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SAFETY4SEA

Maritime ties help China, Greece weather shipping downturn

by The Editorial Team
January 20, 2012
in Shipping
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Maritime cooperation between China and Greece at a critical juncture

2011.6.2-large container.jpgThe global shipping industry faces a grim outlook amidst the European debt crisis, an oversupply of vessels and low freight rates, compelling industry heavyweights China and Greece to strengthen seaborne cooperation.

With world trade down, fewer ships are on the waters and rising fuel costs are eating into operators’ profit margins. A glut of ships sits on the market because ship owners ordered huge numbers of vessels during the mid-2000s economic boom.

Shipping carries 90 percent of global trade and is one of the first industries hit when economic conditions sour.

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The severity of the situation places maritime cooperation between China and Greece at a critical juncture.

Greece is a major player in the international shipping industry, with nearly 4,000 ships – 8 percent of all vessels sailing – and 15 percent of the world’s total moving capacity. Greek ship owners control 25 percent of the world tanker fleet. Shipping accounts for 6 percent of Greece’s GDP and generates 75 percent of the Mediterranean country’s estimated 400,000 jobs tied to maritime activities, according to George Gratsos, president of the Piraeus-based Hellenic Chamber of Shipping.

China, meanwhile, leads the world in shipbuilding and in 2010 its commercial hub Shanghai surpassed Singapore to become the world’s busiest container port.

Yet because of the shaky global economy, overcapacity has become a major problem at Chinese shipyards and hundreds of them have closed since 2009.

Few new orders are coming in, since most vessels now under construction in China were ordered in 2009 and 2010. Chinese shipbuilders reported orders falling 47 percent in the first 11 months of 2011, according to the National Development and Reform Commission, the nation’s top economic planning agency.

At an annual shipping conference last November in Boao, Hainan Province, China’s Transport Minister Li Shenglin said the current downturn could wreak more havoc on the industry than the earlier slowdown brought on by the 2008-2009 global financial crisis.

Fortunately, Greece has ordered hundreds of ships from China that Chinese shipyards will be busy building through 2013, when the industry is expected to begin a slow recovery.

Since 2000, Greek ship owners have ordered nearly 500 vessels from China’s shipyards. 155 vessels have been delivered while an estimated remaining 250 are still under construction, wrote Theodore Vokos, president of Posidonia Exhibitions, in a research note. Posidonia holds the maritime industry’s largest annual shipping event in Athens.

Maritime partners

Sino-Greek maritime cooperation dates to the early 1990s, when Greek mariners arrived in China to help develop the nation’s ship repair industry, said Dimitri Kyrakides, founder and managing director of Marine Consult International, a consultancy specializing in shipbuilding with offices in Piraeus and Shanghai.

Kyrakides, a naval architect and marine engineer, was one of the first Greeks to repair a ship in China. He came to Shanghai in 1992 to help supervise ship repair work for Greek maritime firms with China operations.

“Greece had a first mover’s advantage,” he said. “There were very few foreigners back then working with the Chinese on ship repairs.”

Greek investment in Chinese shipping surged over the next two decades.

“From 2002 to 2011, Greece was directly investing roughly US$64 billion in the Chinese shipping industry every one-and-a-half to two years,” Kyrakides said.

With global shipping in crisis and Greece’s fiscal woes at home, Kyrakides said it would be difficult for the Hellenic Republic to maintain that level of investment.

He is equally concerned about conditions in China’s shipping labor market. Migrant workers returning home to seek employment has created a labor shortage in shipping yards, he said, delaying delivery of ships from three months to one year.

“I have a ship right now that was supposed to be delivered last April, but I won’t see it until this April,” he said.

When the delivery of a ship is delayed more than six months, a ship owner has the option to cancel the contract and get his money back.

To retain workers, shipyard owners must further increase salaries (wages have risen 20 percent in the last year) and offer travel expenses and better living conditions, Kyrakides said.

China’s gateway to Europe

As Sino-Greek maritime ties have deepened, China’s investment in Greece’s largest port, Piraeus, has emerged as a flagship project for the two nations. The Chinese shipping giant Cosco operates two of the three container terminals at Piraeus, employing about 600 Greek workers. The second terminal is in use while the third is not yet operational. Cosco leased the berths for 35 years at a cost of US$5 billion in June 2010.

“The Greek government sought to create a more competitive environment at Piraeus and Cosco was in the right place at the right time,” said Fotis Manoussakis, chief economic consul at the Consulate of General of Greece in Shanghai.

Situated 10 kilometers from Athens in the East Mediterranean Sea, the Piraeus port enjoys a strategic location that could ultimately serve as the main hub for Chinese goods bound for Europe. In this scenario, Piraeus would become a one-stop shop for large container ships arriving from the Far East. The ships would unload at Piraeus and deliver to different European countries by land, which would be considerably faster than stopping off at each major port.

Meanwhile, Cosco’s presence at Piraeus has transformed the port’s competitive landscape, Vokos said.

“Ship operators can now choose between the two terminals,” said Vokos in a telephone interview. “Many container ships prefer to use Cosco’s terminal as it is already very productive.”

Compared to Terminal 1, operated by the Piraeus Port Authority, it is estimated that Cosco’s terminal has also been investing in newer equipment, he said.

The Cosco berth enjoys a further distinction – it is not subject to the influence of Greece’s powerful labor unions. The American media organization NPR published a story in June 2011 that criticized Cosco for allegedly not respecting the labor rights of Greek workers.

Kyrakides, however, believes the benefits of Cosco’s investment in Piraeus far outweigh the drawbacks.

“It’s a fantastic agreement for China and Europe,” he said. “Now that the Piraeus Port Authority faces genuine competition, I think its own efficiency will improve.” As a country dependent on services facing a daunting fiscal situation, Greece must improve its competitiveness, he added.

LNG the way forward

For China and Greece to deepen their maritime ties, more Chinese shipyards must transition towards building Liquefied Natural Gas (LNG) carriers as opposed to tankers and bulk carriers, Vokos said.

“With the offshore drilling boom there is increased production and usage of liquefied natural gas,” he said. “Greek ship owners need LNG carriers, but China has yet to develop the technology and capacity to build them in large numbers.”

The LNG sector is one of the few bright spots for an industry in the doldrums, yet the carriers are costly and challenging to build. They also require the world’s most advanced shipbuilding technology to ensure safety, including tanks able to withstand temperatures of -162 degrees Celsius.

Overall, Greeks have more than 20 LNG carriers on order, leading carrier building for independent ship owners. The carriers will transport shipments of Australian natural gas to Asia.

Although South Korea currently dominates the LNG carrier market, China won its first overseas order for LNG carriers last January. Hudong-Zhonghua Shipbuilding, the Shanghai-based subsidiary of China State Shipbuilding Corp, will deliver four LNG carriers valued at US$1 billion to the Japanese shipping company Mitsui OSK Lines and US-based Exxon Mobil Corp between 2015 and 2016. Each of the ships will move 172,000 cubic meters of liquefied natural gas from Australia and New Guinea to China.

China’s own domestic energy needs may ultimately speed the pace of its entry into the LNG carrier building sector. The nation’s 12th Five-Year Plan outlines steps to increase the share of natural gas in the overall energy mix more than twofold – from 4 to 8.3 percent – by 2015.

China’s natural gas imports have soared as its consumption of the fuel has grown at double-digit rates since 2000. Analysts estimate China will need 65 LNG carriers by 2015 to transport the fuel domestically.

“China is building a knowledge base for shipping, so I see definite potential in the future for our two nations to cooperate in the LNG sector,” Manoussakis said.

China and Greece will celebrate 40 years of diplomatic relations in June.

Source: China.org

Maritime ties help China, Greece weather shipping downturn
Maritime ties help China, Greece weather shipping downturn
Tags: ChinaGreece
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