China Shipping News

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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.