Reasons to be fearful

Malcolm Latarche
Malcolm Latarche

09 August 2016


For a decade or so, China has been seen as something of a saviour for the shipping industry with its seemingly insatiable demand for raw materials and a torrent of manufactured exports that between them have provided employment for ships in every sector. In attempting to grab a piece of the pie, shipowners have built bigger and faster than ever before and have succeeded in putting together a world fleet that has outpaced the growth in demand. That is bad enough but in the same period globalisation has seen western manufacturers moving production to china and its near neighbours, driving down cost of production for their offerings while maintaining the same old pricing levels back in Europe and the US. The recent news that COSCOCS has agreed a massive $18bn finance deal with China Exim Bank for building more than 50 new ships at Chinese yards is could be the final nail in the coffin for many western owners burdened by the debt incurred in growing their fleets but now with little cargo to put in them. COSCOCS, China Exim Bank and the yards where the ships are likely to be built are all state-owned and so the normal restraints of financial responsibility do not apply in the same way they do to western owners. With well over 1,100 ships already in its fleet and some 46 container terminals with almost 200 berths at strategic global locations COSCOCS has a firm grip on the trade arteries of the modern world. While it may well be that the 50 new vessels will be used to modernise its fleet, there can be little doubt that the company will not take the opportunity to increase its fleet capacity at the same time and so add further to the woes of western competitors. But it is not only COSCOCS’ competitors that should be anxious, many of the shippers and receivers of cargo are still European and US companies and they may well see some of the few remaining shipowners throwing in the towel leaving something akin to a monopoly situation on many East West routes. In the short term freight rates may stay on current levels or drop lower still but as the competition dries up so will the low rates. It is hard to see the EU and other western authorities doing much about this possibility, which is effectively dumping of shipping services, purely because they have done so little in the past. They have allowed shipbuilding and manufacturing to wither and move east so there is little chance that they will protect the shipping industry – quite the contrary if the EU’s past track record is anything to go by.