Tonnage Titans – 1. COSCO

Xu Lirong.

Xu Lirong. Credit: China.com

Its shipping muscle is undisputed. State-owned China COSCO Shipping Corporation is the biggest shipowner of them all, according to IHS Markit data.

COSCO’s total current capacity, according to the analysis, is 49,524,192 gt. Of the total, 40,575,726 gt is in service, while 8,948,466 gt is on order.  

However, its shipping clout also moves well beyond fleet ownership, as the state-owned conglomerate also owns ports and terminals around the world, and boasts significant logistics operations via multiple subsidiaries.

The group, which is made up of eight subsidiaries (see table), was formed in February 2016 after Beijing approved the merger between former rivals China Ocean Shipping (Group) Company and China Shipping Group in December 2015.

The merger occurred after the shipping industry had suffered years of losses following the 2008 global financial crisis and was in response to Beijing’s calls for creating bigger, stronger state-owned firms capable of competing globally and surviving in tough conditions.

Since then, COSCO’s owned and on-order fleet has been augmented, not only by several newbuilding deliveries, but also by the synergies that resulted from the merger. The July 2017 acquisition of Hong Kong listed Orient Overseas International Line, the parent of Orient Ocean Container Line, has added a further 4.2 million gt to its fleet prowess. The deal is scheduled to be completed by June, assuming approval has no delay from the US authorities.

COSCO Shipping Line is undoubtedly the core unit of the group. With a 8.9% market share, it is now the world’s fourth-largest carrier with total capacity of 1,964,553 teu, behind Maersk Line, Mediterranean Shipping Company (MSC), and CMA CGM, according to Alphaliner data.

Under the leadership of COSCO chairman Xu Li Rong, who was at the helm at China Shipping Group and beat his contemporary Ma Zehua for the top job following the merger, the group has announced that it will continue to invest in logistics infrastructure in a bid to optimise its supply chain.

“The shipping industry has always been a game of big players because of its nature and its capital intensity. We have seen the change in container logistics over the past year, and players should immediately adapt to the change that customers need a customised and trustworthy service that allows them control of and easier access to their goods from one side of the world to the other,” Xu told the Boao Forum for Asia in a speech outlining the company’s vision in April.

“We have to build a strong logistics network that provides a superior user experience for our customers,” he added.

COSCO has already made progress in transforming itself from a shipping carrier to a container logistics provider. In 2017, it launched a logistics investment fund, which seeks investments in areas such as logistics infrastructure, industrial parks, and e-commerce. The group has also beefed up its domestic and overseas supply chain network over the past year, after it acquired a greater stake in Qingdao port via its ports operating units, COSCO Shipping Ports.

Overseas, it acquired a 51% stake in Spain’s Noatum port and raised its position at APM Terminal’s Zeebrugge Terminal in Belgium. It also has 24% equity interests in a dry port in Kazakhstan’s Khorgos Eastern Gates special economic zone.

“COSCO has taken major steps to spend on logistics infrastructure, and I am glad to see that we have strengthened co-operation with partners such as Suez Canal Economic Zone, PSA Corporation, and domestic e-commerce giant JD.com. The co-operation with partners covered in many fields range from the development of a logistics park, jointly building an end-to-end supply chain network so that COSCO is able to get access to the partners’ online customers and online databases,” Xu said.

“Client network is, and will always be, one of our core competencies. We have signed strategic co-operations with more than 40 Fortune 500 companies and key domestic clients,” Xu added.

Containers is only one string to COSCO’s bow. The group has sizeable tanker and bulk vessels in its fleet. COSCO Shipping Energy Transportation (CSET), renamed from China Shipping Development, is COSCO’s listed unit specialising in energy transportation. IHS Markit data show that CSET has a gross tonnage of 7,293,785 gt, comprising 116 oil tankers, five LPG carriers, and four LNG carriers. In addition, the company has 24 oil tankers and 2 LNG carriers under construction.

Like its tanker contemporary, China Merchant Energy Transportation, CSET seeks to maintain close ties with global oil suppliers. A partnership agreed in March between CSET and domestic oil major PetroChina will see CSET further strengthen its position as a leading company of oil shipping. PetroChina benefits from CSET’s ability to serve domestic interest by efficient transporting crude oil for the China-Myanmar oil pipeline project.

In 2017, the volume of oil carried by CSET was 406.7 billion tonne-miles and its total revenue grew 8.3% to CNY8.76 billion (USD1.37 billion).

Headquartered in Guangzhou, China, COSCO Shipping Bulk was formed in June 2016 after the reorganisation between COSCO Bulk Carrier and China Shipping Bulk Carrier Corporation.

According to IHS Markit Maritime & Trade data, COSCO Shipping Bulk accounts for 5,114,343 gt and has a fleet of more than 400 vessels, which consist of 28 very large ore carriers, 47 Capesize bulkers, 102 Panamax bulkers, and 223 Handysize carriers.

Other subsidiaries under the control of COSCO Shipping Corporation are COSCO Shipping Tanker Dalian (2,042,608 gt), COSCO Shipping Financial Corporation (145,552 gt), COSCO Corporation Singapore (91,959 gt) and COSCO Shipyard Group (56,601 gt).

As a major state-owned company, COSCO has been playing a key role in the national investment of the maritime infrastructure along the Maritime Silk Road route, which is a part of China’s flagship Belt and Road project that aims to connect China to Europe via the South China Sea and Indian Ocean.

The group, like many in shipping, is also looking beyond its physical assets as it faces up to the future. Xu told the Boao Forum for Asia that technology will blur industry boundaries.

“Nowadays we are facing a rapidly changing environment in which cross-industry co-operation happens more often. Technologies such as Big Data and e-commerce make everything easier. COSCO is open-minded and will adapt to these changes,” he said.