Holy Ship.. China is Producing a LOT of Ships (Part 1)

Wednesday, May 2, 2007 0:18
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One of the most amazing parts of being in China, is seeing how fast things can change. It comes in waves, and before you know it an industry that once seemed dormant and non-existent in China (or at the very least behind the times) punches through the wall and gives viewers a peak into the future.

My first experience in this was while working with a large branded construction equipment manufacturer as part of a supplier/ competitive assessment project. Our team of 6 spent a full week at the 2005 Bauma Fair interviewing various OEM, systems, and component manufacturers to understand what the current trends were in their space, and what the next 5 years would look like.

Day 3 into our 75 interview extravaganza, and it became clear that in only a few years the industry would change.. and dramatically. While only exporting a small number of wheel loaders and other pieces of equipment, there were several manufacturers who were in the lead.. and they had big plans. Overseas distribution agreements, service provider training, plans to purchase manufacturing sites overseas, etc… one of them had a 150,000USD consulting report in hand that laid out the GLOBAL landscape.

I mention this as it is a theme I have seen over and over again, and in studying the various portions of shipping we can once again see that things are going to change very soon.

The first story, COSCO inks contracts to build 66 ships :

The 66 ships – including container ships, bulk cargo ships, oil tanker and car carriers – will have a total deadweight tonnage of 5.14 million.

They will be built by four domestic firms, including China Shipbuilding Industry Corp., COSCO Shipbuilding Industry Co. and COSCO Shipyard Group, and will be delivered between 2008 and 2010.

The next article, Sinopec may hire more supertankers than Exxon

A trading unit of the Chinese company became the world’s second-largest charterer of very large crude carriers in 2006, lagging behind only Exxon, according to shipbroker Poten & Partners. Beijing-based China Petroleum, known as Sinopec, was third in 2005 and 10th in 2004.

China will expand refining capacity 25 percent by 2010 to increase gasoline and diesel supplies after vehicle sales more than tripled in five years.

Third –2nd largest sea transport group sees shipbuilding

China Shipping Group, the second biggest oceanic transportation conglomerate in China, plans to build its first shipyard by the end of 2008.

This is the second time in less than two months that a heavyweight centrally-administered state-owned enterprise has branched out into the shipbuilding industry.

Each of these on their own are significant in their own right, but when you consider that all of these announcements came out around the same… well, the water is beginning to spill over the top of the dam.

Lead in large part by exports, the shipping industry of China has prospered greatly. CSL, China Merchants, COSCO, and others have done very well in the container trade, while Sinopec has done well on the energy side…

The market itself, once dominated by the likes Matson, Maersk, and APL, is one that requires a huge amount of investment (boats are not as cheap as they used to be), a long term vision (payback cycles are long), and a lot of skilled and unskilled labor (China is enjoying a slight advantage on one of those). Add to that a government committed to building the roads, bridges, port, high tech zones, residential parks, universities, and sewage systems required to support the industries.. and you have a carefully choreographed shipping symphony that leaves many at the docks screaming HOLY SHIP!

As the shipping and ship building industries mature in China (there is still a lot of change needed), one can expect change.. and the recent article China shipbuilding frenzy to cut freight costs by 40% in Bloomberg showed just what that impact could look like

Japan, China and South Korea will produce so many vessels that shipping costs, now at an all-time high, will fall 40% by 2010, according to futures contracts traded privately among banks, transportation companies and hedge funds. The decline would hurt Antwerp-based Compagnie Maritime Belge SA, the world’s largest commodities-shipping line, and Golden Ocean Group Ltd, run by Norwegian billionaire John Fredriksen.

Chinese shipyards are building enough carriers to haul 48 million tonnes in the next five years, equal to 15% of the nation’s annual iron ore imports

The only question left in my mind.. is where are they going to put all this ship?

Port traffic may grow by 9% this year, study finds Growth at the twin ports of Los Angeles and Long Beach will keep going full throttle this year despite concerns about capacity and other issues, according to a study to be released today.

Container traffic at the two ports is expected to increase 9.2 percent to 17.2 million TEUs, or 20-foot equivalent units, says an international trade study by the Los Angeles County Economic Development Corp.

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