While the rest of the world struggles to avoid the slipstream of an American recession, COSCO, one of China’s flagship enterprises, is striving to be a world leader in shipping and logistical services. In an exclusive interview with DNV Forum, Captain Wei Jiafu, the company’s president and CEO, here shares his thoughts about the current status of the shipping industry and the outlook for the future.
Based on its core business of shipping, and investing heavily in computer technology, COSCO is changing from a traditional ocean-shipping enterprise into a comprehensive logistics provider, incorporating a shipping agency, marine bunker supply, road transport, airfreight-forwarding and E-commerce services.
Says Captain Wei, This year, world trade has suffered economic deceleration. The U.S.A., largest importer in the world, was struck by the attack on 11 September and cannot improve in the short term. In 2001, commercial trade growth is forecast to fall by 2% and then to rise again in 2002. In the long run, however, I am convinced it will recover and grow steadily.
According to Captain Wei, such a development of global shipping mainly depends on the growth of international trade, and this in turn on the international economy and politics. With the rapid developments in global technology, the knowledge value of merchandise is increasing. So the actual volume for a given net value will be less. However, in the long term, the volume of trade will continue to grow steadily as a result of globalisation, and freight rates will be increased, as will the quality of transportation required. In the meantime, the price of raw commodities in international trade will decrease. Accordingly, as a shipping company, we should watch out for changes in the structure of international shipments, so that we can adjust our transportation structure in time, improve our methods of transportation, and obtain much higher freight rates for high value-added commodities.
Comprehensive logistics system
Captain Wei believes that international transportation will become a comprehensive logistics system.
With the development of an international economy and trade, says Captain Wei, more and more transnational companies are demanding global transport services. Following bulk-carrier specialisation and containerisation, international shipping is entering the era of modern logistics. In the 21st century, new transport systems will turn many isolated transport segments into one whole system. In the future, every shipping company will operate a wide variety of transportation. One carrier will not only transport the commodities from port to port, but also from door to door, from point to point.
Many large shipping groups have already made modern logistics their strategy. Maersk, for instance, has announced that logistics will be its principal business in the future. OOCL plans to become a logistics provider in five years time. With the expansion of the value chain, shipping companies are facing more and more pressure to lower their costs and improve their services.
At the same time, a seaport is no longer the transportation terminal, but simply a part of the entire international-trade transport chain. As a result, ports will be changed completely to become comprehensive transportation centres. Shipping companies are increasing their investment in port development and will continue to do so.
A buyers market
Commenting on the market, Captain Wei believes that the international shipping market is becoming a buyers market, and shipowners must provide tailor-made services in order to compete.
Says Captain Wei, Currently, the global shipping sector has turned into a buyers market. Competition in the shipping industry is becoming heated as shippers require carriers to perform more specialised services, such as providing express services and calling into fewer ports. In order to provide these specialised services, and accomplish their own economies of scale as well, some far-thinking shipping companies are ready to provide the mass customisation services that can satisfy both sides. They are building larger ships and faster, specialised vessels.
At the moment, the design speeds of post-panamax containerships are between 2527 knots. Many shipyards and shipping companies are designing vessels with capacities of 8,00012,000 TEU and speeds of up to 30 knots. Norasia is already operating a 1400 TEU ship that can achieve 25 knots, and Fastship has plans to develop a 38-knot container ship for transatlantic service. Their aims are not only to compete with other liner services, but also to compete with the air-freight market.
Global information network
Shipping companies are building a global information network, typified by the recent licensing agreement between COSCO and OOCL for use of IRIS, an integrated regional information system. Comments Captain Wei, Todays economy is based on information technology. Shipping companies should also benefit from the advantages brought by IT. They should attach great importance to modernising their information systems, which will help them make better use of their resources and become more competitive.
The Japanese Maritime Research Institute recently conducted a general survey on the development of information systems. About 20 liner companies responded to the survey. It was clearly evident that information technology has become a key way for shipping companies to cut their management costs, and improve their service quality.
The role of liner conferences is being significantly restricted, according to Captain Wei. He explains, The shipping policies of the EU and United States tend to be more and more liberal, rendering a heavy blow to liner conferences. The emergence of Asian liner shipping carriers places tremendous pressure on traditional liner conferences, as does the rapid development of global alliances. One can see the changes in recent years from the evolution of liner conference organisations for East-West trunk services, which have lost their power as cartels.
With the further development of world economic globalisation and trade liberalisation, international shipping will be further opened up, which in turn will prompt the adjustment of shipping policies. Traditional methods of protection have taken other forms, such as indirect hidden supporting measures versus direct economic subsidies, and technical and environmental measures rather than administrative protection.
The Free Port is a highly efficient international trade policy aimed at promoting trade, developing regional economies and improving shipping services. It has a wider coverage than the ordinary bonded warehouse policy, and is free of the customs supervision clause that is quite common in the latter. With the opening up of the shipping industry and the reform of shipping policies, more and more countries will gradually phase in this freeport policy.´
Aggressive strategy
The COSCO group is in the process of implementing an aggressive strategy which, in the main, focuses on quality, cost-efficiency, IT and logistics. Explains Captain Wei, As a global shipping operator, we at COSCO aim to further enhance our overall competitiveness in the international shipping industry, gradually broadening our logistics-service activities, optimising our organisational structure and making better use of our global shipping and logistics resources. Captain Wei highlights five key success elements:
" To continuously strengthen the ocean-shipping business
We will continue to attach great importance to developing our container-liner business and further strengthening our dry-bulk shipping business, while at the same time gradually expanding our liquefied bulk shipping and specialised cargo-shipping operations. We plan to optimise the value chains of all our shipping businesses, covering such areas as fleet structure, service network, information technology, port infrastructure facilities and marketing and sales systems. Apart from maintaining our owned fleet in good condition, the number of vessels operated by COSCO will fluctuate greatly according to the market, and the percentage of chartered-in tonnage will be gradually increased. On the trading side, the key to the adjustment of our services will be emphasised by the pattern of our service network and distribution of our available resources, as a part of our efforts to implement a port-development strategy.
Our marketing strategy will focus on providing differentiated products for our customers, while co-operating closely with our business partners in the future. Through constantly improving our services and strengthening our competitiveness in the market, we believe that COSCO will become a world-class global shipping operator.
" To further expand the logistics business
Expanding into the modern logistics business is a natural step for COSCO and a key to the success of our development strategy. We plan to expand our service spectrum from transportation alone into such areas as warehousing, processing, distribution and even manufacturing. Putting the customer first, it will increase both our profitability and our competitiveness. Our target customer groups are those transnational companies that have global supply chains. We will offer full-process logistics solutions to them, supported by advanced information technology and our global logistics systems. Our agreement with OOCL to use their IRIS-2 system indicates our willingness to use only proven, efficient technology.
" To optimise shore-based activities
We also have shore-based businesses within our Group. In expanding into new shore-based business areas, we have two principles. One is that the business cycle in that sector should be independent of shipping. The other is that the sector must have a high growth potential. Industries fitting these requirements include the information industry, environmental-protection, energy-saving equipment and new materials industries. All of these can compensate for the cyclical fluctuations in our current businesses.
" To develop a global information network
The combination of an information and network economy is the characteristic of a knowledge economy. Our current task is to build such a network for our company. This lies at the core of our Technology Innovation Strategy. What we aim to do is to optimise our current physical network and to integrate it by connecting our physical networks more closely over the internet. Our aim is to efficiently allocate our shipping and logistics resources worldwide.
" To be a Green Service Provider
COSCO always supports and abides by the safety and environment protection regulations issued by the International Maritime Organisation, such as the SOLAS and MARPOL conventions, and it aims to be a Green Service provider. The group and all of its shipping subsidiaries have been awarded both ISM and ISO 9000 certificates. According to the latest statistics, the port-state detention rate of the inspected vessels owned or operated by the group decreased to 0.6 per cent in 2000, and no detention has been reported up to now in the year 2001.
As a part of its push to go global, COSCO has established an integrated quality-, environment- and safety-management system. In July this year, the company successfully passed the third-party authentication of ISO 9001-2000 quality management system standards, the ISO 14001 environmental management system, and the OHSMS 18001, occupational-hygiene management system. COSCO is the first Chinese company to be awarded these three certifications.
Because our operations mainly involve the high-risk ocean shipping industry, says Captain Wei, COSCO has always attached great importance to risk management and, in particular, to protecting the safety of people and the environment. The certificates, awarded by CCS and DNV, will help give the company access to the international market.
Bearing in mind that the decks have been cleared for a ground-breaking trade alliance between China and the Association of South-East Asian Nations (ASEAN), Captain Weis vision and efforts are exemplary. The proposed free trade area will encompass a market of 1.7Bn people in the ten ASEAN countries and China, which together have a combined GDP of USD 1.7Trn. A similar deal between ASEAN and India is on the cards at a meeting scheduled for early 2002. The future bodes well for COSCO and for its customers.