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Zhonggu Shipping: Tonnage cascade hits China’s domestic container trades

Shanghai: Affected by the doldrums in international shipping and the growth slowdown of domestic consumption, the domestic container shipping market is also facing a series of problems including overcapacity, low freight rates and difficulties to secure financing. At this stage, maintaining a healthy financial status has become essential to shipowners in the market.
Lu Zongjun, the general manager of Zhonggu Shipping, one of the major domestic container shipping players in China, believes cost control is very important for shipping companies at this challenging time.
Lu has been in the shipping industry since 1990 after his graduation from Wuhan University of Technology.
Zhonggu Shipping was previously called Yangpu Zhonggu Xinliang Shipping, the shipping unit of state-owned China Grains and Oils Group (COFCO), a major grain trading company in China. The company was privatised in 2003 and changed to its current name.
Currently Zhonggu Shipping operates a fleet of more than 40 vessels with total capacity of about 30,000 teu. 12 of the vessels are self-owned and the rest of the vessels are on short-term chartering contracts.
“The shipping industry is a capital intensive industry. We mainly operate with chartered vessels which will gives us less pressure in financing, most of the vessels we chartered are on three to six months contracts and that’s common in the domestic coastal container shipping market,” Lu explains.
“We don’t like to gamble; we put financial safety at the top of our operations. We are always well prepared in cash flow. Although the current market is depressed, we will still make investments if there are suitable assets on the market,” Lu says.
Zhonggu Shipping placed orders for ten 2500 teu containerships at Zhoushan Wuzhou Shipbuilding & Repairing in September last year, and deliveries of the vessels will start from next year.
Now the company operates several subsidiaries with businesses in shipping, shipmanagement, ship chartering and bunkering. Zhonggu Shipping Group was established last year to oversee all its businesses. In the past year, Zhonggu Shipping has added 10 more offices and 10 vessels into its fleet. It ranked top last year in terms of domestic container throughput at several major ports including Qingdao port, Shanghai port, Taicang port, Xiamen port and Guangzhou Port.
Lu believes the domestic shipping market will see ships getting larger; a tonnage cascade is coming.
“The domestic shipping market is closely connected to the international shipping market, ships are getting larger in the international shipping market and the trend is also inevitable in the domestic shipping market,” says Lu.
In order to deal with the current downturn, Zhonggu Shipping is also making efforts to cooperate with other container shipping companies and ports.
“The cooperation between Cosco and China Shipping on domestic routes has set a good example for regulating the domestic shipping market, and it is a good way to solve the overcapacity problem,” Lu says. “A good way is to set up stable alliances between companies which have similar capacities.”
Zhonggu Shipping has signed a strategic cooperation agreement with Dalian Port Group. Under the agreement, the companies will have full cooperation in the areas of route expansion, port operation, logistics base development and financing.
Lu also suggests the government could solve the overcapacity problem in domestic container shipping market through administrative means. “The Ministry of Transport has already set up a threshold for the domestic coastal oil shipping market by forbidding new capacity entering the market. They could introduce a similar policy for the domestic container shipping market,” Lu urges.
According to Lu, the current goal of Zhonggu Shipping is to achieve container throughput of 1m teu at 10 major ports in China in the coming five years. [14/05/14]


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