Container Shipping and Chinese Stability - Coursework Example

Container Shipping and Chinese Stability Number Lecturer Table of Contents Table of Contents 2 Introduction 3 China’s shipping industry 4 Background of Chinese shipping industry development 5 Current perspectives of China’s shipping industry development 5 Internal challenges of China’s shipping industry 7 External factors of COSCO strategic development 8 Strategic decisions on COSCO compliance with international regulations 9 A current trend 10 Conclusion 11 References 13 Introduction Container-based shipping ‘made the world smaller and the world economy bigger’ (Desrochers, Pierre, 2007). This quote explains the essence of the container-based shipping industry convenience. The most known advantages of this industry are the following: reduction of transportation costs and time; reliability enhancement; decrease of theft. The volume of international trade is directly proportional to container-based shipping industry development. A positive development and a spread of container-based shipping industry are supported by its ability to provide different countries in-time with required goods. This industry has made China a rapidly industrialised country. Still, there are several uncovered issues in the container-based shipping industry. Currently, China is rapidly developing as the world’s leader on several fronts. The mechanisms of China’s enrichment evoke a vivid discussion among modern experts, researchers and scientists. Figure 1 China in the world maritime economy. This figure shows the Chinese contribution to 6 key areas of world economic and maritime activity. (Stopford 2007, p.2) Container shipping operates out the general society’s sight. That’s why this ‘secret’ industry is interesting for the modern society. Moreover, internal complexities of shipping industry in China and the various EU regulations on sea transport add to the discussion of China’s development in general and shipping industry in particular a certain zest. China’s shipping industry The Chinese export and shipping industry in the international arena plays an ever increasing crucial role. This can be explained by the modern tendencies of globalisation in and rapid development of international trade in the world. Nearly 75% of international cargo volume is involved in shipping industry. China is on the upswing and shipping industry in this country is a rapidly developing industry. It is a well-known fact that China is steadily moving to position itself as the world’s greatest power (Stopford 2007). Consequently, the development of a potential country-world leader and shipping industry, which is responsible for the major part of trade operations in the international market, makes this research relevant to the field of China’s economy. Different aspects of China’s development, social peculiarities, influence of EU regulations on shipping in China makes a context of the study rather complicated. Nevertheless, it is relevant to conduct the research on the basis of available literary sources and empirical data from recent studies. Background of Chinese shipping industry development China is economically fortunate, because of its geographical position and abundant shipping resources. Nearly 40% of Chinese workers live near coastal regions, the GDP in the country increases 50% and the shipping sector carries out 80% of national import and export activities (Talley 2000). Figure 2 Chinese imports and exports activity steadily increasing (Stopford 2007, p.5) Starting from 1970s, China’s shipping industry has been steadily developing under conditions of continuous development of international trade. International shipping operations are the most relevant operations and well-known on the international arena for China’s business partners. Current perspectives of China’s shipping industry development International cooperation opens impressive perspectives for China. Shipping industry will enable foreign investors to act as domestic players. WTO membership of China intensifies country’s positions as one of the most powerful shipping leader in the world. Trade growth mediated by shipping industry has boosted during the last 20 years of nearly 10 times (China COSCO 2010). It is imperative to include an active container shipping company in the analysis of the Chinese economy and its repercussions on the containerisation mode of goods transport. For this paper I have drawn reference to the China Ocean Shipping (Group) Company or its better known acronym COSCO. COSCO is a Chinese government owned container shipping company running from its headquarters is in Ocean Plaza in Xicheng District,Beijing. It is one of the largest container companies worldwide(Konrad 2009). The COSCO fleet serves Europe amongst other destinations with regular container service schedules (COSCO Group 2011). In the 1960s this shipping company suffered from numerous restrictions. For example, from 1960s to 1980s this company needed international support in order to carry out shipping services. In such a way, the international economy suffered limitations of potential benefits gained from COSCO (China COSCO 2010). In 2002 Chinese shipping industry was sufficiently restructured and “now is standing out as one of the largest countries in the world able to offer a comprehensive package of ocean shipping services with fleets covering a wider range from traditional bulk tonnages to more value-added ones such as post-panamax container vessel, heavy-lift ship, LNG carrier and so on” (China COSCO 2010). With this regard, strategy development of COSCO in following century was marked by reaching to higher positions on the international arena, establishing reliable partnership, but not severe competitiveness and work in compliance with customers’ expectations. With consideration to international partners, COSCO’s marketing strategy “will focus on providing differentiated and value-added services to acquire long-term contracts and life-long customers. As alliances and mergers have become a major part of the international shipping industry, we (COSCO) will co-operate closely with our partners. We aim to be a world-class global shipping service provider, in the near future, with high efficiency and high quality service” (COSCO Report). With regard to global development of the world’s economy, there is a need to “optimise global distribution resources and global freight transportation networks” (China COSCO 2010). Managerial practices should be reconsidered in COSCO as well. In accordance with COSCO 2011 report on strategic development: “As a global shipping group, we in COSCO will be looking to enhance our shipping businesses competitiveness and to broaden our logistics service area, by optimising our organisational structure and making a better use of our global shipping and logistics resources” (COSCO Report). Internal challenges of China’s shipping industry Inland infrastructure is the largest challenge for the Chinese shipping industry. For example, “The time it takes goods to travel from Chongqing to Shanghai (about 900 miles) can equal the length of time these goods take to travel the 7,400 miles from Shanghai to Los Angeles by sea. It also takes longer for this shipment to travel from Chongqing to Shanghai than to travel from Los Angeles to New York (2,500 miles)” (China COSCO 2010). International partners would find it rather complicated to perform business in China, because the countrys rail system is ‘overused and fragmented’ (Gelb 2005). Another issue that draws down the shipping industry in China is the complicated import-export documentation: customs processing, licensing, existent trade barriers, requiring extra documentation provision. WTO and bilateral trade agreements facilitate the process of taking part in China’s shipping industry. Basically, three steps of strategically improvement directed on internal complexities in China’s shipping industry are required: railroad development; road infrastructure improvement in the ports. Therefore there is a need to make additional investments in the shipping industry of China. Correspondingly, container companies such as COSCO should put its efforts on investors’ involvement and company’s owned assets improvement. External factors of COSCO strategic development In spite of the fact that China’s shipping industry has always been considered as one of the most profitable economic areas, current turbulent internal conditions may halt a full-speed development of shipping. In the world food prices have increase, inflation rate is high and many countries suffer from this intimidating interrelation between food-money relations. World’s society is looking for a way out from this vicious circle. There are different proposals about technological and scientific innovations, but how inflation rates and a lack of food can be solved in reality? Of course, there is no doubt that export bans accepted in some countries will destructively influence on trade and shipping, respectively. International trade is halted by France rejection to participate in agricultural reform; US shows hostile attitude to foreign trade. Earlier US showed an “insatiable ability to consume what China supplied. Now, America’s weakness is aggravating an already tense relationship with China” (China COSCO 2010). Thus America and Europe provides China with ‘unfavourable’ trade scenarios, which will supposedly hinder the shipping industry. Moreover, international regulations on maritime environmental regime would exert a negative influence on Chinese shipping industry. An overall tendency of “green protectionism” would impact both developing and well-developed shipping industries. Strategic decisions on COSCO compliance with international regulations Currently, China is a member of 8 “A-level council members from 155 maritime countries to the International Maritime Organization (IMO)” (Gelb, 2005). China takes an active part in the development of the world’s maritime industry. Nevertheless, EU regulations on shipping industry in East Asian, changes in the development of shipping industry and many other external factors make strategic managers of COSCO reconsider strategic planning of the company and upgrade it with regard to current needs of the international economic society. Respectively, COSCO takes the following strategic steps on the way to hold a position of the world’s great leader in shipping industry. Thus during the market peak period, COSCO distributed resources in such a way that participation in the world’s shipping industry could be maximized and protected (Moore 2002). The following example is provided in the COSCO strategic plan (China Cosco 2010): “For instance, when the U.S. sub-prime crisis just revealed in the second half of 2007, we took early and swift measures to set up a U.S. sub-prime crisis special study team in COSCO” (China Cosco 2010). In order to make strategic development of the company more efficient, COSCO tends to "live through the winter" (in such a way this organization names the economic crisis); the strategy of "staying dormant" means passive observation of current economic tendencies; the strategy "winter swimming" means different approaches on the road to strategic development; the third strategy "winter training" means development of internal organisation’s structure. COSCO clearly realises that European currency union role is crucial influencing the economies of different European countries, which are potential foreign partners of the company (Redman et al, 2005). With this regard, a potential sharp change in the market and ability to adjust to immediate changes in the market is reflected in COSCOS’s strategy of innovations introduction and constant support of a technological innovator image (China Shipping Container Plans to Add Surcharges on Cargo-Box Shortage, 2010). Cooperation with other countries is very important to COSCO, because only joint efforts will be beneficial to economic crisis overcoming. A current trend Fortunately, strategic development of COSCO in 2010 was performed under facilitated external conditions. Foreign trade has been significantly improved and the export container transport market became remarkable for a steady development. Still, there are challenges influencing the shipping industry: “Greeces debt crisis, the high unemployment rate in Europe and the US and the transport overcapacity all still have an influence on the future trend of the shipping market” (Evergreen Marine to Add 100 More New Container Ships to Its Fleet, 2010). These are major disadvantages of a modern shipping industry development background. Nevertheless, shipping industry of China has experienced other positive changes: as Liu Zijia, an analyst with the SSE, claims, “…export container transport on various routes including European routes, North American routes and Persian Gulf routes, have all recovered to different extent”(Xinhua News Agency 2010). If to compare post-crisis decline in China’s shipping industry, it will be clearly seen that container throughput equals to 56.27 million TEUs nowadays. ----- The most positive influence on China’s shipping industry is made by propagation of free trade in the world. Foreign trade in China is performed under favourable conditions, “Chinas average tariff to ASEAN countries declined from the earlier 9.8 percent to just 0.1 percent” (China COSCO Holdings Confident on Recovery in Container Rates, 2010). In such a way, there is “an essential growth of import and export value between China and ASEAN countries (57%)” (China COSCO 2010). Moreover, currently, “US economy and the better performance of European and Far Eastern economies have provided China with higher outbound demand” (COSCO Report).  Still, there are other challenges, which are connected with shipping industry directly. Thus there is an excessive supply in the global shipping market. There are 4 million TEUs in the world and there is a reduced demand for them globally. In accordance with experts’ prognosis, COSCO is on the road to recovery. In 2008 there was essential decrease because of overcapacity. Starting from 2010 Chinese cargo shipping industry has started to recover. Conclusion A positive development of globalisation is the spread of container-based shipping industries that are strategically driven in both a business and logistical sense to serve different countries in-time with required goods. The industry under consideration is developing fast and plays a crucial role. A favourable geographical position for shipping industry, active international position of China, and the acceptance of free trade rules exert a positive influence on China’s container shipping industry. China’s shipping industry has been steadily developing under a backdrop of a continuous development of international trade. International shipping operations are the most relevant operations to global trade and China’s growing reputation is acknowledged by its business partners. Internal complexities of shipping industry in China and EU regulations on shipment add to the complexities of China’s development in general and the shipping industry in particular a certain emphasis. America and Europe provides China with ‘unfavourable’ trade scenarios, which will supposedly hinder the shipping industry. COSCO as one of the most well-known representatives of the world’s shipping industry was considered. Strategic development of COSCO on internal and external levels improves the company’s ability to survive under conditions of the recent world’s economic crisis. In spite of the fact that both the EU and the USA had a period of stalling economies which slowed the global economic development, the shipping industry fronted the challenges and survived. Nevertheless, the container shipping industry of China tends to update its infrastructure and facilitate conditions of trade operations between China and various international business partners. References Carmel, Steve, 2008. Commercial Shipping and the Maritime Strategy. Naval War College Review 61:39+. China Cosco Holdings Confident on Recovery in Container Rates, 2010. Manila Bulletin, March 16, p. NA. China Shipping Container Plans to Add Surcharges on Cargo-Box Shortage, 2010. Manila Bulletin, June 28, p. NA. COSCO Group, 2011. About COSCO Group. About COSCO. Available at: http://www.cosco.com/en/about/index.jsp?leftnav=/1/1 [Accessed February 13, 2011]. Desrochers, Pierre, 2007. The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger. The Independent Review 12:146+. Evergreen Marine to Add 100 More New Container Ships to Its Fleet, 2010. Manila Bulletin, June 3, p. NA. Gelb, Catherine, 2005. A Foreign Perspective on Chinas Ports and Shipping. The China Business Review, July/August, pp. 24+. Konrad, J., 2009. Container Shipping Companies – The Ten Largest Visualized | gCaptain. Container Shipping Companies - The Ten Largest Visualised. Available at: http://gcaptain.com/the-ten-largest-container-shipping-companies-visualized?678 [Accessed February 13, 2011]. Moore, Thomas G, 2002. China in the World Market: Chinese Industry and International Sources of Reform in the Post-Mao Era. Cambridge, England: Cambridge University Press. Redman, Rod E., Walter T. Ham, Patrick Dille, and Mark Savage, 2005. Shipping Delays Plague Container Ship Industry. Sea Classics, April, pp. 34+. Stopford, M., 2007. China Maritime, The Next phase. In MARINTEC. Shanghai. Available at: http://www.clarksons.net/archive/research/freestuff/China%20Maritime%20The%20Next%20Phase%20Nov%2007%20(final).pdf [Accessed February 13, 2011]. Talley, Wayne K., 2000. Ocean Container Shipping: Impacts of a Technological Improvement. Journal of Economic Issues 34:933. Xinhua News Agency, 2010. Analysis: China shipping market recovers, but future remains uncertain. Shipping market recovers steadily. Available at: http://www.searates.com/news/9910/ [Accessed February 13, 2011].  Read More