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Wednesday, 18 March 15
CHINA-OWNED SHIPS: A RAPID RISE TO BECOME ONE OF THE WORLD'S LARGEST FLEETS - RICHARD SCOTT
 Ships operated by owners based in China have become increasingly prominent on the world’s sea routes. China-owned container ships, bulk carriers, tankers and other vessels are seen more frequently in ports around the world. These ships now constitute the third largest fleet as identified by ownership and control nationality, following Greece in the number one position and Japan at number two. And the China-owned fleet is set to become much larger, one indication of which is a huge volume of new vessels on order at shipbuilding yards. This article looks at how and why rapid fleet expansion has evolved, and who are the major players.
Fleet growth has evolved alongside the spectacular advance of China’s seaborne trade since the early 2000s. Many second-hand ships have been bought by Chinese owners from foreign companies, while newbuilding vessels have been acquired on a vast scale. But the China-owned fleet’s enlargement has generally lagged behind the growth of the country’s import and export cargo movements. This widening gap may be reduced over the years ahead.
The fleet’s tidal surge
During the past ten years, the China-owned fleet has more than tripled in size. From 37.7 million gross tons (GT) at the end of 2004, total capacity rose by 216 percent to reach 119.2m GT at end-2014, according to figures compiled by Clarkson Research and shown in the graph, including all ships of 100 GT and above. This pace of growth was faster than seen in the entire world fleet; consequently China’s share of the global total increased from 6 percent to just over 10 percent.
Expansion has been seen in all the vessel-type categories. The bulk carrier fleet saw the most rapid advance, especially since 2008. Between 2004 and 2014 this fleet almost quadrupled to 69.2m GT, forming the largest portion of China-owned tonnage. The tanker and container ship fleets tripled in size over the past decade to 21.2m GT and 13.7m GT respectively at end-2014. All other ship types together grew less rapidly by seventy-six percent, to reach 15.1m GT. Included in this ‘other ships’ category are gas carriers, multi-purpose and general cargo ships, roll on-roll off vessels and vehicle carriers, cruise and passenger ships and offshore vessels. A large part of these fleets is involved in international trade, but many ships are employed wholly within the huge Chinese coastal cargo movements.
Two aspects of the figures need clarification. Firstly, the choice of gross tonnes to provide an indication of cargo-carrying capacity. For bulk vessels (tankers and bulk carriers) the usual measurement is deadweight tonnes, and for container ships the TEU (twenty-foot equivalent unit) is normally used. Gas carriers are generally described in cubic metres capacity, and other ship types by a variety of tonnages. Gross tonnes provides a convenient common measurement.
Secondly, how can the country of ownership of a vessel be defined? As is well known, a vessel’s flag (the flag of the state in which it is registered) typically provides no indication of ownership nationality. The ownership country is where full control (the parent owning company) is located. However, identifying this location relies heavily on interpretation and subjective judgements. In some cases the real ownership location may be obvious, but in many other cases it is less or much less apparent. At the end of 2014 there were over 89,000 ships included in the world’s merchant (commercial) ship fleet. In a typical year, a huge number of changes take place. Identifying ownership, and tracking changes for the entire fleet is a highly challenging task, and it seems quite likely that numerous mistakes occur, probably unavoidably, despite thorough checking. Perhaps these figures should be viewed as a broad, rather than precise, indication of ownership nationality.
As an example of how statistical data differs, slightly changing perceptions, the foregoing figures can be compared with the widely-used United Nations Conference on Trade and Development statistics. These UNCTAD figures are compiled in deadweight tonnes, and include only vessels over 1000 GT, which are contributory reasons for differences. In this analysis the China-owned fleet’s proportion rises from 6.8 percent of the world total at the end of 2004, to 11.9 percent at end-2013 (the latest available data). The starting position in that decade therefore is almost one percentage point higher than in the data set already discussed, while the ending position is almost two percentage points higher. Moreover, when UNCTAD changed data providers in 2012, the identified China-owned fleet’s deadweight capacity jumped by 53 percent in just one year. Also, the proportion of the world total abruptly increased over twelve months by three percentage points, to 11.8 percent. This narrative seems to illustrate how identification of true ownership is not an exact science and varies among statisticians.
Chinese characteristics
Fleet tonnage expansion involved a huge rise in the number of individual China-owned vessels trading, from 3.821 at the end of 2004, to 6,532 at end-2014, based on Clarkson data. The percentage rise, 71 percent over the decade was well below that of gross tonnage, owing to a rising average vessel size. At the beginning, the average vessel size employed was 9,859 GT, rising to 18,242 GT at the end, an 85 percent increase.
One significant characteristic of the current fleet is the predominance of relatively young ships. At the end of 2014, based on the number of vessels, 80 percent of tankers were less than ten years old (built 2005-2014). The comparable figure for bulk carriers was 68 percent, and for container ships 51 percent. Modern ships usually have superior operating advantages, being more efficient and more economical.
A large part of the China-owned fleet is operated under open registries. At the end of 2013, based on UNCTAD figures, 63 percent was registered by foreign flags, similar to the 65 percent proportion one year earlier, up from 49 percent ten years earlier. The role of the Hong Kong flag has grown strongly. The advantage of this arrangement, for many China-owned ships involved in international trade, is greater operational, financial and regulatory flexibility under open registries, compared with national flag registration. Ships participating in coastal trade are required to fly the Chinese national flag.
While much of the fleet growth reflected new ships purchased, China’s shipowners’ vessel purchases on the international second-hand market also comprised a major part. In 2014, for example, a 5.7m GT total was bought, according to Clarkson, although 56 percent of the number of vessels resulted from transactions with domestic owners. Second-hand purchases often have substantial advantages for buyers, including immediate availability for trading and, often, involve lower capital expenditure than a comparable newbuilding vessel.
Although growth in the China-owned fleet has been impressive over the past decade as a whole, annual growth varied greatly, within a 2 percent to 25 percent range. The fastest annual advances were seen in 2009 and 2010, when there were two consecutive 25 percent surges. Since then, a marked deceleration has occurred, down to only a modest 2 percent in 2014, when the bulk carrier fleet’s capacity actually diminished marginally, and tanker fleet capacity was flat.
Policy and economics drivers
Accompanying this fleet evolution, several recent signs of broad action by China’s government on aspects of shipping policy have been seen. At the beginning of this year, the Ministry of Transport published details of aims for upgrading the country’s shipping industry and improving services and competitiveness in the global marketplace. Previously, two months earlier, intentions to support and modernise China’s shipping were reported. Specific items listed were encouragement of mergers and acquisitions and private investment involvement, together with development of cruise shipping. More support from domestic financial institutions was encouraged. These policy objectives followed publication of guidelines for developing and supporting shipping, including tax changes and regulatory reform, while applying pressure on companies to improve and modernise their fleets. The stated aim was to build an efficient, safe and environmentally friendly Chinese shipping system by 2020.
Previously, towards the end of 2013, a new scrapping subsidy plan was introduced by the Chinese government to benefit both shipping and shipbuilding industries in China over the period up to 2015. The subsidy is restricted to China-flagged ships. Shipowners participating are required to place newbuilding orders with Chinese shipbuilders at least equivalent to the vessel tonnage being scrapped in domestic recycling yards. This policy has assisted a number of Chinese shipowners with their fleet renewal programmes. The plan was seen as being especially valuable for the coastal trading fleet operating under the China flag.
For some time, it has been clear that the Chinese government’s intention is to achieve a larger proportion of the country’s seaborne trade transported by ships owned by companies based within China. This aim has been most visible in the VLCC (very large crude carrier) segment of the oil imports trade.
Reports have suggested that the government’s target is to see as much as 85 percent of foreign crude oil purchases carried by Chinese controlled ships. A huge newbuilding order by Chinese shipowners for up to eighty VLCCs has been anticipated, as a result. But, although a number of new tankers of this type have been ordered, and some have already joined the fleet, there are no signs of the target being achieved. According to a recent report by E A Gibson Shipbrokers, only 8 VLCCs were delivered to Chinese controlled companies in 2014, preceded by just 5 in the previous twelve months. However, orders for new VLCCs stood at around 30, for delivery at a rate of about 10 ships annually from this year up to 2017, implying a possible acceleration in the pace of transport capacity expansion.
A trend of expanding global seaborne trade volumes, a major contributor to which comprises rising imports into, and exports from, China provides growing opportunities for participation by Chinese shipowners. Cost-competitiveness enhances potential for involvement. These features, becoming well established over the past decade or longer, are the fundamental economic drivers of growth in the China-owned fleet of ships. But there is some evidence that subdued freight rates on the international market, and therefore low profitability for shipowners, during many of the past few years, has deterred investment by Chinese companies. In these circumstances, China-owned ships, employed in both China import or export trade and in international cross-trades, experience poor or mediocre investment returns.
Prominent players
Within the entire China-owned fleet of ships of all types, about two-fifths measured in gross tonnes is contributed by three state-owned enterprises. These are: China Ocean Shipping Company (Group), usually known as COSCO; China Shipping Group (CSG); and Sinotrans & CSC. Another prominent company, also state-owned, is China Merchants Group. The largest shipowner in the private sector is HOSCO.
A number of separate individual company fleets of specific vessel types are large parts. At the end of 2014 there were nine, each of at least 2 million GT, which dominated the industry. The biggest, according to Clarkson data, were COSCO Group’s bulk carrier fleet amounting to 160 ships of 8.7m GT, China Shipping’s container ship fleet totalling 76 ships of 5.8m GT, and the COSCO container ship fleet consisting of 79 ships totalling 4.5m GT. The next largest component was the 4.4m GT tanker fleet in the new China VLCC pool.
In August last year, a joint venture to operate VLCCs was announced by China Merchants Energy Shipping (with a 51 percent shareholding) and Sinotrans & CSC (49 percent shareholding). China Merchant’s existing nine tankers of this type were the initial component, together with ten newbuildings on order. A few months later the new enterprise, named China VLCC Company, acquired eight VLCCs from the bankrupt Nanjing Tankers, originally a subsidiary of Sinotrans & CSC. Another nine VLCCs operated by Nanjing, plus a recently-delivered newbuilding, were taken over by year-end, raising the China VLCC total to 28 tankers. This company seems destined to be one of the tanker market’s largest players.
Navigating further growth ahead
What is the outlook for future fleet development? One clear indication is new ships currently on order for China-based shipowners. At the end of 2014, Clarkson statistics show that the total of these was 625 ships of 32.1m GT, equivalent to 27 percent of the capacity of the existing 119.2m GT operational fleet. This huge order volume was the largest by owner nationality, exceeding that of Greece (30.4m GT), Japan (15.4m GT) and Germany (11.0m GT). Just over half of the China total volume, 16.4m GT is scheduled to be completed by shipyards and delivered to owners within the current year, 2015. A further 12.2m GT is due for delivery in 2016.
Although this new capacity being added implies fleet expansion, projections for China (and other countries) are often surrounded by great uncertainty. Aspects which are usually difficult to forecast reliably are numerous. Major uncertainties include the timing of newbuilding deliveries (compared with the recorded order book schedule), and how much additional ordering will occur. Also, scrapping of existing old or obsolete tonnage is hard to predict. The disposal of existing ships in the fleet to, and acquisitions from, owners located elsewhere (second-hand sale and purchase activity) is not accurately predictable either.
Nevertheless, signs point firmly towards continued enlargement of cargo-carrying capacity in the China-owned fleet of ships during this year, the Year of the Goat and further ahead. The large-scale order book is a convincing indicator, and anecdotal evidence also demonstrates intentions to add tonnage. Backed by a government strategy for shipping industry development, and accompanied by President Xi Jinping’s vision of a 21st century Maritime Silk Road, the China-owned fleet seems set to achieve greater prominence.
Source: Article by Richard Scott, Visiting Lecturer, China Maritime Centre, University of Greenwich & MD, Bulk Shipping Analysis | Hellenic Shipping News
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Saturday, 28 March 15
THE DRY BULK FLEET AT BREAKING POINT - CLARKSONS
The severe oversupply in the bulkcarrier fleet has contributed to the current trough in the dry bulk market, putting considerable financial pressur ...
Friday, 27 March 15
INDONESIA: NEW REGULATION REQUIRES LETTER OF CREDIT FOR EXPORT OF PRODUCTS FROM NATURAL RESOURCES
The Minister of Trade issued Ministerial Regulation No. 04/M-DAG/PER/1/2015 (“Regulation No. 4/2015”) on 5 January 2015. Regulati ...
Friday, 27 March 15
WEEKLY U.S COAL OUTPUT FALLS 1.7% W-W; 7.9% Y-Y
COALspot.com – United States the world's one of the largest coal producers, produced approximately totaled an estimated 18.2 million ...
Thursday, 26 March 15
CHINA IRON ORE IMPORT FOR THE FIRST 2 MONTHS DECLINED BY 1.2 % Y-O-Y; PANAMAX AUSSIE/CHINA ROUNDS BEING FIXED IN THE $4 -5K RANGE - FEARNLEYS
Handy
There has been more activity in both hemispheres this week. Especially the USG market has picked up with more cargoes for prompter dates en ...
Thursday, 26 March 15
RATES FOR THE SMALLER SIZE SEGMENT CONTINUED TO IMPROVE LAST WEEK - INTERMODAL
To see green across the board is a rare occurrence in the Dry Bulk market nowadays and while the upside in which last week closed off is not of the ...
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- Pipit Mutiara Jaya. PT, Indonesia
- Directorate Of Revenue Intelligence - India
- London Commodity Brokers - England
- Deloitte Consulting - India
- Kaltim Prima Coal - Indonesia
- CIMB Investment Bank - Malaysia
- The State Trading Corporation of India Ltd
- Karaikal Port Pvt Ltd - India
- Sindya Power Generating Company Private Ltd
- Indo Tambangraya Megah - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Independent Power Producers Association of India
- Bharathi Cement Corporation - India
- Semirara Mining and Power Corporation, Philippines
- Indian Oil Corporation Limited
- Carbofer General Trading SA - India
- Essar Steel Hazira Ltd - India
- International Coal Ventures Pvt Ltd - India
- Manunggal Multi Energi - Indonesia
- Bulk Trading Sa - Switzerland
- Ministry of Mines - Canada
- Mjunction Services Limited - India
- Attock Cement Pakistan Limited
- Straits Asia Resources Limited - Singapore
- Grasim Industreis Ltd - India
- Dalmia Cement Bharat India
- Cigading International Bulk Terminal - Indonesia
- Malabar Cements Ltd - India
- Vizag Seaport Private Limited - India
- MS Steel International - UAE
- Port Waratah Coal Services - Australia
- Ceylon Electricity Board - Sri Lanka
- Oldendorff Carriers - Singapore
- Rio Tinto Coal - Australia
- Eastern Energy - Thailand
- Kohat Cement Company Ltd. - Pakistan
- Jindal Steel & Power Ltd - India
- Global Coal Blending Company Limited - Australia
- GMR Energy Limited - India
- Parry Sugars Refinery, India
- Ambuja Cements Ltd - India
- Renaissance Capital - South Africa
- ICICI Bank Limited - India
- Holcim Trading Pte Ltd - Singapore
- GAC Shipping (India) Pvt Ltd
- Kepco SPC Power Corporation, Philippines
- Aditya Birla Group - India
- Indika Energy - Indonesia
- Kapuas Tunggal Persada - Indonesia
- The Treasury - Australian Government
- Maheswari Brothers Coal Limited - India
- Kideco Jaya Agung - Indonesia
- Tata Chemicals Ltd - India
- Kartika Selabumi Mining - Indonesia
- Globalindo Alam Lestari - Indonesia
- Price Waterhouse Coopers - Russia
- Jaiprakash Power Ventures ltd
- Barasentosa Lestari - Indonesia
- Economic Council, Georgia
- Ind-Barath Power Infra Limited - India
- Singapore Mercantile Exchange
- Gujarat Electricity Regulatory Commission - India
- Alfred C Toepfer International GmbH - Germany
- Baramulti Group, Indonesia
- Siam City Cement PLC, Thailand
- Metalloyd Limited - United Kingdom
- Africa Commodities Group - South Africa
- Kalimantan Lumbung Energi - Indonesia
- New Zealand Coal & Carbon
- Mercuria Energy - Indonesia
- Sakthi Sugars Limited - India
- Eastern Coal Council - USA
- Ministry of Transport, Egypt
- Bukit Makmur.PT - Indonesia
- Bhatia International Limited - India
- Billiton Holdings Pty Ltd - Australia
- Tamil Nadu electricity Board
- Gujarat Sidhee Cement - India
- Bhushan Steel Limited - India
- Georgia Ports Authority, United States
- Makarim & Taira - Indonesia
- Heidelberg Cement - Germany
- Videocon Industries ltd - India
- Orica Australia Pty. Ltd.
- Ministry of Finance - Indonesia
- Salva Resources Pvt Ltd - India
- Vedanta Resources Plc - India
- Cement Manufacturers Association - India
- The University of Queensland
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Latin American Coal - Colombia
- Altura Mining Limited, Indonesia
- Xindia Steels Limited - India
- SMG Consultants - Indonesia
- Siam City Cement - Thailand
- Binh Thuan Hamico - Vietnam
- Chamber of Mines of South Africa
- Sinarmas Energy and Mining - Indonesia
- Simpson Spence & Young - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- PNOC Exploration Corporation - Philippines
- Posco Energy - South Korea
- IEA Clean Coal Centre - UK
- Wood Mackenzie - Singapore
- Bhoruka Overseas - Indonesia
- Anglo American - United Kingdom
- Sarangani Energy Corporation, Philippines
- Neyveli Lignite Corporation Ltd, - India
- Coastal Gujarat Power Limited - India
- Larsen & Toubro Limited - India
- TeaM Sual Corporation - Philippines
- Global Business Power Corporation, Philippines
- Krishnapatnam Port Company Ltd. - India
- Coal and Oil Company - UAE
- Mercator Lines Limited - India
- Rashtriya Ispat Nigam Limited - India
- Uttam Galva Steels Limited - India
- Savvy Resources Ltd - HongKong
- Parliament of New Zealand
- Meralco Power Generation, Philippines
- Asmin Koalindo Tuhup - Indonesia
- Planning Commission, India
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- Mintek Dendrill Indonesia
- Trasteel International SA, Italy
- McConnell Dowell - Australia
- Bukit Asam (Persero) Tbk - Indonesia
- Electricity Generating Authority of Thailand
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Borneo Indobara - Indonesia
- Pendopo Energi Batubara - Indonesia
- Standard Chartered Bank - UAE
- Coalindo Energy - Indonesia
- ASAPP Information Group - India
- PetroVietnam Power Coal Import and Supply Company
- Global Green Power PLC Corporation, Philippines
- VISA Power Limited - India
- European Bulk Services B.V. - Netherlands
- South Luzon Thermal Energy Corporation
- White Energy Company Limited
- Commonwealth Bank - Australia
- Bangladesh Power Developement Board
- Madhucon Powers Ltd - India
- Australian Coal Association
- Energy Link Ltd, New Zealand
- Bank of Tokyo Mitsubishi UFJ Ltd
- Toyota Tsusho Corporation, Japan
- Meenaskhi Energy Private Limited - India
- Intertek Mineral Services - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Iligan Light & Power Inc, Philippines
- Semirara Mining Corp, Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Edison Trading Spa - Italy
- Indogreen Group - Indonesia
- Antam Resourcindo - Indonesia
- Sree Jayajothi Cements Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Romanian Commodities Exchange
- Therma Luzon, Inc, Philippines
- OPG Power Generation Pvt Ltd - India
- Indian Energy Exchange, India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- CNBM International Corporation - China
- Banpu Public Company Limited - Thailand
- Kumho Petrochemical, South Korea
- Kobexindo Tractors - Indoneisa
- Interocean Group of Companies - India
- IHS Mccloskey Coal Group - USA
- Energy Development Corp, Philippines
- Medco Energi Mining Internasional
- Aboitiz Power Corporation - Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- Minerals Council of Australia
- Bukit Baiduri Energy - Indonesia
- Sojitz Corporation - Japan
- Star Paper Mills Limited - India
- Agrawal Coal Company - India
- PTC India Limited - India
- Petron Corporation, Philippines
- AsiaOL BioFuels Corp., Philippines
- Jorong Barutama Greston.PT - Indonesia
- Power Finance Corporation Ltd., India
- Australian Commodity Traders Exchange
- Chettinad Cement Corporation Ltd - India
- Indonesian Coal Mining Association
- Samtan Co., Ltd - South Korea
- Bahari Cakrawala Sebuku - Indonesia
- SMC Global Power, Philippines
- Goldman Sachs - Singapore
- Lanco Infratech Ltd - India
- Thai Mozambique Logistica
- PowerSource Philippines DevCo
- Central Java Power - Indonesia
- Marubeni Corporation - India
- Maharashtra Electricity Regulatory Commission - India
- LBH Netherlands Bv - Netherlands
- SN Aboitiz Power Inc, Philippines
- Formosa Plastics Group - Taiwan
- San Jose City I Power Corp, Philippines
- Timah Investasi Mineral - Indoneisa
- Merrill Lynch Commodities Europe
- GN Power Mariveles Coal Plant, Philippines
- Gujarat Mineral Development Corp Ltd - India
- Leighton Contractors Pty Ltd - Australia
- Riau Bara Harum - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Bayan Resources Tbk. - Indonesia
- India Bulls Power Limited - India
- Sical Logistics Limited - India
- Wilmar Investment Holdings
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Central Electricity Authority - India
- Electricity Authority, New Zealand
- Orica Mining Services - Indonesia
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