Chinese Shipping Giants Seek Control of ‘Maritime Silk Road’
Companies investing billions in ports to give priority to Chinese vessels
The moves are paying off financially for the likes of Cosco Group and China Merchant Holdings International Co., but the overriding objective, Chinese officials say, is to control one of the world’s busiest trade loops. Ports on the route, running from Asia through the Suez Canal to Europe, would give priority to Chinese vessels.
The so-called Maritime Silk Road, the brainchild of Chinese President Xi Jinping , is part of One Belt, One Road, a $4 trillion undertaking to connect China and Europe by land and sea. With the Trump administration looking askance at global trade deals, Mr. Xi has become a champion of globalization.
The Chinese leader met this week with President Donald Trump at his Florida resort Mar-a-Lago, a bilateral summit that Mr. Trump had warned would entail a difficult discussion of the trade imbalance between the world’s two biggest economies.
China’s strategy “is taking shape with loads of money behind it,” said George Xiradakis, of Athens-based XRTC shipping consultancy, who serves as an adviser to China Development Bank. “As the West retrenches, the Chinese are out to dominate sea trade.”
In January, state-owned China Development Bank gave Cosco a $26 billion credit facility to develop its shipping interests. Cosco, whose container line lost $1.4 billion last year, is the world’s sixth-largest port operator and fourth-largest liner company.
Beijing will host a summit in mid-May on the Silk Road initiative with 20 leaders from Asia, Europe and Africa. Invitees include Russian President Vladimir Putin and British Prime Minister Theresa May.
“Private operators make investment plans for a maximum 12 months down the road,” said an executive at a Western port operator. “The Chinese can plan longer term and seal deals in places like Africa and Asia run by authoritarian regimes where we can’t go because of our shareholders and public opinion.”
Shipping lines have been adding more ports to position themselves ahead of an expected recovery in container freight rates, which for years have been below break-even levels.
A recent wave of consolidation cut the number of container operators from 20 to a dozen, and they have grouped into alliances for sharing vessels and port calls starting in April. The trend has port operators racing to attract dockings as bigger, but fewer, ships will serve the main routes.
One of Cosco’s competitors, APM Terminals, a unit of Danish conglomerate A.P. Moller Maersk A/S, has spent $7.9 billion since 2010 buying up terminals. Mediterranean Shipping Co., the world’s second-largest container carrier, in January bought 54% of the biggest container terminal in Long Beach, Calif., from bankrupt Hanjin Shipping Co.
Cosco, China Merchant and China Overseas Port Holding Co. have spent more than $4 billion since 2010 for stakes in 21 of the top 50 container ports, according to research by Theo Notteboom, a professor of port economics at universities in China and Belgium. That is on top of an estimated $40 billion China has pumped into ports along its coastline, he said.
Cosco has invested in terminals in Seattle, the Italian port of Vado and Greece’s Piraeus. Last year it paid $300 million for a 51% stake in Piraeus’s port operator and has agreed to shell out $300 million for an additional 15% stake. Cosco said in March that Piraeus was one of its best performing units, with container volumes rising 14% last year.
China Overseas, which has run operations at the Pakistani port of Gwadar since 2013, is investing some $1 billion in projects, including transhipment terminals and floating gas facilities.
“Ports like Gwadar and Piraeus are important because they move Chinese cargo first, and if you control the ports, you also control how much other shipping lines can do business,” Mr. Notteboom said.
China Merchant paid $185 million in 2012 for a 23.5% share in the Red Sea port of Djibouti, south of the Suez Canal. The port will also serve as China’s first overseas naval base, giving it access to maritime traffic between Asia and Europe. The state-owned conglomerate is also active in Sri Lanka, opening a $500 million container terminal in Colombo in 2013.
China Merchant recently reported that volume at its overseas ports rose 5.7% last year to 17 million containers. Colombo was its star performer with a 29% volume increase.