01 Xu Lirong, China Cosco Shipping Corp and Li Jianhong, China Merchants Group
The success of Capt Xu and Mr Li, as well as the companies they respectively chair, have been intertwined with the rise of China to an economic and maritime powerhouse over the past four decades. However, now the headwinds are getting stronger
While succession plans are in the spotlight as both chairmen reach retirement age, there has been recent speculation over a potential consolidation between the two companies
XU Lirong talked about “industry chain unity” during the World Shipping Summit hosted by his company in Shanghai last month.
However, on reflection, you would say it was more about the industry leadership that Cosco Shipping wants to build up as its global sway grows.
The idea is behind the state conglomerate’s many strategic actions, including the development of the blockchain-based Global Shipping Business Network, the roll-out of the liner reliability index and preaching about an inclusive end-to-end strategy that intentionally goes against an integration path being taken by a leading rival carrier.
After the mergers and acquisitions in recent years, the company chaired by Capt Xu is now indisputably the world’s largest shipping company by size, with a merchant fleet of more than 1,200 ships (including boxships, dry bulkers, tankers, gas carriers and specialised vessels) and a terminal portfolio across 37 ports globally.
Li Jianhong’s China Merchants Group is relatively small in shipping, running about 400 vessels. However, its subsidiaries are frontrunners in quite a few sub-segments, highlighted by its very large crude carrier and port businesses.
Both chairmen are long servant to the Chinese public sector. Capt Xu began his first job as a seafarer for Cosco at the age of 18, while Mr Li started his career in a state-owned shipyard in Shanghai at 17.
They worked their way up to the top seats, with the responsibility of turning bloated, state-owned enterprises into competitive businesses with global influence. They have both delivered important achievements.
The $6.3bn takeover of Orient Overseas International Ltd, which has given a boost to Cosco Shipping’s boxship business, appears a successful move, at least as shown by the reported financial results.
The GSBN has recruited some key industry players and is pressing ahead on useful applications. Greece’s Port of Piraeus, in which Cosco Shipping invested, has become a prominent gateway into Europe, while the €600m ($663.4m) expansion project has recently won government approval after prolonged negotiations.
China Merchants is also acquiring and consolidating businesses on many fronts, including shipping, ports and shipbuilding.The Chinese giant, via its financial prowess, recently embarked on a $968m deal that will allow it to extend reaches to a large chunk of terminal assets owned by CMA CGM.
The successes of Capt Xu and Mr Li, as well as their companies, have been intertwined with the rise of China to an economic and maritime powerhouse over the past four decades.
However, now the headwinds are getting stronger.
US-China economic 'decoupling' is the most palpable risk. It derails trade flows, makes demand more volatile and eventually saps cargo volumes as economic growth wanes.
The results will hurt ocean carriers and take a bigger toll on port operators that have less flexibility in moving their assets.
Capt Xu told Lloyd’s List in September his company had been able to handle the disruption well by adjusting fleet deployment. “But I hope the impact will not grow beyond the extent to which our global networks can adapt,” he added.
Shortly after the interview, the US sanctioned two of Cosco Shipping’s tanker units for alleged involvement in shipping Iranian oil. The move crippled the operation of 26 very large crude carriers — about half of the VLCC fleet owned by the Chinese major--and sent a shockwave through tanker markets and pushed VLCC rate to historical high.
Whether this is another ramification of the decoupling between the world’s largest two economies is, of course, open to debate.
However, the punishment — which was announced just a few days before a new round of China-US trade talks — has at least made it very suspicious, even though the activities of smuggling Iranian oil by Cosco-managed tankers had been detected by vessel-tracking data.
Moreover, Beijing’s Belt and Road Initiative, in which the two state-owned giants are among the key pioneers, is slowing.
The value of new construction projects abroad has declined since 2018 as China’s overseas lending lost steam, Hong Kong-based South China Morning Post reported, citing data from Gavekal Dragonomics.
Beijing's masterplan is also under stricter scrutiny by local governments from the countries involved, some of which even seek to renegotiate or overturn existing contracts.
China Merchants, for example, was recently caught off-guard by the attempt of Sri Lanka’s new president Gotabaya Rajapaksa to undo the $1bn deal signed by the previous government to lease the southern port of Hambantota.
It seems the business is no more plain sailing from here on. However, that is not to suggest a path to an inevitable decline, either.
The ground gained over decades by China and its companies would not be lost overnight. Cosco Shipping and China Merchants will remain powerful players in the maritime sector for the time being, through the sheer size and strength they have built.
The future will depend on Beijing’s political wisdom and economic resilience and on whether the country’s public sector can gain more efficiency through further reforms that are clearly needed.
Both Capt Xu and Mr Li must have had a busy year amid fast-changing shipping markets increasingly complicated by rising geopolitical and regulatory uncertainties.
The agenda next year is likely to require more hard work, with a US-China trade deal still hanging in the balance and the 2020 sulphur cap set to take effect.
Now succession plans are being brought into the spotlight as the two chairmen are both reaching retirement age.
Earlier this week, China Merchants appointed Hu Jianhua as president, the second-in-command at the company that boasts more than $1trn of total assets.
The 57-year-old had a long career in the ports and logistics sector and was the vice-chairman and managing director of China Merchants Port Holdings before entering the top management of the parent group as vice-president in 2018.
The appointment comes three months after China Merchants’ former president Fu Gangfeng was relocated by Beijing to take the same role at its state-owned peer Cosco Shipping.
The moves have surprised quite a few industry observers, who are keen to find out what calculation is behind it.
These management manoeuverings are also giving rise to speculation that there may even be a consolidation between Cosco Shipping and China Merchants — at least on some counts.