A strange contradiction has been brewing lately in Southeast Asia. On one hand, shipping companies based out of China that were once fierce competitors solidified a partnership in anticipation of a lackluster global sourcing economy. On the other end of the spectrum, the vessel manufacturing industry is expected to witness a turnaround in the upcoming year.
Burying the hatchet
According to The Wall Street Journal, Beijing-based China Ocean Shipping - more popularly known as Cosco, not to be confused with the American wholesaler - and China Shipping have agreed to consolidate procurement management efforts, sharing resources in ports, shipbuilding and oceanic transportation. The news source stated that the pact was signed earlier this month, in light of sluggish cargo traffic on Asian and European routes over the past few years.
The accord between Cosco and China Shipping accompanies an anticipated second-quarter launch of a major route-sharing alliance. Denmark's Maersk Line, France's CMA CGM and Switzerland's Mediterranean Shipping Company are all expected to receive approval on their unity from the United States Federal Maritime Commission. The concord is expected to put pressure on independent Southeast Asian shippers looking to solidify a place in the market.
Some analysts, such as Alan Murphy, chief operations officer at SeaIntel Maritime Analysis, claimed that the settlement between Cosco and China Shipping should be viewed as a concerted step toward a full merger.
"It represents a solid step towards becoming a consolidated Chinese container carrier," he told the news source.
Although the global retail procurement process seems to be moving away from Southeast Asian oceanic transport, some statistics would suggest otherwise. Steel Guru, an English website specializing in analysis of the global metal manufacturing and production market, noted that there were 153 new cargo ships ordered by shipping industry participants, a 76 percent increase from 2013. The news source commented that the unexpected demand contradicts the slowly recovering worldwide economy.
Tay Linsiau, a consultant of the website, has been working in the transportation business in Singapore for more than 13 years. The correspondent claimed that 64,000-ton ships are cheaper than 57,000-ton vessels, meaning that if companies don't have cargo they can find a way to re-let or sell the ocean liners.
Barclays Group, a British global financial services provider, predicted that cargo volume will increase by 5.8 percent in 2014, exceeding vessel capacity for the first time since 2008. The U.S. and other consumer economies are demanding more goods, but many retailers have chosen a strategic sourcing plan that invests in domestic manufacturing, reducing the need to ship from overseas producers.