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            december 14, 2018

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Indiaexportnews.com

State-backed major container shipping firms define new market reality

  06.12.2018    

Government support is a lifeline for some container shipping companies, although, many in the industry believe it is a drag on the global shipping business overall, reports the Wall Street Journal.
It preserves scores of shipping jobs and provides financing to private companies to renew their fleets as western banks pull out of maritime investments. It also has transformed ports in Asia, Africa and Europe into thriving gateways for global trade.
Critics, however, argue state financing also distorts shipping markets and upends the usual rules of supply and demand. It's one reason there is an estimated 15 per cent more capacity on the water than needed across all ship types, helping keep freight rates below break-even levels and contributing to carrier profit challenges.
China has made state behemoth Cosco Ocean Shipping Holdings the tip of the spear in its Belt and Road initiative. South Korea has been pumping billions into its maritime sector to keep afloat the cash-strapped shipping operators and shipbuilders that are pillars of Seoul's export-led economy.
Japan last month complained to the World Trade Organisation about Seoul's state funding of local shipbuilders. The case focuses on the restructuring of South Korea's Daewoo Shipbuilding & Marine Engineering, a giant yard Tokyo alleges has received US$10 billion in bailouts since 2015 as it grappled with an accounting scandal and a massive decline in orders.
Seoul hasn't responded to the allegations and instead in late November said it was preparing to provide up to $1.5 billion in loans and guarantees for the country's shipyards. The package is to back orders for 140 liquefied natural gas-powered vessels over the next six years.
The ramped-up support for the sector comes in the wake of the 2016 collapse of Hanjin Shipping - a top 10 global ocean liner until the state-backed Korea Development Bank pulled the plug on its support for Hanjin's loss-making operations.
In October Hyundai Merchant Marine received $5 billion in state funding to order 20 mega containerships from local yards and invest in container terminals around the world. The support goes to a carrier that needed a $660 million bailout last year to escape default and controls only 1.8 per cent of global containership capacity.
"It may not make sense to many people, but whether it is HMM or the yards, the line from the government is that they need to keep them going," a senior official from one of HMM's main creditors said. "Shipping is a pillar of our economy and a source of national pride and that is that."
China treats shipping as a central pillar in its plan to expand the country's position in global trade.
"The traditional financiers have either eliminated or drastically reduced their exposure," said AP Moeller-Maersk chief executive Soren Skou. "It's more or less impossible to raise significant amounts of finance from European banks, so others like the Chinese have stepped in a big way."
Industry experts predict China will control half of the total financing market for the shipping industry by 2025.
China Development Bank provided Cosco a $26 billion credit facility last year to develop its shipping interests, including marine terminals worldwide. In the past decade Cosco and other Chinese state companies such as China Merchants Group have acquired stakes in 13 ports in Europe, according to the Organisation for Economic Cooperation and Development. Those ports handle 10 per cent of Europe's container shipping capacity.
Cosco is also looking to acquire some of Hong Kong-based Hutchison Ports' European assets.
Many private operators assert that enormous state backing for such acquisitions distorts shipping markets, others argue it doesn't disrupt markets, it defines them.



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