China Shipping News

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Buoyant trade has shipping firms ordering new vessels
Hong Kong Standard Staff reporter
January 1, 2005

China's shipping companies have been rushing to add new vessels, betting that the robust international trade and demand for their services will continue in 2005.

China Shipping Development said on Friday it has ordered five crude oil vessels for US$242 million (HK$1.88 billion), while China Shipping Container Lines agreed to buy a 27-year-old container ship for 71 million yuan (HK$66.8 million).

"Since the first quarter of 2004, the crude oil transportation market has been very busy," China Shipping Development said. "The directors ... believe that the shipping market will maintain persistent growth in 2005."

Strong global economic growth has fuelled energy consumption and demand for consumer and industrial goods, thus benefiting shippers.

"As there is an increase in the demand for container spaces in the company's domestic trade lanes, the company intends to deploy the [newly acquired] vessel in such trade lanes in order to further strengthen its shipping capacity and to satisfy such increasing demand," China Shipping Container said.

The shipping firm also agreed to buy the remaining 50 per cent stake it does not own in Shanghai Puhai Shipping, a sub-route services provider, for 29.7 million yuan and plans to trim capital injection into the unit by 300 million yuan to 200 million yuan over the next two years. The remainder will be used to buy or build ships, it said.

Guangzhou Shipyard will build four 52,500-tonne crude oil vessels for China Shipping Development, the largest the shipbuilder will have constructed, for US$144 million. The ships are expected to be delivered between 2007 and 2008.

Another 298,000-tonne vessel, to be built by a Dalian-based firm, will be delivered in November 2007.

China Shipping Development shares rose 0.78 per cent on Friday, and gained 20 per cent in 2004. China Shipping Container was up 0.81 per cent, but have shed 1.57 per cent since their debut in June. Guangzhou Shipyard shares tumbled 13.66 per cent in 2004.

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China Merchants confirms US$673 mln Shanghai port buy

HONG KONG, Dec 30 (Reuters) - State-backed China Merchants Holdings (International) Co. Ltd. on Thursday confirmed that it will spend 5.57 billion yuan (US$672.7 million) to buy a 30 percent stake in container terminal operator Shanghai International Port (Group) Co. Ltd.

China Merchants, which will gain a foothold in Shanghai's fast-growing container port through the deal, said about 20-25 percent of the purchase price will be funded with internal resources and the rest through borrowings.

Shares in China Merchants, which have rallied in anticipation of the Shanghai investment, were suspended on Wednesday afternoon pending an announcement. Reuters reported on Wednesday that China Merchants was making the Shanghai Port investment.

The company said it has applied with the Hong Kong stock exchange for a resumption of trading on Thursday morning.

China Merchants sold its tanker business and spun off its toll roads earlier this year in a group reorganisation to focus on its fast-growing port services business. Its interest in Shanghai, the world's third-largest container port behind Hong Kong and Singapore, has been well known in the market.

State-controlled Shanghai International Port Group will be converted into a joint stock company as part of the deal.

China Merchants shares reached a post-1997 intraday high of HK$14.30 on Dec. 21. The stock rose 1.8 percent to HK$14.10 before it was suspended on Wednesday.

(US$=8.28 yuan)

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Lloyd's List
January 10, 2005
China Shipping plans to increase freight rates to fund expansion
Keith Wallis in Hong Kong

CHINA Shipping Container Lines is set to raise freight rates by up to 6% this year as its seeks to spend Yuan 3.5bn ($427m) on new containerships and boxes. About 85% of the cash, Yuan 2.97bn, is earmarked for investment in new vessels.

CSCL general manager Jia Hongxiang declined to specify the number or size of ships but his comments are believed to relate to a raft of newbuildings CSCL has ordered in the past 18-24 months.

The carrier, which listed in Hong Kong last June, has nine 4,250 teu boxships on order at Dalian New Shipbuilding. The vessels, including two ordered in July, will be delivered this year and next.

CSCL also has five 4,250 teu containerships on order at Hudong-Zhonghua shipyard in Shanghai which are also due for delivery this year and next.

While CSCL has made staged payments during the fabrication of the vessels, typically CSCL would pay up to 70% of the cost of each ship on delivery.

Mr Jia did not specify where the money would come from, but CSCL's Hong Kong listing raised $ 985m. The company, ranked tenth among the world's container lines, is aiming to be the third largest line by 2010.

- Grimaldi has ordered three more ships from Uljanik Shipyard, bringing to 14 the orders it has placed with the Croatian shipbuilder over the past four years.

The latest $ 200m order calls for delivery of three ro-ro ships with space for 3,000 cars and 1,300 teu as container capacity, with delivery set for 2008-09.

The previous 11 orders at the yard have been for pure car truck carriers of 4,300-5,400 car capacity.

Eight of the newbuild PCTCs, including all three larger 5,400 car capacity vessels, have been delivered so far. These have all been deployed within the Euromed network.

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China shipbuilders rushing to satisfy booming economy

LONDON, Jan 30 (AFP) - China is rushing to build vessels to ship home the huge amounts of commodities its booming economy demands, amid reports it is also constructing military bases to help safeguard its shipments of oil.

"China is building ships as fast as it can," said Dennis Petropoulos, an analyst for British shipbroker Braemar Seascope.

"It would like to build more and there are people in there opening shipyards, and there are projects to increase shipbuilding capacity, but those projects take time and will not come on stream for three to five years."

The International Energy Agency (IEA) warned earlier this month that the world's ship-building yards were booked up for years in advance.

"China will move its cargoes on any ships it can," Petropolous said.

"There are projects to increase capacity in China, definitely, because (South) Korea and Japan cannot increase their capacity.

"Shipyards in Korea and Japan are booked out until 2007 and maybe a good chunk of 2008 has been allocated. Chinese shipyards are booked out until 2007 but not a large chunk of 2008 has been allocated," he added.

China has meanwhile launched a plan to double its current port capacity by 2010 by strategically developing facilities in the Bohai Rim and the Yangtze River and Pearl River deltas, state media reported last month.

The blueprint adopted by the State Council, or China's cabinet, said the three port areas would focus mainly on containers, iron ore, crude oil and coal.

China's booming economy expanded 9.5 percent last year after 9.3 percent in 2003, according to official data published last week.

The fourth quarter alone showed growth steaming ahead at 9.5 percent year-on-year, up from 9.1 percent in the previous three months despite Beijing's efforts to cool the economy.

Analysts meanwhile said that Chinese growth would continue to win strong support from the country's thirst for imported raw materials.

"The Chinese authorities are thinking, let's put this (material) on our own ships rather than chartering other people's ships", an industry source told AFP.

"With oil prices going up and freight prices going up at the same time, they

suddenly feel a bit out of control," added the source, who wished to remain anonymous.

While China needs vessels to transport its vast amounts of imported commodities, the country was also reportedly developing military bases and diplomatic ties from the Middle East to the South China Sea in order to protect its oil shipments and strategic interests.

China's "string of pearls" strategy is according to an internal report prepared for US Defense Secretary Donald Rumsfeld and recently reported by The Washington Times.

China's move reportedly includes a new naval base under construction at the Pakistani port of Gwadar, naval bases in Myanmar, a military agreement with Cambodia, strengthening ties with Bangladesh and an ambitious plan under consideration to build a 20-billion-dollar canal in Thailand to bypass the Strait of Malacca.

"We need to acknowledge that China is indeed a net importer of energy resources and therefore has a long-term and immediate interest in enhancing energy security," said Jürgen Haacke, an expert in southeast Asian affairs at the London School of Economics.

But he said China had a long way to go to secure the safety of its shipping routes.

"There is a tendency in the media to exaggerate the achievements which China has had to date when it comes to the efforts to enhance the energy security particularly as regards control over shipping lanes," Haacke said.

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Big Container-Shipping Firms Have Room Aboard for Growth
By Mary Kissel
1 February 2005
The Asian Wall Street Journal

Hong Kong -- THERE'S STILL TIME to load up on shares of the two biggest makers of shipping containers, analysts say.

During 2003 and 2004, China International Marine Containers (Group) and Singamas Container Holdings gave investors an enjoyable ride. Shares of CIMC, as the company with about 50% of the world market is known, rocketed 236%. Shares of Singamas, which has about 30% of the market, surged 167%.

Analysts consider the Chinese companies a duopoly in the business of making twenty-foot equivalent units, also known as TEUs, the most common box type of container. They say the companies, benefiting from industry consolidation and growing world trade, should do well again for 2005.

While it's unlikely the shares can repeat their recent gains, analysts say they could rise 10% to 20% for 2005, compared with predictions of single-digit returns in global stock markets.

"In this industry you've only got two players, they have pricing ability," and despite competitive pressures, they have managed to pass steel price increases on, says Louisa Lo, a fund manager at Schroder Asset Management in Hong Kong. "They benefit from the economy of scale," she adds.

The Chinese duopoly was quick to capitalize on buying opportunities in the wake of the 1997-98 Asian financial crisis. As container makers in once-dominant South Korea fell into bad financial straits, the two snapped them up. The Chinese companies diversified their product range and gained powerful market positions.

While the container industry was consolidating, trade links between China and the U.S., the current engines of world trade, were strengthening. Beijing's entry into the World Trade Organization in 2001 encouraged more companies to set up shop in China, assemble goods and transport them to U.S. consumers. The cycle remains strong, as does China's growth: Beijing announced last week that China's economy grew 9.5% year-to-year in the fourth quarter. That was significantly higher than many economists estimated, though few expect China's growth to continue at that pace.

Last week CIMC, based in Shenzhen, said that its 2004 net profit would likely be three and a half times the 2003 figure, thanks to better sales volume and higher container prices. CIMC shares trade in U.S. and Hong Kong dollars on the Shenzhen Stock Exchange. Singamas, which is based and listed in Hong Kong and trades in Hong Kong dollars, will release its annual results the week of March 21.

"It's been one of the best shipping cycles in 20 years," says Christopher Lee, an associate director at Standard & Poor's Asian-Pacific Equity Research in Hong Kong.

The heady run hasn't been without hiccups. Container makers rely heavily on steel to produce their products, and the metal accounts for a big chunk of a box's final selling price. So a spike in global steel prices early last year tested CIMC and Singamas.

CIMC, because of its potent market share, managed to pass through price increases to its customers, but Singamas struggled to do the same and saw its profit margins narrow. Mr. Lee expects Singamas's operating margins -- which average about 6% to 7%, compared with CIMC's 16% -- to improve as the smaller company digests recent acquisitions and raises productivity.

In the longer term, some analysts fear that a slowdown in global economic growth could damp container orders. But the container makers have a hidden source of demand: a backlog of purchases from shipping lines. It can take a year and a half to deliver a small ship to a customer, and most companies order their containers at least three to six months in advance. Thus, even if economic growth rates trend down, analysts predict the increase in container demand will remain steady at about 11% a year over the next three years, compared with a historical average of 8%, based on the ship-construction pipeline.

"The container ship and box are like a car and its tire," says Michael Chan of investment bank BOC International in Hong Kong. "You can't have a car ready with no tires." Mr. Chan, who has an "outperform" rating on both stocks, expects CIMC to rise about 30% this year while Singamas gains about 25%.

Shipping-container companies also have benefited from a rise in the price of their product, which has mirrored the increases in steel, jumping to US$2,200 a container from about $1,400 in 2004, according to Smith Barney. Even if prices moderate this year, analysts don't expect a large decline in profit for CIMC and Singamas because they operate on a cost-plus basis, adding a commission after they buy steel at the market price. The companies can do this, market observers say, because of their duopoly.

CIMC and Singamas shares look inexpensive when compared with broader stock markets. According to S&P's calculations, CIMC and Singamas are trading at about nine and eight times, respectively, their projected 2005 earnings, compared with an average of about 16 to 18 times for the broader Hang Seng index.

"Before the China growth story, nobody paid too much attention to Singamas," says Winson Fong, deputy chief investment officer for Asia Pacific ex-Japan at SG Asset Management, a unit of Societe Generale SA of France. Mr. Fong bought Singamas shares in 2003 at about HK$1.50 (19 U.S. cents) each; they closed yesterday in Hong Kong at HK$4.75. "We're comfortable to stay long Singamas," he says.

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Cosco Shiprepair looking to build
Irene Ang
18 February 2005
Tradewinds

A Chinese giant traditionally known for repair work is moving into shipbuilding.

China's biggest vessel repairer, the Cosco Shiprepair Group, is poised to break into the shipbuilding arena.

A source close to the company says Cosco Shiprepair is in negotiations with shipowners from China and the US to build handymax bulkers. The ships will be of around 53,000 dwt.

Sources tell TradeWinds that Cosco Shiprepair is planning to construct the newbuildings at its new yard in the Zhoushan archipelago.

Last year, the company bought a privately owned repair yard on Liuheng Island and is planning to spend CNY 2bn ($240m) to transform the site into a mega-repair facility. It aims to get 20% of China's enormous amount of repair work. The new Zhoushan repair yard is scheduled for completion by the end of 2005. It will have three repair berths of 70,000 dwt, 100,000 dwt and 150,000 dwt, two drydocks of 150,000 dwt and 300,000 dwt and one panamax-size slipway.

Cosco Shiprepair is planning to use the slipway for newbuilding construction. It aims to deliver its first vessel at the end of 2007 or early 2008.

Industry sources say Cosco Shiprepair has not worked out the number of ships that it would be able to construct in a year because shipbuilding is a total new business for the company.

Cosco Shiprepair was formed in January 2003, when the commercial activities of Cosco's four yards were merged in a new Shanghai headquarters.

[Sen]

what are the world's 10 largest shipping companies? Maresk..K-Line, Hanji Evergreen maybe? is COSCO up there?

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China To Increase Anti-Terror Measures For Its Ports '05
01 March 2005

BEIJING (AP)--China said Tuesday it plans to establish anti-terror teams this year to monitor global terrorist activities and prevent attacks on its ports.

In 2005, the Administration for Quality Supervision and Inspection and Quarantine will improve port emergency plans and come up with more effective anti-terror measures, said the administration's Vice Minister Ge Zhirong.

"We are going to get together a group of relevant experts from the administration to analyze terrorist activities taking place overseas for any new methods they might be employing" and to come up with counter measures, Ge said.

China's Cabinet ordered increased terror monitoring in the wake of the Sept. 11, 2001, attacks in the U.S. but the administration has so far "not detected any items of a terrorist nature in China's ports," Ge said at a press conference.

"But we are going to better prepare ourselves for the worst case scenario to prevent the future occurrence of such terrorist activities," he said.

Maritime and defense experts in Asia have warned that commercial shipping routes and ports are vulnerable to terrorist strikes.

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China container transport market blooming
02 March 2005
Xinhua's China Economic Information Service

BEIJING, March 2 (CEIS) – The growth momentum of China’s container shipping market continued into 2005, with abundant resources of goods and stable transport charges.

The Shanghai Shipping Exchange (SSE) put the integrated shipping charge index at 1173.23 points on January 28, rising by 3.6 percent.

The price indexes on the European and Mediterranean routes stood at 1,543.60 points and 1,673.12 points, down 1.8 percent and 5.1 percent respectively over the last month of 2004, with that on the European route registering 1,300 US dollars/TEU, and that via the Shanghai Port, the lowest 1,250 US dollars/TEU. Shipping companies forecast that the price can hardly climb in the next month due to cargo shortages.

The price on the North American route was kept stable without apparent rises in the sources of cargo. The integrated shipping charge index for W/C America service released by the SSE on January 28 stayed at 1,361.97 points. Statistics showed that the container throughput of W/C America/Long Beach/Los Angles rose by 11 percent over 2003 to reach 13.1 million TEUs, including 5.8 million TEUs at Long Beach port and 7.3 million TEUs at the L.A. port, up 24 percent and 1.98 percent year on year, with the combined growth of less than 18 percent over the previous year.

The Japanese route handled more containers, with the price adjusted upward to 300 US dollars/TEU. Its integrated shipping charge quoted at 858.93 points, up 5.1 percent. The amount of cargo is expected to go upward until the busy month of March.

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Cosco Pacific expands on back of box demand
4 March 2005
Lloyd's List

AS DEMAND leaps for boxes, Cosco Pacific has decided to spend $353m this year expanding its container capacity, writes Sam Chambers in Hong Kong.

The Hong Kong-listed subsidiary of China Ocean Shipping (Group) Co is the world’s fourth-largest container leasing firm, with around a 10% market share. It is also an extensive investor in container terminals, primarily in China. It will add 178,300 teu this year, 15% more than it added last year. At the end of 2004, Cosco Pacific owned 919,128 containers.

Also initialled on Cosco Pacific’s 2005 budget is $350m for terminal acquisitions including at Dalian, Tianjin and Guangzhou in China as well as at Long Beach in California. In a recent report, investment bank Morgan Stanley suggested Cosco Pacific will earn $200m in 2004, $301m in 2005 and $316m in 2006. Its full-year results are announced today.

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HK COSCO Pacific Agrees To Buy Stakes In 4 China Ports
4 March 2005
Dow Jones

The four port projects include a 30% stake in a four-berth terminal at the Tianjin port in northern China and a 20% stake in a five-berth terminal at Ningbo, Zhejiang province.

The two terminals are expected to begin operations in the second half of 2007.

COSCO Pacific has also agreed to take a 20% stake in a five-berth terminal in Nanjing, which is already operational.

In southern China, COSCO Pacific has agreed to take up a 35%-40% stake in the Nansha port in Guangzhou, which will start operating in the first half of next year.

COSCO Pacific is 54%-owned by mainland shipping group China Ocean Shipping (Group) Co., commonly known as COSCO Group.

- By Julie Wang
- Edited by David Riordan

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Shenzhen container throughput up 16.6pc
5 March 2005
South China Morning Post

The volume of trade handled at the port of Shenzhen last month expanded a comparative 16.6 per cent as western demand for China-made goods continued.

Containerised throughput in Shenzhen - generated mainly by terminals in Chiwan, Shekou and Yantian - exceeded 974,300 20-ft equivalent units (teu) for the month despite the impact from a week of holidays in China.

Yantian, the Hutchison-managed terminal on the eastern side of the Pearl River Delta, again led all Shenzhen ports, moving more than 449,500 teu, or 8.8 per cent more than last year. Chiwan moved almost 262,000 boxes, up a comparative 36.6 per cent. Shekou moved a little more than 149,100 boxes, up 12.3 per cent. The remainder was handled across the port's smaller berths.Russell Barling

asia-pacific carriers move 117m passengers in year

More than 117 million business and leisure travellers flew on Asia-Pacific-based airlines last year, up 22.5 per cent on the Sars-depleted numbers of 2003.

The 17 members of the Association of Asia-Pacific Airlines managed to boost their aggregate load factor - the proportion of seats filled - 3.4 percentage points, to 73.1 per cent.

Cathay Pacific beat all association members in December last year with a load factor of 79 per cent. The volume of cargo carried by members last year grew 13.8 per cent to 48.6 billion freight tonne kilometres, an industry measurement equal to a kilo of goods flown one kilometre.Russell Barling

general motors venture expands buick range

General Motors (GM), the world's largest carmaker, has expanded its Buick range and cut prices of previous versions to compete with Volkswagen and other carmakers in China.

Shanghai General Motors, a venture between GM and China's largest carmaker, Shanghai Automotive Industry Corp, has started marketing two new versions of the Excelle and a new version of its luxury Regal, according to the company.

The price of the Excelle had been cut to 117,800 yuan, while the older version of the Regal now sold for 203,800 yuan, it said. Shanghai GM did not disclose the size of the discounts or previous prices for the cars.Bloomberg

hactl volume drops as holiday eats into demand

Hong Kong Air Cargo Terminals Ltd (Hactl) saw business decline last month due to the Lunar New Year festivities affecting demand for flights to and from the mainland.

Provisional figures released yesterday indicated Hactl's volumes for the month dipped a comparative 12.4 per cent to 146,362 tonnes. The decline was led by imports, which fell 18 per cent to 45,378 tonnes. Exports were down 14.7 per cent for the month at 75,443 tonnes.

Cumulative tonnage at Hactl in the first two months reached 321,134 tonnes, or up 2.7 per cent on last year.

Russell Barling

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China Shipping to Buy 39 Extra Ships
By Mai Tian
08 March 2005
China Daily

China Shipping (Group) Ltd, the country's second largest sea transport operator, will buy 39 ships this year at a cost of 8 billion yuan (US$966 million) to meet surging demand.

The company's plan is part of its strategy to be running one of the world's largest three fleets by 2010.

Li Kelin, president of China Shipping (Group), told Reuters that the new ships, including 6 oil tankers, will add 2.2 million tons to the company's total capacity, an increase of 17 per cent.

China Shipping, parent of Hong Kong-listed China Shipping Container Lines and China Shipping Development, has a fleet of 417 ships, including 90 oil tankers and 120 container vessels.

Their deadweight reached 13 million tons in 2004.

A company spokesman yesterday declined to comment on the report.

Reuters reported the group will finance the acquisitions with bank loans and existing funds.

China Shipping is enjoying rapidly increasing demand for its services, spurred by a bottlenecked rail network since 2003.

Much of China's coal has to be moved off the tracks and onto water to be shipped from major ports in North China, such as Qinhuangdao, to markets in the east and south.

The company delivered more than 100 million tons of coal last year, or 5 per cent of the country's total coal output.

The increase saw China Shipping reap a windfall last year. It posted a pre-tax profit of 8.5 billion yuan (US$1 billion) in 2004, up 340 per cent from 2003.

"China's existing transport capacity is inadequate to meet the demand for coal," said Li, who is attending the annual meeting of China's National People's Congress.

"The situation will last two to three years," he added.

Li was also quoted as saying that the group's shipping prices should rise by 3 to 4 per cent this year, driven by rising oil prices.

Global shipping rates reached record highs over the past year on the back of voracious demand from developing countries, like India and China, for coal, oil and other raw materials.

China Shipping earlier said it planned to increase its container capacity from the current 280,000 twenty-foot equivalent units (TEU) to 650,000 TEUs by 2010, ranking it third in the world.

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Top Chinese container line COSCO sails for HK IPO
By Alison Leung

HONG KONG, March 11 (Reuters) - China's top shipping group, China Ocean Shipping (Group) Co. (COSCO), plans to float its container shipping arm, the world's seventh largest, in a Hong Kong IPO that is expected to raise more than $1 billion.

Hong Kong-listed COSCO Pacific Ltd., which leases shipping containers and operates terminals, said on Friday that sister firm China COSCO Holdings Co. Ltd. had submitted paperwork to the stock exchange to list its H-shares.

The shipping sector is booming worldwide thanks to China's surging economy. Many experts expect freight rates and volumes to hit fresh highs this year, but some question how much longer the momentum can last and worry about a flood of new capacity poised to enter the market.

"We think the container shipping industry has already passed its peak in the current cycle," ABN AMRO analyst Osbert Tang wrote in a research note on rival shipper Orient Overseas (International) Ltd.

COSCO Holdings will hold state-run COSCO Group's interests in container shipping and related businesses and will become the direct parent of COSCO Pacific.

But COSCO Pacific's listing position and its businesses will remain unchanged, the statement said.

Analysts said including a controlling stake in COSCO Pacific in the newly formed company will help the listing vehicle offset some of the cyclical risk inherent to shipping lines.

"COSCO Pacific is trading at around 16 times P/E while container shipping firms are only around 4 times," said Michael Chan, an analyst at BOC International.

The company gave no financial details of the proposed listing. A source familiar with the situation said the deal should be worth more than $1 billion.

Shares in COSCO Pacific have jumped 52.4 percent over the past year, giving it a market value of US$4.87 billion. Its shares ended 2.35 percent higher on Friday.

COSCO Group operated 123 container ships with total capacity of more than 300,000 20-foot-equivalent units (TEU) at the end of 2004, analysts said.

In January, it ordered four 10,000 TEU container ships, the largest in the world, from South Korea's Hyundai Heavy Industries Co.

HSBC and UBS are underwriting the deal. (Additional reporting by Daisy Ku in Beijing).

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Wharf's MTL to get Shenzhen port project approval soon

HONG KONG, March 8 (Reuters) - Wharf Holdings' (0004.HK) Modern Terminals Ltd. said on Tuesday it will get Beijing's final approval soon for a container terminal project in southern China with a total investment of up to 7 billion yuan (US$845 million).

"I believe we will have approval for Dachan Bay in the next two to three months," said Modern Terminals Managing Director Erik Christensen.

MTL announced last year that it would take 65 percent of the first phase of the Dachan project, which will have total capacity of about 2 million 20-foot equivalent units (TEUs) a year.

The project is located in China's southern boomtown of Shenzhen, a key gateway to the country's huge Pearl River Delta manufacturing base.

China's State Council introduced a master plan last December with an aim to co-ordinate port development in the nation and that delayed approval of the project, Christensen said.

"Initially it caused a bit of delay but it doesn't matter because while we are waiting for the approval we are still building," he told reporters after a ceremony to celebrate MTL's handling of its 50 millionth container in Hong Kong.

The terminal was expected to begin operations in the second half of 2007, Christensen added.

Market sources had said the Chinese government delayed approval at container port development in Shenzhen to avoid putting too much pressure on the world's busiest container port of Hong Kong, which has been losing market share to the cheaper Shenzhen port.

MTL also expects total throughput at its container terminals in Hong Kong's Kwai Chung terminals to rise about 8 percent this year after it added about 11 percent to 4.5 million TEUs in 2004.

The company is investing HK$1 billion to upgrade facilities at its container terminal No. 1, 2 and 5 in Kwai Chung. It also operates four berths at Kwai Chung's Container Terminal 9.

The project will boost MTL's total container handling capacity in Kwai Chung by 25 percent to just over 7 million TEUs a year after the upgrade is completed in 18 months.

"It is much cheaper than buying a new one (terminal)," Christensen said.

The government is encouraging Kwai Chung operators to upgrade their facilities to expand capacity of the 22 berths at Kwai Chung to about 1 million TEU each. Kwai Chung handled about 14 million TEUs of goods last year.

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More investment on the way as Yantian terminal growth continues
7 March 2005
Lloyd's List

WHILE TOC Asia 2005 is taking place in the container capital of the world, Hong Kong, the real future of the container terminal industry in this localised area lies north of the border in Shenzhen.

The area that was all paddy fields 20 years ago has suddenly catapulted up to become the fourth largest container port in the world with throughput last year of 13.66m teu, noticeably outstripping the main terminals in Hong Kong’s Kwai Chung district for the first time.

Those with a China visa will have the opportunity of visiting Shenzhen’s premier container facility — the city’s only deepwater port — Yantian International Container Terminals on the morning of March 17.

Established in 1994 as a joint venture between Hutchison Port Holdings and Shenzhen Yantian Port Group, YICT’s throughput is flying at the moment.

It has opened four 9,000-teu berths in the past two years in addition to its existing five 5,000 teu berths.

Early statistics out this year show no let-up in Shenzhen and Yantian’s growth. January throughput for the city as a whole rose 41% year on year in the pre-Chinese New Year rush and for Yantian the figures were up 39% to 589,000 teu, not far off its all-time record of 600,000 teu.

In terms of key developments this year for YICT, the Shenzhen municipal government has vowed to invest heavily in highway construction.

A total of Yuan1.7bn ($205m) will be invested this year to build a highway to solve the traffic bottleneck in the eastern port area of the city.

The 11.34 km road is scheduled for completion in 22 months with a designed speed of 80 kilometres an hour.

The construction of the highway is designed to cope with the busy traffic caused by the booming Yantian port, which handled 6.26m teu last year.

However, the Wutong mountain has blocked the traffic between the Yantian district and the central area.

“The new highway will ease the traffic pressure and help to improve the residents’ living environment as well as the investment environment,” says vice-mayor Xu Zongheng.

Discussing what delegates can expect on their tour of one of the jewels in the crown of the Hutchison Port Holdings empire, Anthony Tam, the company’s corporate communications manager, tells Lloyd’s List: “The terminal visit has attracted a very good response.

“There will be a yard tour as well as a general container terminal visit with a brief explanation of the terminal, its functions and its location.”

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Flying performance sees port surpass rival Kwai Chung
16 March 2005
Lloyd's List

SPECULATION was rife in the middle of last year that Shenzhen, whose container throughput was flying once again, might even surpass its northern neighbour Shanghai to become the nation’s leading box port, writes Sam Chambers in Hong Kong.

In the event, though, Shenzhen narrowly lost out to Shanghai. However the port, which surpassed the 10m teu mark for the first time in 2003, did get the satisfaction of beating out the main Hong Kong terminals of Kwai Chung by 230,000 teu for the first time.

Ominously for Hong Kong, Shenzhen’s growth was 90% direct shipment related while Hong Kong saw growth primarily from lower revenue generating transhipment boxes. Port officials said the increase in box volumes was helped by a raft of new shipping services, which rose by 25 to 131 last year, coupled with the inauguration of five new berths. These included the second phase of Shekou Container Terminal, and additional facilities at Chiwan and Yantian.

The Shekou Container Terminal project has a number of investors, including Swire Pacific and Modern Terminals.

Work is now proceeding on phase three of SCT and Yantian International Container Terminal, jointly owned by Hutchison Port Holdings, the world’s largest port operator, and the Yantian Port Group.

In September, Shenzhen port started to charge shippers port-construction fees of Yuan40 ($4.83) per 20 ft box and Yuan80 per 40 ft box, narrowing the cost gap between the special economic zone and Hong Kong. This year it will, along with Hong Kong, implement security surcharges amounting to Yuan50 per teu, with transhipment boxes and empties exempt.

Port operators are all eyeing further terminals around the Shenzhen area, including Mawei and a large site at Dachan Bay which will have the Whart-controlled Modern Terminals on board. While Shanghai’s expansion is focused around Yangshan Shenzhen continues to grow from a variety of locations.

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CONTAINER SHIPPING - Capacity growth: is all the teu in China?
Paul Sandle
28 March 2005
International Freighting Weekly

The global shipping industry is riding high at the top of the biggest boom it has experienced for 80 years.

Shipowners made US$80bn last year, according to Martin Stopford, MD of Clarkson's Research, and the lines are posting record profits on the back of soaring freight rates.

The boom has been caused by a lack of new capacity coming into the market coinciding with an increase in world trade, led by a strong global economy and the emergence of China as a manufacturing powerhouse.

But since the demandsupply pendulum starting swinging back in the lines' favour in 2000, shipyards' orderbooks have filled up, particularly for vessels over 8,000teu.

The record amount of extra capacity coming on stream in the next few years – 150 large vessels will join the east-west trades by 2008 – has led some commentators to predict a return to the days of boom and bust.

But the lines are confident rates will hold up and the good times will continue. A spokesman for OOCL, which recently unveiled a doubling of profits for last year, says:

"During the course of 2004, the supply and demand balance remained firmly in our favour and at the present time it is hard to find any data to suggest that this favourable situation will alter in the near term." It is no news that the main driver of the market has been China. But if China is the catalyst, other factors, including the growth in merchandised trade, which at 9.5% is running at more than twice global GDP growth of 4%, and pressure on transport infrastructure, particularly in the US and Europe, have contributed to the tightening in capacity and high rates.

Martin Stopford, speaking at the China Shipping 2005 conference in Shanghai earlier this month, said China's influence was felt most strongly now because its boom was synchronised with a period of growth in the global economy.

China started on its upwards trajectory in the 1990s, he points out, but two recessions – the Asian financial crisis in 1997 and the bursting of the dotcom bubble in 2001 – eclipsed the impact it was having on trade flows, particularly on the import of raw materials.

"The recession in the rest of the world had freed up shipping capacity, making the speed at which China was soaking up shipping capacity less apparent, " he says.

"But when the business cycle turned up again in 2003/04 and the world economy grew rapidly, the world found itself seriously short of ships for the first time in 30 years." The emergence of China as a trading superpower has had an impact on demand, which outstrips the growth of its own domestic economy.

"In 2004, China still accounted for 10% of world imports, but China's share of year-on-year growth in sea trade averaged 48% during the period 1998-2004, " Stopford says.

What has been different in China's rise compared with previous emerging maritime economies, such as Japan and South Korea, is that the Chinese government has not planned its sea freight requirements, he says.

"I believe China's business model, which relies heavily on market forces, has played a significant part in determining the extremity of freight markets over the last two years, " he says.

China's growth in the import of raw materials, much of which are then exported as manufactured goods, combined with a strong global economy has caused freight rates to "break out" from their historical cycle.

According to the Howe Robinson Container Index, in January 2004 rates shot through the previous high, achieved in August 1995, and have continued on a steep curve ever since. Ayear later, they stand 70% above the historical peak.

Although demand has been growing most strongly on the east-west trades, Nick Hubbard of shipbroker Howe Robinson says a lack of new capacity on other routes has caused the demand-supply imbalance.

"The 502,000teu which entered service on the eastwest rates, leading to an oversupply of 79,000teu, was more than offset by a shortage of new capacity on the northsouth and feeder routes, where only 136,000 of the 650,000teu that were required entered service, " he says.

The situation will be repeated this year, he claims, with an estimated undersupply across the total market of 266,000teu, or 3%.

"This does not allow for congestion on both US coasts, and in Panama, Europe and India, which increases the demand for small ships and reduces fleet efficiency through delay, and the inefficiency of displacement, " he adds.

Over the course of this year, he predicts the continuing tightening of supply will cause rates to rise at a similar pace, ending the year 20-30% higher than where they started.

But the upward curve will start to level off in 2006 as more capacity enters the market, he predicts.

"The pendulum in the supply-demand balance will be swinging back towards an increase in supply outpacing demand by 0.5%, " he says.

But he warns that a levelling off of rates at a level 30% higher than today depends on demand staying strong.

"If growth in demand weakens, down to an average level of 9%, freight rates would crash and charter rates would also fall significantly, but both would remain above the last alltime high, " he says.

"If there is an economic crisis, and demand weakens to 5%, both freight and charter rates would be devastated." Arthur Kroeber, MD of China Economic Quarterly, outlined the reasons why the growth of China has had such a major impact on freight rates at the China Shipping 2005 conference.

China is still far from becoming a consumer economy, according to Kroeber.

Although the domestic economy is powering ahead, it is "factory Aselling to factory B selling to factory C, which then exports.

"China combines Japan style export capacity with American-style import appetite, " he says.

This could leave it susceptible to a global downturn in demand and a falling off of inward investment.

But Kroeber thinks there is only an outside chance of this happening. China's role as a trade aggregator means that even if US demand slows, China's trading position will remain strong.

Adownturn will put pressure on costs, he says, and manufacturers will respond by moving more Asian manufacturing to China.

Hubbard acknowledges that the outlook on rates needs to take into account more than just the supply/demand equation.

Even with deliveries hitting an all-time high in 2006, there will still be a shortage of ships below 4,000teu, he says.

"There's a deficit of ships to trade between China and the rest of Asia, " he says. "More hub services will need more small ships – that's exactly what's not being built at the moment."

The fastest increase in rates is already being seen in the intra-Asia trades.

P&O Nedlloyd recorded profits in its container line of US$388m last year compared with US$96m in 2003 driven by an average increase in rates of 13%. Although it says growth was strong on the Asia-Europe and transpacific routes, it was Asia, and intra-Asia in particular, that boomed.

"Overall volume growth in the Asia trades reached 11% and freight rates increased by 19% across all trades, " it says.

"The strongest volume growth was in the intra-Asia trade."

And it is not just a tightening in the supply of ships that will keep rates high – it is also a tightening in the supply of the rest of the infrastructure needed to cope with accelerating global trade.

Congestion is already compounding the supply/demand imbalance, and unlike the shortage in vessels, the situation will not ease in the next two years, at least not in the US and Europe.

The impact of worsening congestion on the global freight industry is high on the agenda of Bruce Calton, associate administrator for policy and international trade maritime administration in the US Department of Transportation.

"Simply stated, the huge trade volumes out of China are overwhelming large segments of the total transportation infrastructure, " he says. "It is happening in the US and it is happening in Europe. Not surprisingly, it's also happening here in China." He says more delays will be the inevitable consequence of failing to improve infrastructure in pace with global trade expansion.

"It is quite clear that we have forever lost the luxury of assessing shipping markets in isolation, " he says. "On the contrary, global shipping markets are now the key driver shaping both public and private decisionmaking in all aspects of freight transportation." Congestion on the US west coast last year led to volumes moving to the east coast.

"Strong volume growth of 17% on the transpacific trade was moderated by the impact of congestion on the west coast of the US, " says a spokesman for PONL. "As a result, the service from Asia to the east coast via the Panama Canal showed the strongest growth in the region." Changing trade flows to avoid congestion also have the effect of swallowing up new capacity as well as putting up costs.

Stanley Shen, general manager corporate marketing at OOCL, says it takes five vessels to operate an Asiawest coast loop on a 35-42 day round trip, whereas a 63-105 day trip to the east coast requires nine vessels.

This is just one of a range of factors that analysts fail to take into account enough when looking at the supply/demand balance, he says.

"Predictions use the value of trade as the measure of growth when what is important in container traffic is the volume of goods, " he says.

In an era of low inflation, the value of many consumer goods – for example, DVD players – has fallen, which disguises the increase in volume, he says.

"Actual slot utilisation also falls short of declared slot capacity because of operational technicalities.

There's also a trend towards increased containerisation, including goods such as wool, cotton, grain and produce." These changes in trade patterns and the impact of congestion leads OOCLto remain bullish on rates despite all the capacity coming on stream.

"Even were a supply surplus [of static slots] to arise it is likely to be less severe than some are predicting and therefore, is likely to have only a marginal effect upon freight rates, " says chairman CC Tung.

"Indeed, some of these same independent commentators and analysts are now starting to come around to this point of view once they account for the congestion factor and its potential impact upon effective tonnage supply, especially on the transpacific trade lanes." With high demand for their services, the shipping lines have had no difficulty in finding customers, and some forwarders have been left scrambling around to secure capacity, particularly from Asia to Europe and from Asia to the US.

But the forwarders have gained some leverage from the increasing trade imbalance, particularly between Asia and Europe.

Exel is one logistics operator that operates a global partner carrier programme with the container lines, which offers them eastbound cargo in return for guaranteed slots westbound.

"We try to supply nine carriers with the majority of our volume, " says Charles McGurin, Exel's sea freight director in the UK. "The programme is a huge help in securing capacity. We can provide them with exports to China, mainly in the engineering, hi-tech and pharmaceutical sectors." OOCL, however, is confident that it can offer shippers the levels of service they require, and it is not so bothered about finding lowrate return cargo.

"On the westbound [transpacific] service, we carry empty boxes to make the turnaround as fast as possible, " Shen says.

Osamu Suzuki, MD of MOL(Asia) agrees that the trade imbalance is also a factor that will keep rates high. "On the transpacific trades, 50% of containers come back empty. This has to be taken into account in pricing, " he says.

Customers may not be as preoccupied by rates as industry analysts suggest, according to Suzuki.

"Customers know more – they are service-driven rather than rate-driven, " he says.

"China will keep on growing, keep on increasing exports to the US and Europe.

Trade growth will be 15-16% on the transpacific [routes] and the same on AsiaEurope, " he says. "We will easily fill capacity growth.

"The increase in demand has led to a more efficient industry. The next time the market downturn comes, the industry will be more flexible." China, as well as being the source of much of the demand for new capacity, has its sights set on being the source of most of the new ships as well.

Its stated aim is to overtake Japan and South Korea and reach the top of the shipbuilding league in 1015 years. If the lines are correct in their long-term outlooks on rising demand, China's yards should still be busy in 2015.

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China to abide by single-hulled tanker ban - official

BEIJING, April 1 (Reuters) - China plans to impose an international ban on the use of single-hulled dirty tankers, due to take effect next Tuesday, a government official said, but traders and shippers doubt whether it could be done on time.

However, Chinese-flagged boats plying domestic routes would not be bound by the ban, said the official from the Communications Ministry, which deals with international shipping issues.

"China will abide by the IMO ban on single-hulled boats starting on April 5," the ministry official, who declined to be named, said on Friday.

China's fuel oil trade will be severely disrupted if these vessels are barred from entering the southern port of Huangpu, the largest in China, which takes in nearly half its total fuel oil imports and sees about 1.0-1.5 million tonnes of the product a month.

The International Maritime Organisation (IMO) is imposing the ban on "unprotected" single-hulled tankers carrying heavy-grade oil, in the wake of the sinking of the Prestige, a single-hull tanker, off the Spanish coast in November 2002.

Tankers delivered before April 5, 1982, will be banned from the IMO deadline, while younger vessels will be phased out by Dec. 31, 2005.

The official said the ministry had yet to inform the market of the impending ban, adding it would do so "as soon as possible". The official declined to comment further when asked what measures Beijing would take to enforce it.

Chinese traders and shippers said they had not yet received any notification.

"China will follow IMO's ban but don't think that can be put into force as soon as next week," said a shipping agent in Huangpu.

Chinese fuel oil players have fixed most of their April arrivals into Huangpu using single-hulled panamax tankers since they have not been notified of any ban.

A Guangdong-based maritime official said his office knew of the ban but had not yet been instructed to implement it.

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China plans to enforce phasing out single-hulled dirty tankers - report
5 April 2005

HONG KONG (AFX) - China is planning to enforce the International Maritime Organization's (IMO) regulation to phase out single-hulled dirty tankers, The Standard reported, citing unnamed sources.

A ban on 'unprotected' single-hulled tankers carrying heavy grade oil was imposed by the IMO after such a tanker sank off the Spanish coast in Nov 2002.

As of Tuesday, tankers delivered to customers before April 5, 1982 have been banned and new deliveries will be phased out by Dec 31, 2005.

Concerns about the ban have pushed up freight rates by up to 5 pct for 60,000-ton vessels plying the Singapore-South China route, the report said.

However, most tankers delivering fuel oil to China are single-hulled and at least six such vessels delivering about 360,000 tons of fuel oil are due to arrive in China soon, according to the report.

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China may mean end to boom and bust box cycle says Green
Sector may be entering period of sustained growth, writes Janet Porter in Rotterdam
25 April 2005
Lloyd's List

CONTAINER shipping may be coming to an end of the boom and bust cycles that have characterised the industry for the past three decades and entering a period of sustained expansion, P&O Nedlloyd chief executive Philip Green said in a keynote lecture on Friday.

The historic link between global economic activity and container trade growth could be broken by the China effect, Mr Green told students and industry representatives attending his presentation at Erasmus University,

In the past, increased demand has led to container lines, including P&O Nedlloyd, investing in more capacity with the inevitable result.

“The industry has been here before: ordering new vessels as the economic cycle creates a boom in demand which precipitates a crash as supply eventually and unsurprisingly outweighs demand as the economic cycle turns down,” he acknowledged.

But this time the outcome may be different, with the world undergoing a second industrial revolution inspired by the “Chinese economic miracle”.

European outsourcing to Asia has barely begun, while US high-end products have yet to be outsourced, said Mr Green.

“In essence, the container shipping industry may no longer be at the whim of a vicious cycle of boom and bust but may, in fact, be responding to a steady upwards curve in demand which will remain for the foreseeable future,” he predicted.

Industry experts are becoming divided about the near-term outlook for the industry.

After an unprecedented level of ordering in the first quarter, many brokers are now more concerned about prospects for the containership charter market in 2006 and 2007 than they were a few months ago.

And a slump in charter rates would probably also hit freight rates, they are warning, as shippers take advantage of the tonnage surplus to drive a hard bargain.

On the other hand, consultants such as Drewry Shipping and financial analysts like Handelsbanken have recently issued very upbeat assessments on the future of container shipping, based largely on the much longer voyages from Asia to Europe and North America as more manufacturing is shifted to China. Mr Green admits it would be “fanciful” to suggest that China’s current levels of growth can continue unabated.

“That clearly is not the case but China’s economy is built on solid ground,” he maintained.

There has been a genuine economic shift in the form of outsourcing. China enjoys political and economic stability, almost immeasurable output capacity and potential, and a level of western demand that is guaranteed, the P&O Nedlloyd boss continued.

He believes the Chinese miracle dwarfs all economic shifts since the US became a world superpower in the 19th century.

“It is this dramatic scale that allows us to refer to the Chinese phenomenon as more than just a trend but as the second industrial revolution,” said Mr Green.

And just as the first industrial revolution would not have been possible without the development of canals and steam trains, so the second one “could not and would not be taking place without containers and container shipping”.

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Focus is on trade with China
28 April 2005
Lloyd's List

WITH most of the liner service changes now in place for trade from Brazil to the US east coast, lines have turned their attention to services to and from Africa and Asia.

“What will be important will be the further relationship between China and Brazil after Brazil recognised China as a free market economy,” says Dick Meurs, P&O Nedlloyd general manager for east coast South America services. “That was a very important step in the industry of Brazil.

“Brazilian and Argentine industry was critical because the risk is whether the local industry can compete with China.”

With growth in trade between the two countries around 50% last year, carriers are lining up to move more volume directly from Brazil to China.

Imports and exports on this trade between January and November last year reached 350,000 teu, reports Paulo Simoes, MOL general manager in Brazil, with import and export volumes balanced, making it the most profitable of the three principal routes. “The advantage is that the ships are sailing full in both directions,” says Mr Simoes.

In contrast, the northbound leg on the US east coast trade commands a $500-$600 per teu pre- mium over the southbound leg due to the imbalance in exports and imports.

As a result companies such as MSC and CMA CGM that serve the east coast of South America to China by means of transhipment services in Europe are planning to enter the market with direct services.

CMA CGM has teamed up with China Shipping and Maruba to create a weekly service employing 2,500 teu vessels.

P&O Nedlloyd has decided to go it alone with a similar service redeploying five 2,500 teu vessels from its Europe to east coast South America service in August.

NYK Line, likewise, is adding an extra string using 1,700 teu vessels on its South America to South Africa and Asia service, also starting in August. The move by P&O Nedlloyd brings an end to its joint venture with MOL, which is now looking to bring in new vessels or partners to ensure that it can maintain a weekly service, says Mr Simoes.

P&O Nedlloyd has been able to shift its vessels from the Europe trade thanks to the introduction of 5,500 teu vessels in its joint service to North Europe, with Hamburg Süd effectively doubling its capacity on the South America to Asia route.

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New port to ease coal shipments
April 30, 2005

The mainland will build a new northern port to expand capacity for coal shipments and imports of iron ore and crude oil, according to the China Daily.

The port in Caofeidian, also slated to be the new base of one of China's biggest steel makers, will initially be able to handle 50 million tonnes of coal per year and its annual capacity will rise to 200 million tonnes when it becomes operational in five years, the paper said Friday. Coal from the port will go to southern China.

"The port will ease the bottleneck in coal transportation from inland areas of north China to east and south China, and satisfy demand from the booming coastal areas of east and south China,'' it said.

Rocketing coal demand is being exacerbated by transportation bottlenecks that last year left many cities with insufficient stocks for winter.

The State Development and Investment Corp (SDIC) will hold a 51 percent stake in SDIC Caofeidian Port, the new company charged with developing the port, the daily said.

Caofeidian, near Tangshan city in northern Hebei, will also be the new home of Shougang Group, a huge steel maker now based in Beijing.

After the relocation, the steel maker will be able to use the port to receive imports of iron ore necessary for meeting its production needs, the paper said, without giving details on the port's iron ore capacity.

REUTERS

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South China Morning Post
April 29, 2005
Hutchison gets nod for Yantian project
Russell Barling

China's state planners have approved a 12 billion yuan expansion of Hutchison's Yantian International Container Terminals, the busiest terminal complex at South China's port of Shenzhen.

The project will add six deep-sea berths and put more pressure on the higher -cost port of Hong Kong, where growth has stagnated in the first three months.

Yantian International, which is operating at 70 per cent capacity according to sources at the port, will start building the first berth by the end of the year as the constant stream of manufactured exports through Shenzhen shows no signs of letting up.

"If the market continues the way it is, we should probably start construction by the end of the year," a Hutchison port executive said on condition of anonymity.

"Once we get the green light, we can build a 350-metre berth every six months."

Yantian handled 1.58 million 20-foot equivalent units (teu) in the first quarter, up 21 per cent year on year.

Construction of the first 600-metre berth - much larger than the standard size for even the biggest deep-sea vessels - would be completed by September next year and reclamation for it had already started, a source at the port said.

The 12 billion yuan price tag for the greenfield project is bound to raise a few eyebrows in South China; the benchmark price for construction of a terminal is about 500 million yuan per berth.

It is thought the price of Yantian's extension was inflated by the projected cost of extensive reclamation and the 30 super post-Panamax-sized quay cranes it has slated for the facility.

Hutchison Port Holdings spokesman Anthony Tam confirmed Beijing's approval yesterday but declined to verify any details.

Hutchison Port, the world's largest container terminal operator, has an effective 42.5 per cent stake in Yantian's Phase III.

Hutchison rival Modern Terminals on Tuesday confirmed the National Development and Reform Commission - the country's state planners - had approved the first five-berth phase of its massive Dachan Bay project, just northwest of Yantian on the Pearl River.

The approvals were thought to have been linked as authorities aimed to encourage competitive pricing by discouraging the emergence of a dominant player.

Hutchison said the commission had also approved an expansion of its underutilised facility at Gaolan, on the west side of the delta.

"We are now looking to accelerate Gaolan's development with the introduction of more international line-haul services," Hutchison Whampoa managing director Canning Fok Kin-ning said.

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Logistics Company Assists Yantian Port
By Chen Hong
27 April 2005
China Daily

SHENZHEN: Yantian Port Group has recruited the services of a leading United States firm to improve the efficiency of its logistics services as its price advantage is being cut by Hong Kong rivals slashing handling fees.

"The port handling facilities, services and management have been gradually improved over the past few years to come up to international standards. However, its logistics services are still lagging far behind and keep troubling port users," said Li Xuanmin, general manager of Yantian Port Group, which runs the Yantian International Container Terminal with Hong Kong port-to-telecom conglomerate Hutchison Whampoa.

Li said there is competition between the ports at Shenzhen and Hong Kong, so the company is strengthening the competitive edge of Yantian Port, the largest port in Shenzhen.

"The price gap is narrowing to about US$400 for one TEU goods from Shenzhen and from Hong Kong to the United States or to Europe, which is likely to continue to fall since the Hong Kong port operator has cut the handling fee," Li noted, suggesting that another 10 per cent of the fee may be removed.

To provide a better distribution solution, the company set up a 50-50 joint venture with Prologis, a leading American logistics facility developer, to build a logistics park 3 kilometres from Yantian port.

With a total US$90 million investment, the joint venture will build six three-storey ramp buildings, a special facility developed by Prologis that will allow six to eight 20-foot container trailers to load and unload simultaneously on each floor.

The construction of the first two buildings will begin in the fourth quarter of this year, and is due to be finished in the third quarter of next year, said Ming Z. Mei, managing director of Prologis China.

If the market gives a positive response, the other four will be built, he added. Upon completion, they would provide a total floor area of 290,000 square metres.

"Given the limited land - about 190,000 square metres - our system could provide larger space as our Chinese partner requires, but the cost will increase correspondingly, nearly double that of the general model," Mei noted.

By renting the warehouses to three-party logistics companies, manufacturers and retailers, Prologis could also provide solutions to help clients cope with challenges. It could purchase distribution facilities that customers currently own, and then lease them back.

This is the fourth project launched by the world's largest listed industrial property investment trust in China, which allows the company to expand its business from East China's Yangtze River area to the manufacturing hub of the Pearl River Delta area.

Zheng Jingsheng, board director of Yantian Port Group, said the strong customer base and operational capability of Prologis will boost the logistics industry in the Yantian port area and in the city as a whole.

Prologis has served at least half of the top 1,000 distribution business users in the world, of which 70 per cent are renting more than one property owned by Prologis.

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Chinese giants square up in box battle
China Shipping and Cosco slug it out in bid to trump each other, writes Janet Porter
3 May 2005
Lloyd's List

THE race for supremacy between China’s two largest container lines is reaching fever pitch, with Cosco reported to have placed an order for another four 10,000 teu ships and arch rival China Shipping actively looking for takeover targets.

And in an added twist that underlines China’s determination to dominate container shipping within a few years, it is a Chinese yard that is said to have landed the Cosco order.

Market talk of Cosco’s latest spending spree surfaced at the weekend as speculation spread through the industry about China Shipping’s renewed efforts to join the super league of container lines.

With full shipyards inhibiting organic growth through newbuildings, China Shipping has made little secret of its wish to expand through acquisition and is thought to have taken a close look at a number of potential candidates.

But Cosco appears to have found some newbuilding berths, with industry sources claiming that the company is ordering the 10,000 teu quartet from Nantong Cosco KHI Ship Engineering, known as Nacks, its joint venture with Kawasaki Heavy Industries.

According to brokers, the ships are likely to cost just over $130m apiece and will be built in a new dock that is under construction. Delivery is believed to be set for 2009. Cosco already has four ships with a declared nominal capacity of 10,000 teu on order at Hyundai Heavy Industries in South Korea — although their true maximum capacity is nearer 9,600 teu.

At the same time, Nacks is building five 9,200 teu units for Cosco. The delivery dates of the latest orders are not known.

But China Shipping is in a hurry to catch up with the biggest in the industry, with chairman and founder Capt Li Kelin said to be considering growth through acquisition until Chinese shipyards are big enough to support organic fleet expansion.

But, he is determined not to greatly increase the average age of China Shipping’s very modern containership fleet. That not only rules out growth through secondhand tonnage, but a number of possible acquisition targets, according to sources close to the company.

One line that has been linked with China Shipping for some time now is CP Ships, as Lloyd’s List disclosed last week.

That rumour gained currency because of the link between the two via Seaspan Container Lines, the Vancouver company that has ordered ships on behalf of both under long-term charter contracts. Seaspan has declined to comment on the speculation.

CP Ships’ apparently half-hearted attempt to find a new chief executive to replace Frank Halliwell who resigned five months ago, and then last week’s sudden announcement that it was abandoning its multi-brand strategy, fuelled the gossip.

However, industry insiders do not think CP Ships is the only company that China Shipping has in its sights. P&O Nedlloyd would also be an attractive proposition, said one well-placed source, partly because of its very large orderbook including super post-panamaxes that would appeal to Capt Li’s ambitions. China Shipping Container Line has achieved staggering growth since it was set up in 1997. The company had climbed to number 16 in the world by 2001 and then gained a ninth place ranking this year with a fleet of more than 100 ships totalling 273,000 teu of capacity. There are another 41 ships on order that will almost double the size of its fleet, according to ci-online statistics. The goal is to become one of the top three container lines in the world by 2010.

China Shipping was the first line in the world to order ships with a declared capacity of more than 8,000 teu, and then was the first to break the 9,000 teu barrier by ordering a series of 9,580 teu vessels.

Talk of China Shipping’s thirst for acquisitions has been the gossip of bankers, brokers, vendors and other lines for several weeks now, with some dismissing the speculation as “old hat” while acknowledging that CP Ships would be a good match because of the complementary trades.

Other well-placed sources, while admitting they had no firm knowledge of what was being discussed, thought an approach seemed “highly likely”.

CP Ships’ market capitalisation is currently around $1.2bn, the same as the purported bid price doing the rounds.

P&O Nedlloyd’s market capitalisation is $2bn. P&O still hold a 25% stake in P&O Nedlloyd that could provide a sizeable foothold for a potential suitor.

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State planners give go-ahead for first phase at Dachan Bay
Approval comes early with two berths expected to be operational by end-2007
Russell Barling
27 April 2005
South China Morning Post

The seven billion yuan first phase of Shenzhen's massive Dachan Bay container terminal project has been approved by state planners, paving the way for another entry into the region's increasingly crowded port scene within two years.

The first five-berth phase of Dachan Bay, a joint venture between the Wharf Group's Modern Terminals Ltd (MTL) and the Shenzhen municipal government, was approved by the National Development and Reform Commission on March 29 and is expected to be operating two berths by the end of 2007.

"The first phase of the project received official approval {hellip} two months ahead of the expected schedule," said a spokesperson for MTL, which owns 65 per cent of phase one. "Reclamation is under way; the plan is to develop Dachan Bay in four phases."

In all, the Dachan project is expected to add 20 berths - 15 for deep-sea vessels - to the south China port mix.

Approval comes just over a year after planning authorities in the mainland unofficially called a moratorium on port development in the Pearl River Delta region, delaying construction of Dachan, phase IIIb of Hutchison's Yantian complex and several other ambitious projects at secondary ports.

"I don't think this signals a shift in policy. Approval processes usually go in cycles in China. Dachan is probably in the 11th five-year plan," said a veteran China port executive. "[Mainland planning authorities] want to encourage an open market by encouraging different players. This will balance Yantian."

Phase one is expected to be complete by the end of 2008 and have the capacity to handle 2.5 million teu (20-foot equivalent units) a year. Vessels calling at the port will benefit from a revamped Tonggu Channel, which Shenzhen authorities began dredging in December at a reported cost of $1.9 billion plus maintenance expenses.

Phase two is scheduled to have four deep-sea berths, phase four will have six while phase three is planned to have five berths catering to river and intra-Asia trade routes, which typically use smaller vessels or barges.

Dachan's approval comes as Hong Kong operators scramble for business amid almost no comparative volume growth at the world's biggest port in the first quarter.

"The future looks more and more crowded. It appears to be a bit of a high-stakes gamble," said Michael Chan, head of transport research at the Bank of China (International). "Dachan may not have a significant impact until late 2008 but overall capacity may come back to haunt people."

Another veteran of the Hong Kong port scene said he expected operators' margins, which have been declining since the turn of the century, to come under further pressure.

"There eventually has to be a price war," he said. "Not right away but it will happen, probably within the next five years."

According to a recent report by Citigroup analyst Charles de Trenck, Hong Kong's main terminals, where there are three idle berths, have as much as nine million teu in spare capacity, or six years' worth at last year's growth rate. Growth rates, however, have slowed since then.

State-owned Shanghai International Port Group, in which Hong Kong-listed China Merchants Holdings (International) holds a 30 per cent stake, yesterday agreed to pay 370 million yuan for a majority stake in the port of Wuhan.

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China shipbuilding enters new era
Cosco agrees on US$520m order for four of the biggest container vessels ever from a mainland yard
Russell Barling
5 May 2005
South China Morning Post

China's nascent shipbuilding industry has entered a new era with an arm of China Ocean Shipping Group (Cosco) preparing to spend up to US$520 million for the four biggest container vessels ever ordered at a mainland yard.

Cosco Container Lines (Coscon), which is expected to try to raise up to US$2 billion in a listing in Hong Kong later this year, has agreed to order four 10,000 20-foot equivalent unit (teu) capacity box ships from Nantong Cosco KHI Ship Engineering near Shanghai, according to a Cosco executive.

The deal is seen as proof that the rush of foreign and domestic capital into the country's shipbuilding sector in the past five years is paying dividends. But rampant ordering - Coscon has booked 80,000 teu in the past four months - will fuel fears the hugely cyclical industry is set for a downturn.

"It is very exciting. These are some of the biggest, if not the biggest, container ships ever built and the order is coming from a premier Chinese client," said Martin Rowe, a director for global ship broker Simpson, Spence and Young, adding such an order would not have been considered five years ago.

According to broker Clarkson, the global order book was a record 4.1 million teu as of last month, or about 56 per cent of the present fleet, up from 52 per cent in March.

Concerns about the size of the book extended this year's contract negotiating season on the Pacific, as key US buyers such as Wal-Mart Stores and Home Depot tried to leverage the pending capacity influx into cheaper freight rates despite double-digit volume growth on eastbound trade.

Citigroup's chief transport analyst in Asia, Charles de Trenck, a noted bear, warned last month the industry was in a "freight bubble" that was about to burst. "The mind-numbing 54 to 56 per cent of the container fleet on order continues to point to the cyclical exit door for us," his report said.

Nevertheless, carriers are using low interest rates and swollen bank accounts after a three-year profit run to renew and expand.

The Cosco executive would not disclose the price of the vessels yesterday. Brokers estimated they would cost US$125 million to US$130 million per ship.

Nantong Cosco is a US$240 million joint venture set up in 1999 by Cosco and Kawasaki Heavy Industries, using the technology of its Japanese partner to become China's most advanced yard.

It was the first mainland shipyard to build big car carriers for export and boasts China's fastest turnaround times for very large crude carriers - typically 150,000 to 320,000 deadweight tonnes.

However, because the order is domestic, it is thought Nantong Cosco will remain outside the shipbuilding big leagues until more orders come from overseas.

"It's another stage [in the shipyard's progress]," said a Hong Kong-based broker. "It's a domestic order but, if you look at how Korea became the dominant [liquefied natural gas] builders, they started with domestic orders. This is a step in that direction."

Coscon in January ordered four 10,000-teu vessels from South Korea's Hyundai Heavy Industries for about the same price and delivery in 2007.

Coscon, the world's No7 container carrier by fleet size, is aggressively expanding to keep pace with China's manufactured exports. It is battling China Shipping Group - whose spin-off China Shipping Container Lines debuted in Hong Kong last year - for the title of the mainland's biggest shipping line.

Coscon had almost 192,000 teu in capacity on order at global shipyards before the Nantong order, according to industry website CI Online. Rival CSCL's order book is at 241,000 teu and both are in the top five in terms of capacity on order.

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Philippine operator eyes China ports
Mainland network from Bohai rim to Pearl delta key plank of expansion strategy
Russell Barling
9 May 2005
South China Morning Post

South China's crowded port scene may soon add another player after the Philippines' largest port operator said it was looking to invest in a mainland portfolio of up to five terminals in the next three years.

International Container Terminal Services (ICTSI), which is back on the expansion trail after selling its international port assets to Hutchison Port Holdings four years ago, is targeting China's secondary ports for a foothold in the world's most promising market, according to its top executive in China, Paul Lo Po-lau.

"We have spent about US$130 million in the past two years developing our facilities in South America and Europe and we wouldn't be averse to spending a similar amount to establish our China portfolio if the right opportunities present themselves," Mr Lo said.

ICTSI's facility in Suape, Brazil, was the only one to survive the international purge in June 2001. Last year, it added Baltic Container Terminals in Gdynia, Poland.

Mr Lo, who formerly worked for Hutchison's Yantian facility and Maersk Sealand, said ICTSI intended to develop a network of mainland ports from the northern Bohai rim area to the Pearl River Delta.

The delta is destined to become an even more crowded arena after China's state planners this month approved the development of at least another 11 berths for international trade, four of which will comprise the seven billion yuan first phase of the new Dachan Bay complex.

The flurry of approvals has again raised the spectre that Hong Kong's days as the region's premier port may be numbered, even given the robust projections for growth in regional cargo volumes.

According to Master Plan 2020, the government's de facto forecast compiled by consultants GHK, Hong Kong's throughput is expected to grow 4.2 per cent annually to 40.23 million boxes by 2020.

But the projection was based on assumptions that the port's land-based connections to its cargo hinterland would be dramatically enhanced. There has been little progress on that front in the year since the report was released.

Mr Lo would not be drawn on potential locations for its capital outlay other than to say ICTSI was "actively looking at a few projects" in China.

Zhuhai's port at Gaolan could be a possible target. State planners last week approved a two-berth expansion of the port.

Zhuhai officials have been unhappy with the way Gaolan, south China's second best natural deep-sea facility after Yantian, has been developed under Hutchison's watch and are entertaining rival international operators to compete with the world's biggest terminal developer.

Mr Lo said the type of facility ICTSI is looking to develop would typically have a design capacity for 500,000 to 1.5 million boxes a year and an established track record of growth.

"We are interested in ports that are established gateways for a specific city or region and which also may act as trade outlets for markets that have not yet fully matured," he said. "Some secondary coastal ports would fit the bill, but river ports may offer greater potential because they could start from a lower [volume] base."

Mr Lo said the booming Pearl and Yangtze river deltas were the obvious locations where secondary ports "could use a substantial investment in equipment to speed up their efficiency".

ICTSI more than doubled net earnings last year to $153.2 million and Mr Lo said it would prefer to invest in a joint venture - with private or public sector partners - rather than go it alone.

But he said cash was not the only thing ICTSI brought to the table. "Cash is important, but China's leaders don't just want foreign capital.

"They want foreign know-how. That has become as important as the capital."

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South China Morning Post
May 9, 2005
Port operator looks to recent investments - China Merchants Holdings

China Merchants Holdings (International), one of the mainland's largest port operators, will spend the year digesting its recent investments rather than continuing to expand its network of port facilities, according to company officials.

Chairman Fu Yuning said the central government was expected to soon approve its 5.57 billion yuan purchase of a 30 per cent stake in Shanghai International Port Group - operator of the world's third-largest port.

The company has completed its strategic layout of ports in Hong Kong and on the mainland, and plans to focus on strengthening management control and logistics services.

The purchase will give China Merchants, which operates ports mainly in Shenzhen and Hong Kong, a foothold in the Yangtze River Delta through Shanghai's Waigaoqiao and Yangshan ports.

Consolidated net profit for the 12 months to December last year jumped 40 per cent to $ 2.06 billion.

China Merchants handled 7.2 million teu (20-ft equivalent units) at its mainland terminals last year, an increase of 44 per cent, while throughput at its Hong Kong terminals - it owns a 22 per cent stake in Modern Terminals - rose 13 per cent to 5.6 million teu.

Container volume is projected to increase at least 15 per cent this year and to include a hefty contribution from the Shanghai ports' 14 million-teu throughput. Across its network, the company is expected to handle 37 million containers next year, rising to 45 million by 2008.

The company's turnover for the year rose 13 per cent to $ 2.41 billion, with port-related businesses contributing about $ 950 million to earnings, and container manufacturing $ 624 million.

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COSCO orders four more of biggest container ships

HONG KONG, May 23 (Reuters) - China's biggest shipping company, China Ocean Shipping (Group) Co. (COSCO), has ordered another four 10,000 TEU (twenty-foot equivalent unit) container ships, it said on Monday.

The order for four of the largest container vessels in the world, at a cost of more than US$100 million each, follows a similar order in January.

The vessels will be delivered in late 2008 or 2009, said Wei Jiafu, COSCO President and Chief Executive Officer.

State-run COSCO is seeking a listing in Hong Kong for its container business as early as June to raise an estimated US$1.5 billion to fund its expansion, sources said earlier this year.

Wei declined to comment on the IPO plan.

South Korea's Hyundai Heavy Industries Co. , the world's largest ship builder, said in January that it had won contracts to build four 10,000 TEU container ships for COSCO.

The latest order is from a mainland Chinese shipbuilder.

"We are the first to order 10,000-TEU ships," Wei told Reuters on the sideline of an international world conference.

The combined capacity of the eight container ships on order is equivalent to roughly 27 percent of that of COSCO's container arm, COSCO Container Lines Co. (COSCON), at the end of last year. COSCON had capacity of nearly 300,000 TEU at the end of 2004, shipping analysts said.

COSCO has said that it plans to spin off its newly created China COSCO Holdings Co. Ltd., which will hold its 52 percent stake in sea container leasing and terminal unit, COSCO Pacific Ltd. , COSCON and other container shipping related businesses.

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INTERVIEW-China port plans won't create glut-official
By Alison Leung

SHANGHAI, May 23 (Reuters) - A top Chinese infrastructure official expressed confidence that mammoth port expansion plans to meet demand for handling containers, bulk goods and oil would not lead to overcapacity.

Communications Minister Zhang Chunxian told Reuters in an interview on Monday on the sidelines of a ports conference that the country's shipping container throughput could double by 2010.

"It is not a question of over-building in Chinese ports, it is a question of being able to meet demand," said Zhang, whose ministry oversees ports.

To ease congestion and meet rising demand, China plans to build new terminals and upgrade old ones in its three major economic zones: the Pearl River Delta, in Guangdong province; the Yangtze River Delta region around Shanghai; and the Bohai Rim area, which covers Qingdao, Dalian and Tianjin.

"The current development is based on market demand and integrating with central government (policy)," he said.

"Some of the ports cannot be upgraded and so we would build new ones," he added.

China is expected to handle 120 million to 140 million twenty-foot-equivalent units (TEU) of shipped goods a year by 2010, doubling its throughput of 61.8 million TEU in 2004, Zhang told the conference earlier in the day.

The ministry has said it expects that the country could move more than 75 million TEU this year, up about 22 percent from 2004.

Beijing has said it plans to spend 40 billion yuan (US$4.83 billion) this year on ports-related infrastructure, with 120 new berths set to open during the year.

Port operators in Shanghai, Xiamen and Dalian all plan initial public offerings to help finance their expansion plans.

A global trade boom has fuelled demand for container shipping and terminals. Hearty global appetite for cheaply priced Chinese goods and imports of the raw materials used to make them have put pressure on China's ports and other infrastructure facilities, such as railways and power plants.

The country's imports and exports last year were worth US$1.15 trillion, underpinning buoyant container traffic in the mainland, Hong Kong, Singapore and other Pacific ports.

Zhang also said that Hong Kong would continue to be the major container port in the Pearl River Delta, working more in cooperation than competition with the neighbouring mainland port of Shenzhen.

"Their relationship is complimentary," Zhang said.

Hong Kong, which lost title as world's busiest container port to Singapore earlier this year, has been losing market share to the southern Chinese boomtown of Shenzhen, which has cheaper services.

Shenzhen, ranked the fourth on the global container port list after Hong Kong, and Shanghai are on track to eventually overtake Hong Kong and Singapore.

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CHINA PRESS: Container Traffic To Reach 140M TEUs In 2010
24 May 2005

SHANGHAI (Dow Jones)--China's container throughput in 2010 is expected to reach 140 million 20-foot equivalent units, or TEUs, in 2010 from 61.5 million TEUs last year, the Shanghai Daily reports.

The paper also cites Minister of Communications Zhang Chunxian as saying the volume of bulk shipping through China's ports will reach 6.1 billion tons in five years, from 4 billion tons last year.

Zhang was speaking at a ports conference in Shanghai.

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China COSCO to start marketing IPO next week

HONG KONG, May 26 (Reuters) - China COSCO Holdings Co. Ltd., the container shipping arm of COSCO group, is poised to kick off marketing of its US$1.5 billion IPO, after winning a go-ahead from the Hong Kong bourse on Thursday, a source close to the deal said.

The newly created China COSCO will hold China Ocean Shipping (Group) Co.'s container shipping arm -- Container Lines Co. Ltd. and a 52 percent stake in COSCO Pacific Ltd. , the sea container leasing and terminal unit of COSCO group.

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Earliest China COSCO HK Listing Last Week Of June -Source
27 May 2005

HONG KONG (Dow Jones)--China COSCO Holdings Ltd., a unit of the mainland's largest shipping firm, is aiming to list on the Hong Kong Stock Exchange in the last week of June or the first week of July, a person familiar with the situation said Friday.

The person said he understands China COSCO's listing has been approved by bourse regulators.

The company plans to raise US$1.5 billion from its initial public offering, making it one of the top three listings earmarked for the coming months, along with mainland coal producer China Shenhua Energy Co. and Bank of Communications Co.

China COSCO will be the listed entity of state-owned China Ocean Shipping (Group) Co.

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China COSCO Hldgs Net Pft Seen Down 18% In 2006 - HSBC
31 May 2005

HONG KONG (Dow Jones)--Listing candidate China COSCO Holdings will likely post an 18% drop in 2006 net profit on falling container shipping rates, said a research report by HSBC Holdings plc (HBC), one of its listing sponsors.

The company, a unit of China's largest shipping firm China Ocean Shipping (Group) Co., will likely record a 30% drop in container shipping profits in 2006 as shipping rates fall on excess capacity while demand slows, HSBC said in a report seen by Dow Jones Newswires Tuesday.

China COSCO is planning to raise up to US$1.7 billion in an initial public offering in Hong Kong.

Its net profit is expected to fall to CNY3.54 billion in 2006, from a forecast CNY4.33 billion this year. It made a net profit of CNY4.16 billion last year.

Container shipping accounted for about 70% of China COSCO's 2004 pretax profit.

"This (profit) forecast is mainly driven by our belief that container shipping profits will suffer as a result of an imbalance in the supply-demand picture in 2006 and the disappearance of the one-off gain booked by the container terminals segment for the disposal of Shekou," HSBC said.

In March, China COSCO's ports unit sold its 17.5% stake in Shekou Container Terminals to rival China Merchants Holdings (International) Co. (0144.HK), in a deal worth HK$610 million.

For this year, HSBC said it expects average shipping rates to rise 5%, because of a sharp increase in bunker prices and a strong market for new ships and charters.

The company is planning to raise between US$1.35 billion and US$1.7 billion in the IPO ahead of a targeted early July listing, banking sources have told Dow Jones Newswires.

Apart from HSBC, UBS AG (UBS) is also managing the IPO.

The IPO will allow the company to sell some 36.5% of its shares to the public.

Apart from the container shipping operations, China COSCO owns a 52% stake in Hong Kong-listed port operator and container leasing firm COSCO Pacific Ltd. (1199.HK).

China COSCO will be the third company with interests in container shipping to list in Hong Kong, after Orient Overseas (International) Ltd. (0316.HK) and China Shipping Container Lines Ltd. (2866.HK).

- By Ruby Chan and Jeffrey Ng, Dow Jones Newswires

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Tanker Shares May Sink Further
China's Softer Oil Demand Weighs on Shipping Firms; Shorts Circle the Waters
Russell Gold
2 June 2005
The Asian Wall Street Journal

SOME SHORT SELLERS are betting that tanker stocks will keep falling.

Last year, companies that own and operate giant crude-oil tankers were doing well. Unexpectedly strong demand for crude in China stretched the ability of the fleet to transport all that oil, and short-term rental rates soared in the final months of the year. This left tanker companies flush with cash and sent their stock prices higher.

Tanker-company rental rates and stock prices typically fall during the northern hemisphere's spring, when demand for oil slumps between the winter heating season and the summer driving months. This year the trend is even more pronounced than usual because of the launch of more than 30 new tankers able to transport more than two million barrels of crude apiece.

During the past four weeks, tanker-rental rates were off 42% from the same period a year earlier, according to Swedish ship broker P.F. Bassoe. Just as troubling for investors: Growth in oil demand in China and the U.S. is slowing, says the International Energy Agency, the industrialized nations' energy watchdog that is based in Paris.

The stock prices for many tanker companies have fallen significantly this year, but they still are holding on to most of last year's gains. This has attracted the interest of short sellers -- investors who borrow stock and sell it, hoping the price will decline so they can buy it back later at a lower price and pocket the difference. The shorts are increasing their positions in tanker operators across the sector.

This includes companies such as Teekay Shipping Corp., OMI Corp., Knightsbridge Tankers Ltd. and General Maritime Corp. All of them are subject to the whims of rental rates for very large crude carriers, or VLCCs, and could be hurt if overall fleet capacity continues to increase and growth of demand for crude continues to slow.

The most exposed is Frontline Ltd., the largest independent tanker operator. Frontline is a leveraged play on tanker rates. It spun off most of its physical assets -- the actual tankers -- into Ship Finance International Ltd., which takes the first $28,000 from daily VLCC rental rates. Frontline gets anything above that and is therefore more exposed to the ups and downs of rental rates. Shorts now comprise 6.9% of Frontline's public float, or 2.7 million shares. While other industries attract more attention from short sellers, that is one of the biggest short positions anywhere in the red-hot energy industry.

The Hamilton, Bermuda, company has seen its stock fall about 32% from a peak of $62.80 a share in late November, when rental rates for VLCCs hit a 30-year high of more than $200,000 a day. The stock -- which was down 88 cents at $42.57 late yesterday morning in New York Stock Exchange composite trading -- still is up 64% since the beginning of 2004.

While high oil prices help most oil-sector companies, they aren't the main driver in the tanker business. Tanker profits are most affected by whether there is too much or too little capacity and what is happening with global demand. So, if oil prices were to fall significantly, oil-exploration companies would be hurt, but countries might gobble up more of the cheaper oil, and that would help tanker companies.

"There has been so much money pouring into the energy sector, people are just looking for places to put it. But the value of tanker stocks isn't necessarily correlated to the price of oil," says Shannon Collins, manager of 5549 Ltd., a Dallas hedge fund. He had recently expired put options on Frontline, essentially betting the stock price would drop.

Frontline's management thinks its critics are missing the big picture. "Even though we see a bit of depressed market today, we see the fundamentals for a good market to come," says Oscar Spieler, chief executive of Frontline's Norway-based management unit. He says that crude-carrying capacity should increase 5% to 6% a year through 2008 and that seaborne shipments of crude would rise by nearly that much.

As for the falling value of Frontline shares, he says the company "doesn't comment on the share price. That is up to the investors to consider." In February, Frontline reported fourth-quarter net income of $498.2 million, up from $36.7 million a year earlier. Revenue more than doubled to $656.3 million.

Others hold a dim view of tanker stocks such as Frontline for macroeconomic reasons. Larry Fuller, manager of the Merrill Lynch Global Growth Fund, says he expects global economic growth to slow this year. If that happens, there would be less need for the extra tankers to move crude around the world and rental rates would drop. Mr. Fuller sold the fund's entire holdings in Frontline, valued at about $5.8 million, in December and January. The stock was trading "at the upper end of the historic range," he said, and it was time to get out.

Frontline still has fans. Magnus Fyhr, a shipping analyst at Jefferies & Co., rates Frontline a "buy." He estimates that tanker capacity will grow this year by 20 million deadweight tons -- a typical industry measure -- after accounting for older ships hitting the scrapyard. But he says that demand will grow nearly as much, adding about 15 million deadweight tons.

"Is that going to be enough to cause a collapse of tanker rates? We don't think so," says Mr. Fyhr, who doesn't own any Frontline shares.

In the past year, Jefferies has advised Frontline on the issuance of preregistered equity.

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China COSCO Hldgs Faces '06 Freight Rate Slump -JP Morgan
1 June 2005

HONG KONG (Dow Jones)--China COSCO Holdings is expected to grapple with a slump in freight rates next year, but its diversified revenue streams puts it in a better position to survive downturns than a pure container shipping play, said a research report by one of its listing bookrunners, JP Morgan.

The company, a unit of China's largest shipping firm China Ocean Shipping (Group) Co., is planning to raise up to US$1.7 billion in an initial public offering in Hong Kong.

China COSCO has a container shipping unit, COSCON, and a 52.4% stake in Hong Kong-listed ports operator and container leasing firm COSCO Pacific Ltd. (1199.HK).

According to a research report by JP Morgan seen by Dow Jones Newswires, China COSCO's average freight rates in 2005 will rise 2.9% and then fall 7.4% in 2006, as the industry is hit by overcapacity. JP Morgan declined to comment.

Net profit, the JP Morgan report said, should fall to CNY3.97 billion in 2006, from a forecast CNY4.31 billion this year, and CNY4.16 billion in 2004.

While China COSCO has operations in container leasing, ports operations, and freight forwarding, its container shipping operations through COSCON remains its most important revenue and profit contributor. Last year, COSCON accounted for 85% of revenue and 70% of operating profit, according to the report.

Still, the report said China COSCO has a 'greater ability' to weather industry downturns than its pure-container shipping competitors, 'because its container terminal and container leasing and manufacturing units provide diversified revenue streams and are less cyclical than the container shipping business alone.'

As of May 2005, the largest container liner is Maersk Sealand (MAS.YY), with 312 vessels and over 868,000 twenty-foot equivalent units or TEUs. With a fleet of 118 vessels and 294,000 TEUs, COSCON was ranked seventh in the world.

A research report by one of its listings sponsors, HSBC, said China COSCO will likely record a 30% drop in container shipping profits in 2006, as shipping rates fall on excess capacity while demand slows.

China COSCO is expected to report net profit in 2006 of CNY3.54 billion, from a forecast CNY4.33 billion this year, HSBC said, due to excess capacity and its sale of its stake in Shekou Container Terminals in March.

The company is planning to raise between US$1.35 billion and US$1.7 billion in the IPO ahead of a targeted early July listing, banking sources have told Dow Jones Newswires.

HSBC and UBS AG (UBS) are the global coordinators of the IPO. JP Morgan, along with HSBC and UBS, is a bookrunner.

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COSCO to invest heavily in marine transport industry in S. China
31 May 2005
Xinhua's China Economic Information Service

HAIKOU, May 31 (CEIS) -- China Ocean Shipping (Group) Company ( COSCO) was to invest more than 10 billion yuan (1.2 billion US dollars) in marine transport-related industries in southernmost China's Hainan Province, local authorities said here on May 30.

An agreement on strategic cooperation between COSCO and the provincial government was signed in the afternoon of May 30. The cooperation areas include harbor, logistics, shipping, ship-repairing bases as well as the Boao Forum for Asia.

Marine transport-related industries played an important role in the economic development of the island province of Hainan, said Wei Jiafu, president of COSCO.

"The efforts have to be made to speed the construction of harbors and the development of shipping and logistics, making full use of the international shipping channels in South China Sea," he said.

Wang Xiaofeng, secretary of Hainan Provincial Committee of the Communist Party of China, said he believed it was of vital importance for the province to open up the shipping industry and to make Hainan a developed area of ocean industries.

He welcomed and appreciated the investment of COSCO, saying the province would provide investors and builders with the most favorable economic policies.

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Fears over Zhuhai port are dismissed
Leu Siew Ying in Zhuhai
7 June 2005
South China Morning Post

Fears that a new container port being built in Zhuhai will siphon off cargo bound for Hong Kong and Shenzhen from the western Pearl River Delta have been dismissed.

An analyst says the market was growing and there would soon be enough business for all ports.

Investment in terminal construction in Gaolan port, undertaken largely with Li Ka-shing's Hutchison Delta Ports, will expand Zhuhai's annual container-handling capacity more than fivefold by 2010, from its existing 448,000 20-foot equivalent units (teu) to 2.3 million teus in 2010, said Zhuhai Port Authority section chief Liu Weidong .

Professor Zheng Tianxiang , of Sun Yat-sen University's Pearl River Delta Research Centre, said Zhuhai's industrialisation was accelerating, aided by a change in its development strategy which had attracted local and foreign investors. Professor Zheng predicted the container throughput of the western Pearl River Delta cities of Zhongshan , Jiangmen and Foshan would double in 10 years.

All three river ports feed cargo to Hong Kong or Shenzhen. But going directly to Zhuhai, with its deep-water harbour and international links, could save shippers 1,000 yuan to 2,000 yuan per container.

Shenzhen and Hong Kong will be most affected when Zhuhai's container handling comes of age. But Guangzhou's Nansha port will also compete for business from Foshan, Zhongshan and Dongguan. In addition, Zhanjiang will compete for goods from Yangjiang.

Professor Zheng said there was no need to fear overcapacity. "The Pearl River Delta will boom for another 10 years. The pie is getting bigger."

Hutchison Delta Ports, which has a badly silted 10,000-tonne terminal in Jiuzhou, signed a joint-venture agreement last month to build two 50,000-tonne terminals in Gaolan, with plans to build three to four 100,000-tonne terminals.

"Li Ka-shing is a shrewd investor, so if he is going ahead with the Gaolan port investment he must have been convinced by his feasibility studies," a representative of an international shipping company said in Zhuhai.

"I personally don't see anything happening in the next three years because that's how long it will take to build the ports but the longer-term prospects are good," she said.

Another representative said: "Zhuhai is growing very fast. There are more than 3,000 foreign-invested enterprises that account for 70 per cent of industrial output and about 81 per cent of exports."

Shippers are worried that Gaolan has a silting problem requiring annual dredging and the cost of that would be passed on to them.

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Shanghai Begins Work On "World's Largest Shipyard"
6 June 2005

SHANGHAI (AP)--Construction has begun on what China says will eventually be the world's biggest shipyard, part of the country's plan for taking a dominant role in the industry.

China's biggest shipbuilding company, China State Shipbuilding Corp., began building the eight-kilometer-long facility late last week on an island in the Yangtze river, north of Shanghai, state media reported.

The US$3.6 billion shipyard is meant to quadruple Shanghai's current shipbuilding capacity to 12 million deadweight tons by 2015.

China, the world's third-largest shipbuilder, has been eager to cash in on a global boom in shipping resulting largely from its own surging exports and demand for raw materials.

China now holds about 10% of the world shipbuilding market. South Korea and Japan combined now make three-quarters of the world's ships.

The 130-year-old Jiangnan Shipyard, which once operated along the Huangpu River in the center of Shanghai, will move to the new facility once it is built.

Shanghai handles almost half of China's shipbuilding orders, with an annual capacity of more than 3 million tons, accounting for 4.6% of the world total.

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Koreans keep flocking to China for hull work
10 June 2005
Tradewinds

China is continuing to attract Korean shipbuilding companies wanting to establish hull-building facilities in the country.

An STX Shipbuilding official says the company will invest $100m in the province of Shandong to construct a hull-block factory. Construction of the factory is likely to take place from the middle of next year and production of the blocks may start three months later.

STX did not say how big the site would be but some reports put it at 1.6 million to two million square metres.

"Our initial production for the blocks is about 30,000 tonnes per year. Thereafter, the volume will increase but we have not worked out how much that will be," said the STX official.

Besides STX, Korea's third major shipbuilder, Samsung Heavy Industries, is also planning to build a block factory in Shandong.

Samsung was the first Korean shipbuilding company to turn to China for hull blocks. It built its first block-fabrication factory in Ningbo six years ago but the manufacturing plant is no longer able to meet Samsung's demand.

It is not known how much Samsung is pumping into Shandong but the site will be capable of producing 200,000 tonnes of blocks annually.

STX says China's cheaper labour costs and lower land prices are the main attractions.

"In Korea, we are facing a shortage of land and land prices here are a lot higher than in China," said the STX official.

The company calculates that even with the transportation costs of close to $70,000 per load for the blocks to be moved from Shandong to Chinhae, it is still cheaper to have them manufactured there.

"However, we are not able to have all the blocks manufactured in China because some shipowners prefer to have them made in Korea," said the STX official.

Some industry players say the Koreans are likely to turn these block-fabrication factories into shipbuilding yards in the future. The STX official agrees with the speculation and says the company would like to repair or build ships there but Chinese policy is a complicating the issue.

"As a block-fabrication factory, we can own 100% stake in the company. But if it becomes a shiprepair or shipbuilding yard, we will need a Chinese partner and he may hold more than 50% of the stake," said the STX official.

Last month, Daewoo Shipbuilding was reported to be investing $100m on a hull-block factory in Yantai, Shandong province, as well.

The yard could start the production of blocks in 2007, with a target of 50,000 tonnes per year, to increase to 300,000 tonnes by 2016.

Daewoo's move into China was spurred by the decision of two Korean major suppliers of blocks, DongYang and SungDong Heavy Industries, to switch over to the newbuilding business.

[hkskyline]

COSCO Plans 25% Div Payout Of Distributable Pft Post-IPO
13 June 2005

HONG KONG (Dow Jones)--China COSCO Holdings Ltd., China's largest shipping firm, plans to pay at least 25% of its annual profits as dividends to shareholders after its listing, according to a draft listing prospectus seen by Dow Jones Newswires.

The roadshow for China COSCO's initial public offering got underway Monday, ahead of a listing on the Hong Kong stock exchange tentatively scheduled on June 30. Some 90% of COSCO's shares have been earmarked for institutional investors.

COSCO expects net profit in 2005 of at least CNY4.15 billion, down from CNY4.16 billion in 2004.

The prospectus was prepared by sponsors HSBC and UBS. JPMorgan is a joint bookrunner of the deal.

The prospectus identifies several possible risks to COSCO's business outlook, including cyclical factors that could slow demand for container shipping, which in turn would depress freight rates.

The sponsors noted COSCO has a high level of debt that could adversely affect its liquidity and profitability.

COSCO's debt at end-2004 totaled CNY17.85 billion, which represents a gearing ratio of 40%.

Furthermore, a revaluation of the Chinese currency, the yuan, may "materially and adversely affect...(COSCO's) operations and financial results." As the yuan is COSCO's reporting unit, and it conducts significant business in other currencies, a fluctuation in the exchange rate may negatively affect the value of the company's assets and earnings, said the prospectus.

Proceeds from the IPO are mainly planned for fleet expansion and the repayment of loans.

The company, a unit of China's largest shipping firm China Ocean Shipping (Group) Co., set an indicative price range of HK$4.25 to HK$5.75 a share for its listing.

Three strategic investors are subscribing to about US$400 million worth of COSCO's IPO: Hutchison Whampoa Ltd. (0013.HK), owned by tycoon Li Ka-shing, will buy US$150 million worth of shares; Lee Shau-kee, the chairman of Henderson Land Development Co. (0012.HK), will subscribe to US$100 million; and the rest will be bought by Singapore's state-owned investment arm, Temasek Holdings Ltd.

COSCO Holdings' businesses include container shipping, container terminal, container leasing and freight forwarding services.

[hkskyline]

At the peak of the business cycle, the only way is down
15 June 2005
South China Morning Post

Few industries are as cyclical as the container shipping sector, and China Cosco is coming to market at the very top of its business cycle.

That will not unduly trouble the management of China's largest shipping company. According to bankers close to the deal, the institutional tranche of Cosco's initial public offering was fully covered by the end of business on Monday, the first day of the roadshow.

By the time Cosco's executives have swung through Singapore, London and New York, the $9.5 billion to $12.9 billion deal should be comfortably oversubscribed.

Cosco's lead managers, HSBC, JP Morgan and UBS, are pitching the company as a direct play on China's growth as a trading economy. With businesses from container manufacturing, to terminals to freight-forwarding, Cosco offers services along the whole freight chain, which bankers contend places the company head and shoulders above pure shippers such as CSCL or OOIL.

To bolster investor confidence, Cosco has enlisted the usual parade of big-name corporate investors, and to sweeten the deal further, it has promised to pay out as much as 35 per cent of this year's earnings in dividends. According to projections by HSBC, that will mean a windfall of at least $624 million for investors in the first year.

Nevertheless, Cosco is carrying some uncomfortable risks. Although the syndicate banks are stressing the breadth of the company's businesses, Cosco still made 79 per cent of its net profit last year from plain old container shipping. For the past couple of years, this has been a great business to be in as soaring demand after China's 2001 accession to the World Trade Organisation sent freight rates skyward, more than doubling Cosco's earnings last year.

Owners have rushed to order more ships, and today half as many container ships are being built as are already at sea. For the biggest vessels, which can carry 4,000 or more 20-foot containers, the ratio is even higher, at 78 per cent. Next year, global container shipping capacity will grow by more than 14 per cent, according to Drewry Shipping Consultants.

The worry is that much of this new capacity will be launched just as trade growth begins to soften. The Organisation for Economic Co-operation and Development's widely-followed composite leading indicators fell for the fourth consecutive month in April to enter negative territory, pointing to a slowdown in economic activity ahead.

Drewry forecasts that demand growth for container shipping will slow to 8 per cent next year, from 12 per cent this year and 13 per cent in 2004. Shipbrokers in Hong Kong say freight rates are already beginning to slide, and even Cosco's investment bankers admit that the company's margins are going to be squeezed.

Excess capacity and slackening demand are not the only concerns. Like most shipping companies, Cosco is highly leveraged and vulnerable to rising interest rates. With its dependence on demand for Chinese exports, yuan-denominated costs and foreign currency revenues, Cosco's earnings are also more exposed than those of most companies to any appreciation of the Chinese currency.

The company's position in the market still makes it an attractive long-term investment, but Cosco is a company at the peak of its business cycle. Investors may well want to consider whether its stock will be an even better buy in two years.

[RafflesCity]

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