China enhances its strengths06 Mar 2020 Reading time calculated text
Mega-mergers, strong alliances and a narrowing competitive gap between global shipbuilding powerhouses mean that when market recovery commences, China is aiming for a greater share. Jane Chen, MacGregor’s Vice President, Strategy and Head of China, explains
The global shipping and shipbuilding markets are waiting for recovery, and at the forefront of this hungry queue is China. When this comes, it will be met by leaner, more efficient and technologically advanced players than the industry has ever known.
Gaps between the global shipbuilding giants are narrowing, and capabilities that once distinguished a country’s expertise in building particular vessel types are gradually diminishing. Within this levelling market, China is poised and ready to compete in both its traditional grounds and within previously untapped arenas.
China’s position in the global shipbuilding industry is already substantial. In terms of contracting activity, Clarkson Research analysis at the end of August showed that China held a 44 percent share of global shipbuilding by number of newbuild contracts placed and a 38 percent share by tonnage.
However, China currently only secures around 33 percent of the market by value which is similar to the European shipbuilding industry that builds around ten percent of the global fleet by tonnage.
This indicates that whilst China has diversified from building smaller, simpler vessels to larger and more value adding ships, it is still not comparable with the European yards focused on high-value, high-technology vessels and cruise ships in particular.
This is well-recognised by China; it has been a long learning curve but the gaps are narrowing. Whilst this has been driven in part by the 'Made in China 2025' initiative, strategies were already in place to close the value gap. Chinese state-owned shipyards are now targeting higher-value shiptypes, including liquefied natural gas (LNG) carriers and cruise ships.
In preparation for growth and consistent with the industry consolidation trend, there are mega-mergers taking place within China’s shipbuilding industry, primarily between the two state-owned enterprises (SOEs), China Shipbuilding Industry Company (CSIC) and China State Shipbuilding Corporation (CSSC). Post-merger, the combined group will be the largest shipbuilder in the world.
Increasing shipowning position
China also has a growing shipowning role in the industry. For a long time, it ranked fourth in this sector but in 2018 became the second largest shipowning nation, overtaking Japan.
Whilst Greece remains the world largest shipowner, many new investments have been backed up by Chinese financing and China also became the leader in the second-hand tonnage market during this year.
Central state-owned China COSCO Shipping, including newly acquired OOCL, is now the largest global ship owner with a relatively young and modern fleet, and is also expanding it footprint in international ports through significant investments.
All Chinese companies, and particularly the SOEs, are being encouraged to be more independent in technology development and self-sufficient. This is designed to safeguard the country's long-term growth, the integrity of critical industries and to push China to move up the value chain with more speed.
China's SOEs are also major employers, stabilising local communities, and their survival and increasing competitiveness is therefore essential. A strategy that ensures this is one of vertical integration, where a company controls more than one aspect of the supply chain.
While the market is depressed, it is natural for the Chinese SOEs to prioritise 'feeding the family first'. Hence being regarded as a ‘family’ member for a Western players would be beneficial, either through a strategic cooperation or joint ventures.
MacGregor in China
MacGregor has held a strong market position in China for decades, which has been further strengthened through the recent acquisition of TTS.
TTS has three joint ventures in China, two with CSSC and one with CSIC, which are well established and recognised by the Chinese customers. In accordance with Chinese competition authority conditions related to the acquisition approval and for a hold-separate period, MacGregor and the TTS joint ventures must operate independently in the China market. This applies to certain equipment supplied for newbuild projects, with the requirement continuing through to July 2021.
The combination of MacGregor and TTS capabilities globally provides a stronger service network, a wider product range and greater expertise to offer optimised solutions that create even more value for customers, both shipbuilders and shipowners. With a strong parent company and shareholder support, we also have the financial capacity to invest and innovate for our customers; something that not everyone can afford in this climate.
MacGregor also needs to compete effectively in the Chinese market with 'fit for purpose' reliable equipment that is cost-competitive. As such, and for example, we have reengineered and optimised our portfolio of selected equipment to ensure that it meets the needs of customers with both technologically advanced and more simpler requirements.
Ready for tomorrow
As an industry leader, we must move forward. MacGregor is doing this through the development of innovative, digital technology-enabled and environmentally sustainable solutions that deliver real commercial and operational benefits to customers, and fulfil our social responsibilities.
One notable example is OnWatch Scout, a cloud based digital solution designed to maximise operational availability and minimise unplanned downtime through continuous monitoring of installed equipment performance. A number of OnWatch Scout pilot trials are currently ongoing, including with Chinese shipowners.
Whilst we are operating in an era of considerable change, MacGregor has extensive local experience and we are able to compete strongly in the market through leveraging an asset-light business model and striving to ensure that our products, systems and services fully meet the needs of our shipbuilding and shipowning customers.
Strategic alliances and joint ventures with Chinese state-owned key stakeholders further strengthen our relationships and market foothold, and help to build a stronger platform to support future growth in China.
Notes to editors
Jane Chen is MacGregor’s Vice President Strategy, and Head of China, and a member of the Executive Management Team. She joined the company in 1997 from the state-owned enterprise, China COSCO Shipping Corporation Ltd.
Ms Chen, who has a background in finance and an MBA, has served in various global and China roles, and has witnessed MacGregor’s business in China develop over the past 20 years from a single representative office in Shanghai to now having multiple locations and a sizeable local team to support Chinese customers.
Throughout this transformation, Ms Chen has acted as a strategic guide for MacGregor, most recently negotiating Chinese competition authority approval for the acquisition of TTS. Consequently, she is well-placed to comment on China, its global shipping and shipbuilding position and how MacGregor is navigating this changing landscape.