Belt and Road means a vigorous expansion of China's merchant fleet going forward
 Expectations of robust growth in the China-owned merchant ship fleet this year have been reinforced by expansion during the first half have been largely fulfilled as the year ends.
New containerships, tankers and bulk carriers contributed a large increment, writes Richard Scott, editor of Global Maritime News, produced by Southampton Solent University's China Maritime Centre for Hellenic Shipping News Worldwide. This trend, he said, looks set to continue, as many new vessels are on order for delivery over the next few years, said the report.
Further reorganisation progress among Chinese state-owned shipping companies has also marked the rest of 2017. Changes under way are designed to improve efficiency and boost competitiveness, enhancing financial performance amid difficult global circumstances in the main market sectors.
In the past two or three years, stronger growth returned to the China-owned fleet. After a previous deceleration, increases of seven per cent in 2015 and eight per cent in 2016 were seen, measured in gross tons capacity. Based on provisional Clarksons Research calculations, the first half of this year saw an increase of five per cent (comparing the fleet at the end of last year with the total at end-June 2017). Numerous newbuilding deliveries were recorded.
At mid-2017 the entire China-owned commercial fleet, excluding Hong Kong-owned vessels, reached 147.2 million gross tonnes. This volume comprises the world's third largest by owner nationality, at 11.5 per cent of the global total. Greece is the biggest and Japan is number two.
During the first half of this year, the containership segment increased nine per cent rise to 23.5 million gross tonnes occurred.
Clarksons Research has revealed that the China-owned fleet frequently visits ports in China. Currently as much as 74 per cent of port calls by ships in this fleet (based on tankers and bulk carriers only) are at domestic ports. The result contrasts with employment of these vessels by some other top shipowning countries.
Organisational changes were also prominent. As well as the mega-merger between Cosco and China Shipping Group last year, another large merger of state-owned shipping companies was arranged as well as the Cosco takeover of Hong Kong's Orient Overseas Container Line (OOCL), the world's seventh biggest container service operator, with 66 owned ships totalling about 440,000 TEU, agreed a US$6.3 billion takeover by Cosco.
During the first half of 2017 reports suggested that the Chinese government was applying pressure for China Merchants Group, and Sinotrans & CSC Holdings, to completely integrate their businesses, signs of which later emerged.
Such consolidation is widely recommended as a necessary step towards competing more strongly and achieving greater market share, an especially valuable attribute when over-capacity prevails and markets are weak. Increasing efficiency, reducing costs, benefiting from business "synergies" and leveraging economies of scale are all seen as useful advantages of this process. But historical examples show that the improved financial performance anticipated sometimes proves difficult to attain.
Drewry Maritime Research characterises OOCL as being a "very well-run company". The combined Cosco-OOCL operation is placed in the number three position among container lines, after leaders Maersk and MSC. Based on June 2017 data, calculations showed an existing Cosco-OOCL fleet totalling 2,185,000 TEU capacity, equivalent to an 11 per cent share of the world containership total. Both Cosco and OOCL are members of the Ocean Alliance which, it is suggested, will be beneficial in facilitating the merger.
A possible obstacle is foreshadowed by a comment that the takeover is likely to prove "tricky and sensitive". The deal is subject to approval by various regulators in Europe and the US as well as China, who will consider competition aspects.
China's merchant ship fleet capacity will be greatly determined by many new vessels ordered from shipyards for delivery in the remainder of this year and 2018, as well as later. However, capacity expansion will be affected also by scrapping of older ships and by second-hand purchases and sales, influences which are not straightforward or easy to predict.
As calculated at mid-2017 orders at shipbuilding yards placed by China-based owners, for all vessel types and sizes, comprised 405 ships amounting to 24.2 million gross tonnes, according to Clarksons Research. The total was equivalent to just over 16 per cent of China's existing fleet. Within this total, 6.8 million gross tonnes or 28 per cent was scheduled for delivery in second half 2017 and 55 per cent next year. The actual timing of newbuilding deliveries may differ from that scheduled, however.
Among notable vessel types on order, containerships in the 19 to 21,000-TEU, and 9,400 to 14,500-TEU range, are prominent. Perceptions of robust future fleet enlargement are reinforced by an underlying theme. A long-stated Chinese government aim is to ensure that a greater proportion of the country's vast seaborne trade is transported in ships owned and controlled by companies based in China. The extensive containership newbuilding programmes are consistent with this broad objective.
In the container sector one commentator has suggested, perhaps controversially and apparently based on supposition, that China's target is to achieve the number one position in the containership operator world ranking. Both commercial and geopolitical logic, it is argued, point in this direction. That contention is based on an impression that China is anxious to protect supply chains, while strengthening its defense and security presence. It is suggested that a much larger container shipping involvement can assist in attaining these objectives.
Other aspects relevant to the upwards fleet trend are visible. How does China's Belt and Road Initiative relate positively to the China-owned merchant ship fleet? The Belt and Road's main physical feature is a planned huge scheme of infrastructure projects intended to improve trade connectivity across a wide geographical area. The "Road" part of the title represents the "21st Century Maritime Silk Road" concept, a sea route pattern stretching from the South China Sea and South East Asia, through the Indian Ocean and Middle East area, into the Eastern Mediterranean.
Port developments progressing in a number of foreign locations link the Road's sea routes with elements of the land routes in the "Silk Road Economic Belt", the second portion of the grand scheme. China's merchant fleet expansion can be related in part to this scheme, although actual shipping services on the sea routes or associated with these have not been accorded as much attention as the improvement of port facilities.
Illustrating how shipping services are evolving, recent news highlighted COSCO Shipping Specialized Carriers Company, which operates 120 ships including multipurpose and heavy lift tonnage. These vessels are often employed beyond Belt and Road countries, to many destinations in Africa and South America. Cargoes of construction materials needed for building power plants, factories, roads and railways are carried, as well as a wide range of heavy plant and machinery and manufactured goods.
Attention has been drawn also to a category of the China-owned fleet where ship employment is fully controlled by foreign companies. This feature occurs where vessels are bought by Chinese companies for leasing to foreign operators. Prominent providers of this type of lease finance are Industrial Commercial Bank of China (ICBC), Minsheng Bank, and Bank of Communications (BoCom). Many containerships have been financed. A total $11.5 billion was reportedly invested in shipping by Chinese leasing groups during 2016.
One news item suggested that, if future market weakness resulted in foreign companies defaulting on payments due to Chinese financiers under leasing arrangements, potentially China could gain a more powerful influence over the global shipping industry. In response, a leading shipbroker contended that such an opinion appeared to be an exaggeration.
Adopting a broad viewpoint, strong evidence points to the China-owned merchant ships fleet experiencing further substantial growth in the years ahead. Partly this may reflect more financing of vessels, leased to foreign shipping companies, which have full long-term operational control. Mostly, however, shipping companies based in China seem likely to be the operators of additional tonnage joining the nationally-owned fleet. Although some uncertainty surrounds the exact pace, a solid upwards fleet trend can be predicted. |
