An illustrious Hong Kong container firm sells to China

The Economist – 15/7/17

STONECUTTERS ISLAND in Hong Kong used to be a favoured habitat for poisonous snakes and eye-catching birds such as the white-bellied sea eagle. Thanks to Hong Kong’s rapid development, it is no longer so hospitable. Its sky is full of gantry cranes, stacking 20-foot-long shipping containers in multicoloured tessellations, like giant Lego bricks. A cluster of decorative containers, daubed in graffiti, line the perimeter of container terminal eight, which is partly operated by COSCO, a state-owned Chinese shipping giant. In bright yellow lettering, one slogan instructs passers-by to “Respect Past, Embrace Future”.

Few Hong Kong companies have as much to tell about the past as Orient Overseas Container Line (OOCL), the world’s seventh-biggest container shipping line. Its founder, Tung Chao-yung, owned the first Chinese-crewed steamship to travel from Shanghai to France in 1947, and went on to build a shipping empire of over 150 vessels. His eldest son and successor, Tung Chee-hwa, survived the financial strains of the early 1980s (with the help of Chinese money) and became Hong Kong’s first leader after it was handed back to China in 1997.

The future, however, looks uninviting. The world’s shipping fleet, replenished by ever bigger vessels, has grown faster than the globalisation it serves. Reckless expansion by some firms, in an industry which overvalues market share, has hurt more prudent competitors. This has pushed OOCL into the arms of COSCO. On July 9th OOCL’S owners announced its sale to COSCO for $6.3bn, pushing their Chinese rival from fourth into third place among the world’s container-shipping lines.

If the merger is approved by antitrust regulators in America and Europe, it will be the latest of a string of big consolidations, including Maersk’s acquisition of Hamburg Süd, a proposed tie-up among Japan’s three biggest carriers, and COSCO’s earlier merger with China Shipping Container Lines. The industry may be the handmaiden of globalisation but it is congealing into regional oligopolies. When the dust settles in 2021, by when the current crop of deals will be concluded and ships under construction delivered, the top seven firms will control roughly three-quarters of all container ships, according to Drewry Maritime Financial Research, compared with 37% in 2005.

Consolidation should allow the two firms to remove any unprofitable overlap in their routes and operations. But COSCO’s cost-saving plans do not include cutting people or pay, at least for two years, it has promised. OOCL’s value to COSCO lies in its management talent as well as its tonnage: it is run more efficiently than many rivals. OOCL is also well attuned to global ways of doing things, as befits a company that carries more containers across the Pacific than within Asia. It now refuses to ship whales, sharks and dolphins, and has won plaudits for reducing emissions through the use of battery power in its redevelopment of the Port of Long Beach in Los Angeles.

COSCO’s offer price of HK$78.67 ($10.07) per share certainly seems full of respect, valuing OOCL at 40% above its book value. The premium partly reflects a nascent revival in OOCL’s fortunes: revenues increased by 6.4% in the first quarter compared with a year earlier (see chart). The industry is recovering. Thanks to the demolition of many smaller ships, the global container fleet grew more slowly than traffic last year for the first time since 2011, says BIMCO, a shipping association.

But OOCL’s chairman, Tung Chee-chen (the founder’s second son), believes the recovery is vulnerable to a variety of dangers, including potential trade frictions and the remaining “supply overhang”. Shipping firms placed few orders for new vessels in 2016, but many older orders have yet to be delivered. More new capacity will be added this year than last, according to BIMCO. Those ships were requested in expectation of a rosy global economy that never arrived. The future would be easier to embrace if it were not so hard to grasp.

Local Maori challenge Lyttelton consent

Ngai Tahu’s legal representation has demanded Lyttelton Port of Christchurch (LPC) commit to a NZ$1m bond to ensure it improves the environment, if consented to deepen its shipping channel from the current low-tide of 12-12.5 metres to about 17-18 metres.

The tribe made the call during a recent hearing before Environment Canterbury on the grounds that traditional harbour food gathering resources were already being impacted by sediment and could likely be further impacted by increased port dredgings.

However, LPC counsel countered that the port had already shown an environmental commitment by moving the dispersal grounds further afield from the harbour and emphasised that there was actually no legal requirement to provide an environmental “gain”.

Noting that over the past decade the size of global containerships has virtually doubled, LPC is seeking to deepen its channel in order to accommodate larger callers and not be demoted to feeder port status in the New Zealand shipping scene.

Maori Party’s IwiRail plan could revive mothballed railway lines

Partnerships between iwi and government to develop a strong network of regional rail connections could generate thousands of jobs and billions of dollars, the Maori Party says.

In coalition negotiations they’ll ask for $350 million to fund their new IwiRail policy which would look to take over mothballed KiwiRail lines and develop new rail connections to open up freight and tourism opportunities across regional New Zealand.

Party president Tuku Morgan and co-leaders Te Ururoa Flavell and Marama Fox announced the plan in Wellington yesterday following informal discussions with the Government and talks with investors and iwi in Gisborne and around the country.

It will focus on freight, passenger and tourism with the first project to be reconnecting the line through to Gisborne.

“That’s only going to cost about $6.5m to fix that break in the railway line but it will open up productivity,” Ms Fox said.

“We’ve talked extensively with iwi around the Gisborne area … we’ve talked also as an introductory offer with other iwi in the country, but let’s concentrate on the Gisborne region because that will be the proof of the pudding that we can make this work.”

The policy would allow iwi to invest in rail networks, but also create opportunities for other investors, creating profit by helping producers get their products to market.

“And if we open up the top of the East Cape we open up an untapped tourism market,” she said.

Mr Morgan said it could generate thousands of indirect jobs around the country as a result.

Ms Fox said iwi in Nelson have expressed an interest in being part of an IwiRail programme down the track.

Economically, this is worse than literally lighting a bonfire of taxpayers’ money”
Jordan Williams of the Taxpayers’ Union

The Taxpayers’ Union accused the Maori Party of “populist economic sabotage”.

“Economically, this is worse than literally lighting a bonfire of taxpayers’ money,” spokesman Jordan Williams said.

“Investing this much in New Zealand’s most uneconomic rail lines is a short-term make-work scheme at an eye-watering cost to taxpayers.”

Intelligent transport: More talk, no action?

Transport Minister Simon Bridges has announced plans for a study into how New Zealand’s economy can benefit from intelligent transport systems, without making any mention of the Government’s existing intelligent transport plan.

On 18 June 2014 the Ministry of Transport released its Intelligent Transport Systems Technology Action Plan 2014-2018. It listed close to 50 specific actions that the Government was supposed to have undertaken by the end of 2015.

The plan’s web page says: “There are a number of key areas where the Government has an essential role to play in advancing the adoption of ITS technologies. These include: strategic leadership, direction setting and collaboration; providing a supportive regulatory environment; funding and procuring infrastructure or services; using the information and opportunities provided by ITS.”

It gives no indication of what the government has done to fulfil this “essential role”.

The Ministry of Transport has partnered with BusinessNZ to commission the new study. It will be overseen by an advisory group chaired by Dr David Prentice, chief executive of the New Zealand arm of Opus, a NZX-listed global infrastructure development and management consultancy headquartered in New Zealand. He is also chairman of the New Zealand Business Infrastructure Committee.

The group also includes the Ministry of Business, Innovation and Employment and a range of other players from the public and private sectors.

Bridges said it was critical that the Government engaged with the private sector, which is developing much of the technology.

“The study is expected to be completed by the end of 2017, and will make recommendations for how we can develop and grow ITS market opportunities where we have a competitive advantage, and identify areas to be strengthened,” Bridges said.

“There are companies in New Zealand already working in the growing ITS market, as well as companies who could do so. A number of international companies have also expressed interest in developing their ITS technologies in New Zealand.

“Leveraging off these advantages to support businesses, and attracting international companies to come and develop their technology here, will have significant benefits for transport in New Zealand, and the broader economy,” he said.

Manawatu Gorge closure puts transport businesses in a pothole

Road works on Woodlands Rd, between Saddle Rd and Woodville.

Saddle Rd needs constant maintenance to cope with heavy traffic.

Trucking companies are counting the cost of the indefinite closure of the Manawatu Gorge route.

The road has been closed since April 24 when a large slip covered both lanes of State Highway 3, between Palmerston North and Woodsville.

Palmerston North trucking company, Winiata Distribution owner Nigel Winiata said the alternative Saddle Road route added 15 to 20 minutes each way to his trips to and from Hawke’s Bay.

Winiata has a fleet of four trucks that deliver groceries for Foodstuffs around the lower North Island.

Foodstuffs owns the Pak ‘n Save and New World supermarket chains.

He said for a business with small profit margins, the road closure took its toll on his bottom line.

He had not sat down to calculate the costs of the extra petrol, tyre replacements, and other wear and tear since April but said he would hate to look at it.

“You can’t wear that sort of thing because the margins are just so fine. It’s a very cutthroat industry.”​

Winiata said the Saddle Road and the Pahiatua Track had “taken a hell of a hammering” with the increased traffic.

A month ago two trucking accidents on each of the alternative routes halted traffic for an entire morning on the Saddle Rd and caused congestion on the Pahiatua track.

New Zealand Transport Agency (NZTA) has spent $8.5 million dollars upgrading Saddle Rd from a “goat track”, but Winiata the road is rapidly degrading.

“We’ve got pothole after pothole, it’s just getting chewed right up.”

“Definitely an alternative route up to highway-standard would be good.”

NZTA regional transport system manager Ross l’Anson said more work on the road was planned.

“The reality is that the Saddle Rd will effectively be functioning as the state highway connection for this part of the country for some time.”

About 5500 vehicles a day on Saddle Rd in June according to Tararua District Council figures.

The NZTA took over the maintenance and management of Saddle Rd on Friday from the Tararua District Council.
Council chief executive Blair King said it still in negotiations with the NZTA over maintenance of the Pahiatua Track, where an incident could back-up traffic for four or five hours.

King said about 75 per cent of traffic that once used the Manawatu Gorge was now using Saddle Rd twhile the other 25 per cent used the Pahiatua Track.

Upgrades on Saddle Rd have focused on making the road less winding for trucks, but King said this also made the road steeper.

King said when Fonterra milk trucks start using the Pahiatua Track in about two weeks, the roads would deteriorate even faster.

Road Transport Forum chief executive Ken Shirley is urging NZTA and the Government to “bite the bullet” now to commit to an enduring solution for the Manawatu Gorge.

“It is vital that we find a solution that can be relied on and will not require the almost constant remedial work the gorge has required in recent times.”

Shirley said if money was no object a tunnel would be the most logical option.

ANZ chief economist Cameron Bagrie said the gorge closure would have a regional economic impact, but not a national one.

“That Gorge hasn’t been operational for a little while already so by and large business is still going on, it’s just that the easiest route is out.”

Bagrie said an expensive “gold-plated solution” might not be the best idea.

“There are endless possibilities, but of course there is not a bottomless pot of money.”

– Stuff

Pacific states urge shipping industry to reduce emissions

A coalition of Pacific Island ministers has launched a joint call for the global shipping industry to cut greenhouse gas emissions.

A Pacific Basin Shipping boat on the water in Gisborne the morning of the earlier 7.1 earthquake and subsequent tsunami warning in the area.

Photo: RNZ / Claire Eastham-Farrelly

Ministers from the Marshall Islands, Tuvalu and Kiribati were joined by envoys from Fiji, Vanuatu and Palau in urging member states of the International Maritime Organisation to try and limit global warming to 1.5 degrees celsius above pre industrial levels.

The Marshall Islands minister for transport Mike Halferty told the London meeting that the shipping industry was one of the world’s big emitters.

“To put it in context, if international shipping was a country, it would be the seventh largest emitter of greenhouse gases in the world. The 1.5 degree limit will only be achieved if every country and every sector takes ambitious climate action. that includes international shipping.”

Mr Halferty and Pacific states have submitted a proposal supported by France, Germany and Belgium for the shipping industry to meet a zero net emissions target by 2035.

Two more sets of negotiations are planned ahead of an expected 2018 climate deal for the maritime sector.

‘Modest progress’ made on decarbonising shipping sector

The International Maritime Organisation (IMO) has adopted a seven step plan towards decarbonising the shipping industry following pressure exerted by a coalition of Pacific countries.

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But while their proposal for the shipping sector to adopt climate targets in line with the Paris Agreement gained overwhelming expressions of support, the IMO said a consensus was not reached between more than 170 member nations.

It said at last week’s London meeting, China and India voiced strong support for alternative low carbon fuels, while European nations joined the Pacific in highlighting the urgent need for sector action.

However a number of countries including Brazil and Chile were concerned about potentially negative impacts of carbon reduction measures.

The IMO’s director of shipping Bill Hemmings said political differences prevented substantive progress despite a strong delegation of Pacific Island nations vulnerable to climate change calling for an ambitious reduction target.

“A sense of urgency was lacking and hopes have again been deferred to the next meeting being held in October nearly two years after the Paris Agreement,” said Mr Hemmings.

Mike Halferty, the Marshall Islands minister for transport, said while only modest progress had been made there was large support for the vision of emissions reductions from the sector.

“For the Marshall Islands … that means decarbonisation of the sector by 2050. It is clear that much more rapid progress will need to be made at the second working group in October in order to deliver the initial strategy by 2018.”

Solomon Islands ambassador to Europe, Moses Mose, said he was encouraged that many countries shared the Pacific’s interests.

“We must seize on this opportunity to produce tangible progress so that IMO has something credible to report to COP 24 in 2018,” said Mr Mose.

The IMO said the seven-step plan will form the basis of its first attempt to tackle climate change, 20 years after first being requested to do so under the Kyoto Protocol.

It said it was aiming to deliver an interim climate deal for shipping in 2018, with a comprehensive plan scheduled for 2023

The IMO said shipping accounts for two to three percent of global greenhouse gas emissions, but a UN study predicted trade growth could swell its carbon footprint 50 – 250 percent by 2050.

It said the International Energy Agency rated the IMO as “not on track” to meet its sector’s fair share of CO2 cuts needed to limit global warming to below two degrees celsius above pre-industrial levels.

The seven-stage outcome is as follows: 1 – emission scenarios, 2 – vision, 3 – ambition, 4 – candidate measures to achieve cuts, 5 – research and development / capacity building, 6 – periodic reviews, 7 – follow-ups ahead of 2023 revised strategy.

Geoff Plunket leaves Port Otago

Port Otago’s former chief executive Geoff Plunket. Photo: Gerard O'Brien.

Port Otago’s former chief executive Geoff Plunket. Photo: Gerard O’Brien.

Port Otago’s Geoff Plunket is weighing anchor after 29 years with the company, the last 13 as its chief executive. Mr Plunket reviews his time with ODT senior business and port reporter Simon Hartley.

It’s probably understandable the man who has overseen the intricacies of running Port Otago for the past 13 years wants to keep his retirement plans detail-free and open-ended.

Geoff Plunket (59) has seen a massive sea change during his 29 years with Port Otago,  after port reforms in the late 1980s  resulted in it morphing from the Otago
Harbour Board into its present-day form under the 100% ownership of the Otago Regional Council.

There has been a decades-long ramping up of container numbers from a relatively paltry 40,000 in 1989 to  220,000 at their peak, the number having since levelled off to about 180,000.

One of the two Chinese-made cranes being delivered  in June 2007. Photo: Stephen Jaquiery.

One of the two Chinese-made cranes being delivered in June 2007. Photo: Stephen Jaquiery.

There were minor ship groundings, painful redundancies and restructuring to be worked through at the port as well as industrial action, but there was also a steady turnaround, result ing in a record 320 employees today.

“Fundamentally, it’s always been about the people, both the staff and customers,” he said.

And there were major highlights, such as Port Otago’s corporate “masterstroke” of grabbing a shareholding in arch-rival Lyttelton Port of Christchurch, which would ultimately reap Port Otago tens of millions of dollars.

Mr Plunket was born in Christchurch and his family later moved  to Alexandra, where Mr Plunket attended Dunstan High School, before the family moved to Dunedin.

Mr Plunket followed his father into the finance sector, gaining a bachelor of commerce degree from the University of Otago and going on to become a fellow of Chartered Accountants Australia and New Zealand.

Cruise ship Golden Princess nudges into Port Chalmers, to berth opposite  container ship Laust...

Cruise ship Golden Princess nudges into Port Chalmers, to berth opposite container ship Laust Maersk. Photo: Stephen Jaquiery.

He  started  working in public practice with Coopers & Lybrand in Dunedin in the 1980s, after which he  took up a position with the company in Birmingham, England for two years. He then returned to Dunedin, again to work for Coopers & Lybrand, which was followed by a year with KPMG.

He joined Port Otago as  financial controller in 1988.

‘‘It was a time of huge change in the industry, with the port reforms just coming into place.’’

The Otago Harbour Board was split up,  its 20million shares going to the Otago Regional Council, along with many of its recreational maritime responsibilities, while some land was divested to the Dunedin City Council.

That  shareholding has been crucial to the ORC, having yielded more than $148million in dividends and special dividends to date.

However, by the early 1990s container numbers had dwindled to below 40,000 a year and it was determined Port Otago needed restructuring,   resulting in   jobs
being shed.
Mr Plunket identifies ‘‘two big turning points’’ for Port Otago.

The first was in 1998, when shipping giant Maersk extended its New Zealand port calls to include Port Chalmers. This meant much of what had been shipped as bulk items now went into containers and container numbers began rising.

Maersk is now Port Otago’s largest customer.

‘‘That on its own gave us a lot of customer growth,’’ he said.

The second was in 2002, when Port Otago stole a march on its South Island competitors by securing P&O Nedlloyd’s new round-the-world service, which
began in December of that year.

That  left Port Chalmers well placed to capitalise on the then-burgeoning boom in dairy and forestry exports.

‘‘That gave us a substantial lift in container volumes,’’ he said.

In 2004 Mr Plunket took over from  Rene Bakx  as chief executive, having risen from financial controller to deputy chief executive in 1997.

Large warehousing developments costing millions of dollars were undertaken and had “become an integral part” of the services Port Otago offered.

‘‘It [P&O] was a big win and morale booster for staff.

‘‘It also gave us the confidence to start investing, such as the new [Chinese-made] cranes,’’ which came at a cost of $21million.

Log shipments are a recent success story. Before the 2007-08 global financial crisis only 200,000cum of logs were going across the wharf, and the sector had been struggling for several years. Over the past two years, however, log export levels have been in the 700,000cum to 900,000cum range.

‘‘We now have more log ships coming each month than we would have had for an entire quarter,’’ Mr Plunket said.

He was also proud of the surge in cruise ship visits to Dunedin.

They were ‘‘an important factor’’ for Port Otago, and he was pleased numbers had edged up for the forthcoming season to 87 scheduled visits.

Port Otago subsidiary Chalmers Properties has also become an increasingly important addition to the balance sheet.

He was pleased the company’s Hamilton commercial development and recent Auckland purchases were providing ‘‘strong and positive’’ revenue streams.

‘‘That [Hamilton] develop ment is really going ahead. They’re looking at opening up more land now.’’

Mr Plunket’s tenure has spanned those  of  the Port Otago  board’s four chairmen, Sir Cliff Skeggs (1989-98), Ian Farquhar (1998-01), John Gilks (2001-10) and incumbent Dave Faulkner.

Mr Plunket’s ability to reel off their names and time as chairmen from memory reveals a facility for  detail and accuracy.

While praising the four chairmen equally, he singles out Mr Farquhar as having been a ‘‘genuine mentor’’.

It was during Mr Gilk’s tenure as chairman the Port Otago board risked taking a stake of more than 15.5% in rival Lyttelton Port of Christchurch, for $37million, in what was a ‘‘masterstroke’’.

That stake was  sold  for $65.7million in 2014, wiping much debt from Port Otago’s books.

‘‘The [share] sellers never knew who was buying them,’’ Mr Plunket said of the stealth involved in incrementally building up the 15.5% stake.
At the time Mr Gilks was loath to admit  the stake was taken to stop an overseas company from taking over Lyttelton Port of Christchurch, which would have been to the detriment of Port Chalmers trade.

Mr Plunket’s more modest take on it was that it ‘‘gave us a seat at the table’’.

That had included some speculative, but unpopular, merger talks, which were shelved.

When pressed, Mr Plunket said that ‘‘it did stymie the Hutchison takeover … They left, the rest’s history.’’

Unlike some ports, large and small, Port Otago has  kept up with maintenance work,  rarely deferring such programmes.

During Mr Plunket’s  tenure as chief executive, more than $300million has been ploughed into infrastructure upgrades and maintenance, plus its fleet of tugs, cranes and straddle carriers.

The beginning of the end of that expenditure is in sight with the recent start of  phase 2 of the $21million ‘‘Next Generation’’ channel dredging programme, to attract larger vessels.

He  signalled to the board three years ago  his intention ‘‘to retire by 60’’.

‘‘There was succession to organise. Fresh leadership is good — a new set of eyes is always positive.

‘‘You have to be relevant to staff and customers and able to change with the world.’’

Port Otago’s strength lay in its staff, not just wharfside but also warehousing, and Mr Plunket highlighted weekend work, sometimes in atrocious weather conditions.

‘‘That is tough on family life, but someone will always come forward and offer to work.’’

Both the Asian crisis in 1997 and global financial crisis in 2007-08 had taken a toll on exports.

‘‘[However] we’ve got strength in the South with a great export economy in meat, dairy, forestry and apples.’’

Port Otago won the Otago Daily Times Business of the Year in 2014.

He still had ‘‘several weeks of loose ends’’ to tie up, before taking extended leave. He will formally retire in September.

Regarding retirement plans, Mr Plunket, despite being a stickler for detail, was surprisingly noncommittal.

A keen tramper and mountain biker for many years, he had also completed five Kepler Track challenges and Hawea Epic races, in the ‘‘classic’’ 95km mountain bike division.

While his and wife Jo’s three sons had all left home, that was no reason to consider leaving Dunedin and heading to Central Otago, which had been
suggested by  many friends, he said.

‘‘No, I see no reason why we’d leave. Dunedin’s home and this is where our friends are.’’

● Mr Plunket formally left the chief executive role last Friday, and his replacement, Dunedin businessman Kevin Winders,  started on Monday. The pair  spent almost three weeks in Asia and Europe, touring ports and meeting customers.

COSCO Shipping, Orient Overseas shares leap after lofty $6.3 billion bid

Container ship Cosco Development, registered and sailing under the flag of Hong Kong, is seen near from Panama City on May 2, 2017.

COSCO Shipping‘s and Hong Kong‘s Orient Overseas International‘s (OOIL) shares leapt on Monday after the Chinese shipping giant made a $6.3 billion offer for its smaller rival on Sunday.

Analysts said the pricing of the deal, at a 31.1 percent premium to OOIL’s previous close, was high given the global container shipping industry is only just beginning to emerge from a prolonged slump and underlined COSCO’s global ambitions.

OOIL shares on Monday rose over 20 percent on Monday morning, while COSCO’s Hong Kong-listed shares were up to their highest level in almost two years.

Should the deal go through, COSCO Shipping will become the world’s third-largest container shipping line after Denmark’s Maersk Line and Switzerland’s Mediterranean Shipping Company (MSC).

“This is an expensive acquisition to become the third largest global container line,” Jefferies analyst Andrew Lee said in a note.

Beijing has been outspoken over its desire to strengthen its hold over global shipping, which dovetails with the country’s Belt and Road political initiative that aims to expand and exert control over supply chains from Asia to Europe.

COSCO Shipping is a product of a state-driven merger between China Ocean Shipping (Group) Company and China Shipping Group, previously ranked sixth and seventh largest respectively in terms of the world’s largest container shipping fleets.

The deal would see Beijing take a firmer grip of Hong Kong’s transport hub, even as the city’s once world-leading port loses ground to rival ports on the mainland.

China To Build World’s Most Challenging Railway For $36 Billion

China To Build World's Most Challenging Railway For $36 Billion
BEIJING: Breathtaking scenery and breathtaking dangers – both will face Chinese engineers as they embark on building the world’s most difficult railway.

The Sichuan-Tibet Railway will be the second railway into Tibet region after the Qinghai-Tibet Railway. The railway line will go through the southeast of the Qinghai-Tibet Plateau, one of the world’s most geologically active areas, Xinhua news agency reported.

“The construction and operation of the Sichuan-Tibet Railway must overcome the biggest risks in the world,” said You Yong, chief engineer of the Institute of Mountain Hazards and Environment of the Chinese Academy of Sciences (CAS) who leads a scientific and technological support team to avoid disasters in the mountains.
The China Railway Eryuan Engineering Group Co Ltd, which is designing the line, said it will run from Chengdu, capital of Sichuan province, and enter Tibet via Qamdo. It will reach Lhasa, capital of Tibet.

The total construction length will be about 1,700 km and it will cost about $36.88 billion.