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Global Supply Chain News: It's Hardly a Free Market in Global Shipping and Ship Building

 

China Owned Cosco Shipping said to be Tip of Spear in One Belt, One Road Strategy

Dec. 3, 2018
SCDigest Editorial Staff

Continued subsidies from national governments in Asia continue to create protests from other competitors and distort the market, critics of the arrangements say.

Supply Chain Digest Says...

"State aid today is an indelible feature of maritime business- it doesn't disrupt markets, it defines them," the Journal article concludes.


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China and South Korea are the two primary government sponsors, with significant state support for their domestic maritime companies.

In fact, an article last week in the Wall Street Journal called state-owned container shipping firm Cosco Ocean Shipping Holdings Co. the "tip of the spear in its multitrillion-dollar "One Belt, One Road" initiative to control global supply chains tied to the Chinese economy."

Meanwhile, Korea has been pumping billions of dollars into its carriers and ship builders that are critical pieces of its overall economy.

The Journal article notes that Japan filed a complaint in November to the World Trade Organization about Korea's state funding of local shipbuilders.

The complaint alleges Daewoo Shipbuilding & Marine Engineering Co. has received more than $10 billion in bailouts since 2015. The European Union also is considering a separate WTO complaint over Korea's subsidy program.

What's more, in October Hyundai Merchant Marine Co., now the country's primary container carrier after Hanjing Shipping Co. went bankrupt in 2016, received $5 billion in state funding to order 20 ultra-large container vessels from domestic ship builders and invest in container terminals world-wide.

That after the company received a $660 million government bailout last year to avoid bankruptcy.

Hyundai is using the new funding to acquire orders for 140 liquefied natural gas-powered vessels over the next six years, hoping to take the lead in addressing new global emissions rules that will force ships to burn cleaner fuels on Jan. 1, 2020.



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This obviously gives Hyundai a huge advantage over rivals such as Denmark's Maersk Line that do not receive such government subsidies. In fact, Maersk said this is especially the case as many traditional funding sources, such as bank loads, have dried up in the ocean sector.


"It is more or less impossible to raise significant amounts of finance from European banks, so others like the Chinese have stepped in a big way," Soren Skou, Maersk CEO, told the Journal.

The government owned China Development Bank provided Cosco $26 billion in credits in 2017, used in part to acquire or build out marine terminals around the world. Cosco and other Chinese state companies such as China Merchants Group have acquired stakes in 13 ports in Europe – with more investment on the way.

Taiwan is playing the same game, providing a $1.9 billion in subsidies in 2016 to ITS maritime companies including state-controlled Yang Ming Marine Transport Corp.

What's more, non-subsidized carriers say the government support in Asia is a key factor in the persistent over-capacity in the ocean container shipping sector, which drags down rates and profits for everyone.

"State aid today is an indelible feature of maritime business- it doesn't disrupt markets, it defines them," the Journal article concludes.


Do the government subsidies by some Asian countries in the global shipping sector concern you? Let us know your thoughts at the Feedback section below.

 

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