China has a plan to dominate global shipping.
Writing in his blog, former Wall Street bond trader and hedge fund manager Bruce Krasting told the story of a Greek ship owner that he spoke with recently. The ship owner outlined China's global shipping plan.
China’s goal is to own 70 percent of the vessels carrying Chinese imports and exports, according to the Greek ship owner. It now owns about 20 percent.
Editor's Note: I Wish I Were Wrong — Economist Laments Being Right. See Interview.
If this happens, China would have tremendous pricing power over global shipping costs.
Although it has purchased some used ships on the secondary market, China’s main strategy entails building its own vessels.
All the components seem to be in place, Krasting notes. Chinese insurance companies provide insurance that favors Chinese vessels. Chinese banks provide financing, and nonunion Chinese crews can work for low pay. Ship construction is keeping its steel mills and shipyards busy and supporting industries that make ship components.
The trend is “irreversible,” and the impact of its global shipping control — and the economic dominance — would be felt in another decade, the ship owner predicts.
There will also be casualties.
"Think of a steady stream of rusty old ships headed for the scrap-yards of India. Each one means China gets stronger," Krasting writes.
China now has the largest shipyard capacity and the third largest shipping fleet, after Japan and Greece, according to The Wall Street Journal. It now has about 10 percent of global capacity, up from 6.3 percent in 2006.
However, its ship-building rush has put a glut of ships on the market and sent freight rates plummeting to some of the lowest levels ever seen, The Journal reports. As a result, shipping companies have delivered large losses, and it might be years before the glut disappears.
“Everyone’s concerned, although they may not say so,” said Greek ship owner Nicolas Pappadakis, according to The Journal, adding that the Chinese should not be underestimated.
Editor's Note: I Wish I Were Wrong — Economist Laments Being Right. See Interview.
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