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Asian Investment in Europe's Shipping Sector, Part 2: Asian Shipping Centers & Routes to Watch

Published: 10 Apr 2015 02:54:40 PST

By: Rebecca Choong Wilkins, Dezan Shira & Associates

Asian shipping centers continue to go from strength to strength with Hong Kong, Singapore and China all looking to improve their value-adding services. This is in its nascent stages in China, where state sanctioned investment is focused on moving its shipping industry up the value chain. The Chinese government is also committed to establishing China as a major player in the more lucrative sector of offshore energy equipment.

Meanwhile, Singapore and Hong Kong are keenly aware of the need to stay ahead of European and Asian competitors. Responding to the Xinhua-Baltic Shipping Center Index Report, Anthony Cheung Bing-leung – Hong Kong’s Secretary for Transport and Housing in HK – was eager to emphasize that “Hong Kong is moving towards high value-added services and a knowledge-based economy, matching up with the rapid economic development in Asia and the global development trend.”

In Singapore, the government has increased support for maritime business sectors and is extending the current maritime sector incentive (MSI) to include a number of tax exemptions. Singapore will also be the first country to implement the Mass Flow Meter (MFM). This aims to increase transparency, reduce illegal bunkering and prevent maritime disputes.

Andrew Tan, Chief Executive of the Maritime and Port Authority of Singapore, promised the MFM would “safeguard Singapore’s reputation as a top bunkering port in the world… It is a significant milestone for the bunkering industry and it will strengthen our position in the long term as a reliable and trusted port for bunkering operations”.

RELATED: Asian Investment in Europe’s Shipping Sector, Part 1

Shipping Routes to Watch

Asia-Europe Trade Lane: Freight rates are improving on the Asia-Europe trade lanes. Both the French carrier CMA CGM and state-owned Shipping Corporation of India have announced new rate restoration initiatives on the route.

This rate hike should restore freight rates to sustainable levels, though major shipping companies will still be vulnerable to the risk of smaller players undercutting rates in order to stay afloat as the industry recovers. Profitability on this trade route may still be overly reliant on cost saving.

The new vessel alliance between major players Maersk Line and Mediterranean Shipping Co. will also have a considerable impact on this trade route. The alliance will see the two controlling 95 percent of the cargo volume on east-west trade routes.

Whether this will stunt growth by reducing competition or stimulate the industry by consolidating services and increasing efficiency remains to be seen. If they choose to tighten capacity, however, this could again help cap freight rates on Asia-Europe trade routes.

North Sea Route:  At present, the North Sea Route is not fully utilized but could potentially shorten journeys from Russia or Northern Europe to East Asia by up to 20 percent. Icebreaker escorts are necessary all year and the few available are permanently in use, though Russia is currently expanding its northern icebreakers fleet which should also reduce the insurance cost of the route’s Search and Rescue Services.

Usage of the route will require Russian permission and the suspension of trade co-operation with the European Union may impede access in the short-term. If political and logistical barriers are addressed, the route could significantly improve efficiency and costs over the next five years – particularly benefiting the transportation of Liquefied Natural Gas.

South China Sea: Intra-Asian trade routes will be similarly subject to shifting political agendas. China and ASEAN member nations are committed to accelerating their upgrade of the ASEAN-China Free Trade Area (CAFTA) by the end of 2015, with Premier Li Keqiang committing 30 million RMB to support economic and technical cooperation between the two sides over the next three years.

Despite these resolutions, ASEAN member nations – particularly Malaysia, Vietnam, the Philippines, and Brunei – have run into serious diplomatic difficulties over territory in the South China Sea.

Aside from prompting anti-Chinese domestic unrest in these Southeast Asia countries, these skirmishes disrupt shipping routes. Though ASEAN-China relations appear to have improved, it is unlikely a permanent solution to the South China Sea disputes will be reached in the next few years and disruptions to the route are likely.

RELATED: Business Advisory Services from Dezan Shira & Associates

Chinese Investment in Greece

On his first day in office, the new Greek Prime Minister Alexi Tspiras halted foreign buyouts of the Greek shipping sector, eschewing the former government’s attempt to prune Greece’s hefty EURO 320bn debt load.

Cosco, a Chinese state-owned global shipping carrier, had been in the process of bidding for further port assets. Five years previous, its EURO 500m acquisition of Greek piers in the port of Piraeus represented the largest foreign investment in modern Greek history.

Chinese investment in the Greek shipping sector flourished and in 2013 over 60 percent of their global orderbook came from Chinese yards, while the Export-Import Bank of China – a policy bank that provides financing to advance government economic goals – granted large loans to several Greek Shipping firms.

For now, Alexi Tspiras has contained the diplomatic fallout, successfully smoothing over ruffled Chinese feathers. Michalis Pantazopoulos affirmed that, “Prime Minister Alexis Tsipras made some very uplifting comments for the cooperation of the Chinese and Greek people… during the visit of the Chinese Navy fleet,” adding, “Time will show the approach of the new Greek Government towards privatizations and foreign investments… Greek shipping is in a state of ‘wait and see before act’ mood”.

At the 6th Greek Shipping Forum in Athens this month, Wiley Griffiths, Global Transportation Managing Director for Morgan Stanley, also remained upbeat. He suggested that although the Greek debt crisis management may put off first-time investors and limit the investor pool, most will be undeterred: “They understand that these are companies that operate primarily outside of Greece and what’s going on in the country doesn’t have a material impact on the business itself.”

For the time being, Europe and Asia are likely to remain unaffected by Greek-Chinese relations.

This article was first published on Asia Briefing.

Since its establishment in 1992, Dezan Shira & Associates has been guiding foreign clients through Asia’s complex regulatory environment and assisting them with all aspects of legal, accounting, tax, internal control, HR, payroll and audit matters. As a full-service consultancy with operational offices across China, Hong Kong, India and emerging ASEAN, we are your reliable partner for business expansion in this region and beyond.
For inquiries, please email us at info@dezshira.com. Further information about our firm can be found at: www.dezshira.com.

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