Chinese state-owned companies are a key part of the countrys economy, and state-owned shipping companies
are no exception. In February this report considered how these traditional ship owners have ordered less in recent years, but much of the contracting slack has now been taken up by state-owned enterprises from other fields. But how has this altered Chinese demand for different ship types?
The Graph of the Month shows the number of contracts (871) ordered by Chinese state-owned companies between 2005 and Q1 2012. The bars on the graph are divided into traditional shipping companies (blue) and new entrants (red). In addition to the state-owned contracting shown on the graph, private Chinese companies placed 824 further orders in 2005-12.
It is immediately obvious that the areas where these new entrants have had the greatest impact is in dry bulk ordering, and in offshore. Along with 41.1% of dry bulk contracts, all of the new contracts for offshore vessels ordered by state-owned companies during this period were placed by new entrants. The major cargo ship owners have shown little interest in diversification into offshore, so state investment has come from newer oilfield services companies.
In contrast, traditional shipping companies ordered 99.0% of the containerships during this period. These companies, such as COSCO, have existing liner operations and are able to provide deployment opportunities for these vessels. New entrants would instead have had to become charter owners, but weak charter markets in 2008-9 and since the second half of 2011 made this relatively unattractive.
In the dry bulk sector, firm domestic demand has led some state-owned commodity producers or end-users, such as coal miners and power plants, to invest in the cheaper assets since the downturn. These firms can supply their own cargoes, and hence provide employment for their vessel orders in a similar way to the container lines. Companies with experience in aviation have also diversified into seaborne dry bulk, notably the new entrant Grand China Logistics. Such developments led to new entrants share of state-owned dry bulk contracting rising from 18.2% in 2005 to a peak of 57.4% in 2010.
Tanker ordering was quite strong from traditional state shipowners (which benefit from long-term business relationships with the major state-owned refiners) as 116 vessels were ordered between 2005 and 2008. This represents 63.4% of total state-owned tanker contracting since 2005. Subsequently, however, ordering has been more restricted to niche requirements like asphalt tankers or bunker-tankers. Poor earnings reduced the enthusiasm for ordering by new entrants and established firms alike.
Rise of the New Entrants
So, relatively cheap newbuild prices are encouraging state companies from a range of backgrounds to investigate controlling their own shipping needs. This is particularly the case in the bulk and offshore sectors, where commodity producers within China are forming a new market for yards. Whilst demand from existing shipowners is relatively low, this may be an opportunity that more such companies seek to exploit.