in future," says Yao.
He believes that a current over-supply in the domestic market will prove "only temporary" and will be rationalised by market forces. "Small manufacturers will have to give way eventually to big ones which are capable of competing on all fronts," says Yao. But competitiveness is determined not only by good price and quality, but also by the variety of products and the places to which deliveries can be made, he believes.
The firm's most serious competitors are South Korean. The importance of the China trade and rising production costs in South Korea have led the Korean giants Jindo and Hyundai to move the bulk of their production to China. Jindo has invested in two companies, one in Guangzhou and the other in Shanghai. Hyundai has set up a joint venture in Tianjin.
CIM Containers has recently diversified into refrigerated containers and established a joint venture production base in Shanghai. The higher technology needed to make refrigerated containers helps to yield a better margin than dry freight containers. There is currently a shortage of refrigerated containers in the world market ? only 75,000 teus were manufactured in 1995. South Korean firms, which between them manufactured 50,000, remained the dominant players. Full production in the Shanghai joint venture, which has a planned annual production capacity of 10,000 teu, began at the end of November 1996.
Airport revenues taking off
The company is also looking to expand its dry freight container distribution network and improve its service to customers. Mr Mai Boliang, the general manager of the company, harbours an ambition to acquire a stake in the Hong Kong-listed company Singamas. Singamas currently operates the world's largest single freight container manufacturing facility in Shanghai with an annual production capacity of 80,000 teus.
One source of growing revenue lies in airport ground facilities. The company started manufacturing boarding bridges in 1992. By the end of 1996, it will have completed 25 bridges. The company estimates that currently it has capacity to manufacture 50 or more of these boarding bridges in a year. It is the country's only manufacturer of boarding bridges approved by China's Civil Aviation Authority and it has supplied bridges to airports in Hong Kong, Macao, India and Inner Mongolia.
The company also has a virtual monopoly in supplying such facilities as hoistable loaders and food carriers, with 80 per cent of the domestic market share. In 1995, sales of airport ground facilities accounted for Yn120m, about five per cent of total sales. They generated profits of Ynl20m – nearly 10 per cent of the company's total profit.
Ambitious airport construction schemes included in the 1996-2000 five-year plan are proceeding slower than was hoped because of a continuing shortage of central government funds, but the company believes that airport construction should pick up again with the gradual easing off of austerity measures.
In another recent development, the company has begun to work closely with the Ministry of Railways to help containerise rail freight transport. It has also set up a joint venture in Shanghai in 1995 with a total investment of US$1 m to produce diesel power generators.
But whatever happens, Yao believes that the manufacturing of containers will remain the main source of profits for the next five years.