China Maritime Centre – Greenwich Maritime Centre

World maritime trade’s powerful upswing in the new millennium (mainly thanks to China)

by Richard Scott,

Visiting Lecturer, Greenwich Maritime Institute and MD, Bulk Shipping Analysis

It could be called ‘the China decade’. World seaborne trade maintained a four percent average annual rate of growth during the past ten years, slightly better than the previous ten-year average. This achievement was especially notable in the light of the global economy’s evolution, featuring a wrenching severe recession. But trade growth at that rate would have been impossible without China’s super-size contribution.

During the past decade, from 2003 to 2013, in numerous highly visible ways, global maritime activities which already had been penetrated were then dominated by China’s presence. This pattern is still ongoing, and signs suggest that it will continue for many years ahead. One of the most important aspects of the trend is the phenomenal expansion of China’s seaborne trade, especially imports.

Other countries contributed rising import demand to world trade as well, but none as spectacularly as China. Until 2008, the global economy as a whole was advancing at a robust pace, providing a broadly favourable backdrop for seaborne imports into most areas. After the 2009 recession, economic activity picked up again, although beyond the initial rebound many countries struggled to make further progress against prevailing headwinds. These were difficult circumstances for trade to resume brisk and sustained expansion, yet that is what happened: world seaborne trade as a whole averaged over four percent growth in 2011 to 2013, returning to its ‘normal’ trajectory.

Goliath task for the shipping industry

Commercial shipping’s existence is mainly related to transporting cargoes. Rapid expansion of trade in goods explains why the world fleet of ships saw such strong growth over the past ten years. The huge trade enlargement recorded was remarkable, since this period included the global ‘Great Recession’ in late 2008, continuing through 2009, following the world financial crisis. That slump was widely seen as the most damaging setback for the world economy since the Great Depression in the 1930s. Global economic activity contracted, world seaborne trade was badly weakened and, unusually for an individual year, 2009 saw an actual decline in annual trade volume.

A few statistics emphasise how the pattern of trade evolved in the past decade. In 2003, world seaborne trade – including dry bulk commodities, oil, liquefied gas, manufactured goods (mainly container shipments) and all other cargoes – totalled 6,676 million tonnes. Ten years later, in 2013, the overall total reached an estimated 9,914mt, based on Clarksons Research calculations, cumulatively a 48.5 percent rise. Looking at individual years, a break in the trend is immediately evident. In 2009 there was a four percent reduction from the previous twelve months, followed by a swift ten percent bounceback in 2010. The general pattern was very positive including, significantly, the latest few years of the period up to 2013.

That is the broad picture, but the development pattern among the individual cargo sectors differed markedly. What is abundantly clear is that dry bulk trade made the biggest contribution to the overall advance. Global dry bulk commodity movements, which comprised 2,453mt (37 percent of the total) in 2003, expanded by seventy-six percent to an estimated 4,309mt in 2013, raising their share of the total to 43 percent. Container shipments also grew rapidly, rising by ninety percent, reaching 1,524mt. The second largest sector, oil (crude oil plus processed oil products) was a laggard, growing by a relatively modest twenty-one percent to 2,834mt over the ten years’ period.

A large part of this expansion, particularly in the dry bulk sector, was attributable to China’s multiplying appetite for imports. An especially valuable contribution to the global seaborne trade trend was seen in 2009. As already mentioned, trade declined in that year, but the downturn might have been much worse than actually occurred. A huge jump in China’s dry bulk commodity purchases, completely opposite to the pattern elsewhere, prevented a much greater overall decline.

Sea trade in the ten years ending 2013 as a whole was strengthened by many other countries needing increasing imports. A particularly substantial volume of imported cargo movements was added in Asia, alongside China’s additional volumes. Numerous countries in this region, including India, South Korea, Taiwan and smaller buyers, greatly raised purchases of dry bulks, oil, gas and manufactures. Further cargo import quantities were contributed by countries elsewhere around the world.

Figures for seaborne trade compiled by UNCTAD (United Nations Conference on Trade and Development) emphasise how the Asian region led global cargo movements growth. Roughly four-fifths of the entire growth in trade recorded during the period from 2003 to 2012 (currently the latest year for which these statistics are available) was attributable to extra imports into Asia. Another feature, related to the remaining approximately one-fifth of trade growth, is evidence of a reduction in Europe’s imports, a decreasing tendency in North America and a flattish trend in Japan. By contrast both the Middle East area, and a group of all other countries together, showed considerable imports increases.

The real giant awakes

China’s share of global seaborne trade has risen enormously, resulting from its imports growth comprising a very large proportion of world imports growth. As well as providing more cargoes for a greatly increasing China-owned fleet of ships, this upsurge benefited many independent shipowners in numerous countries and, through part of the period, proved highly profitable. Since 2008, however, variable overcapacity in world shipping markets has suppressed earnings for shipping investors.

In the early 2000s, China’s imports of all cargoes – dry bulks, oil, gas and manufactured goods (mostly container shipments) – comprised 5-6 percent of the world seaborne trade total. Global import demand then was still dominated by European countries, Japan and other Asian countries. Starting in 2003, rapid and sustained expansion in China began. Within ten years, a relatively short historical period, a dramatic transformation had occurred. This resulted in China’s share of world seaborne trade expanding almost fourfold from the early millennium, reaching an estimated 20.4 percent in 2013.

The giant’s emergence as an economic powerhouse affecting the world had occurred earlier. In a memorable comment attributed to him, the famous nineteenth century French Emperor Napoleon Bonaparte foreshadowed the eventual impact when he suggested that China’s awakening would shake the world. But such a cataclysmic event was a long time coming. It started happening in 1979 when China’s paramount leader, Deng Xiaoping, began opening up the economy to world trade, bringing the country’s extended ‘slumber’ to a close.

By the 1990s successive reforms had enabled the Chinese economy to achieve many years of very rapid expansion. Because this development was partly based on export sales, particularly manufactured goods, China became a major and then dominant supplier of these products to the world market. There were huge consequences for the maritime scene: seaborne trade patterns in the container shipping sector changed greatly. The world’s new ‘workshop’ became solidly established. But an even larger impact on global maritime trade was still some way ahead, in the new millennium.

During the early 2000s China began focusing on additional external raw materials and fuels supplies amid rapidly expanding industrial output. More agricultural products were also needed. Although domestic resources of many commodities were widely available, these were insufficient in volume and sometimes in quality as well. Industries including steelmaking, power generation, aluminium smelting, and animal feed manufacturing started placing much heavier emphasis on seeking supplies from foreign sources. The strong advance in quantities imported was the result.

Growing annual seaborne imports into China also formed rising percentages of the upwards overall global trade volumes trend. Statistics illustrate how significant this pattern has been for the global shipping industry, which now depends upon China for a substantial proportion of its bulk carrier, tanker and other ship employment. In 2003 China’s seaborne imports totalled just under 500 million tonnes, within a global total of 6,680mt. By 2013 the China volume had risen to 2,026mt within a global 9,914mt total. These Clarksons Research figures emphasise China’s significance for shipping companies, indicating that, during the 2003-2013 period, annual world seaborne trade rose by 49 percent, while within this volume China’s element increased by 305 percent.

The figures quoted here underline how world seaborne trade has risen greatly, and how a large part of that expansion reflected China’s much more rapidly growing imports. From the angle of additional ship employment created, this point is reinforced by looking at the percentages showing what proportion of growth in world seaborne trade volume during the ten years’ period was comprised of China’s expanding imports. It then becomes even more abundantly clear why global shipping industry players are so intently focused on how Chinese industry and agriculture is progressing, the implications for imports, and the evolving relationship between ‘home’ domestic commodity output and import demand.

As already outlined, global seaborne trade grew substantially from 2003 to 2013. Arguably the most spectacular positive feature during the period was that almost one half (47 percent) of the expansion was contributed by additional imports into China. For dry bulk commodities, the contribution was even larger, and therefore even more striking. China’s extra imports of these commodities (raw materials, fuels, other bulk industrial products, soyabeans and other bulk agricultural products), formed fully two-thirds or 66 percent of overall world seaborne trade growth within the sector. Consequently, shipping industry participants are still transfixed by the China theme.

In a range of key individual trades – iron ore, steam coal (used mainly in power stations), soyabeans, bauxite/alumina, nickel ore, crude oil – China has become either by far the biggest importer or one of the biggest. Expanding Chinese import volumes have been, or in some cases continue to be, the main component of global growth in large-scale trades. Shipowners, charterers, brokers and analysts as well as many others are therefore always looking for any clues about key influences: how demand for the products made by relevant industries are developing, what impact there will be on output levels, and what other factors will determine how much raw materials and other inputs will change as a result.

Among individual commodities, iron ore imports into China experienced, over the past ten years, one of the most dazzling performances ever seen in the long history of global maritime trade. China’s iron ore imports have become gigantic, employing a vast armada of bulk carriers, after rising well over five-fold, from 148mt in 2003 to 820mt in 2013. As a result, these now have a dominant role in world seaborne iron ore movements (one of the largest commodity trades), comprising about two-thirds of the total. Moreover, the 2014 China volume could exceed 900mt. Another example of a large volume trade is coal imports, which rose steeply by over seven-fold in the past five years, from 44mt in 2008 to 327mt in 2013. Crude oil and products imports into China by sea in the past ten years also increased robustly, more than doubling from 114mt, to 293mt last year.

A galloping horse

What seems clear is that China will remain a prominent part of global seaborne trade, and probably a key contributor to its growth, over many years into the future. That is not just a wildly optimistic appraisal. Certainly the country’s economic activity is slowing, and the trend may persist, consistent with a maturing economy. This feature reflects the switch of emphasis, from a demand viewpoint, towards consumer spending and away from capital investment (especially infrastructure projects) and exports. Looking at the economy’s supply side, a switch from manufacturing towards services is foreseen. But, while these forces will restrain production of goods with high raw materials content, further growth in imported natural resources and energy is likely.

The Year of the Horse, 2014, in China seems set to prove another period of increases in many commodity imports, and that trend may continue in the medium term at least. There are positive indicators, although the earlier gallop may be moderating towards a fast trot. Nevertheless, there are also reasons for caution or uncertainty about the outlook. Several questions arise. How rapidly will the economy grow in the years ahead? What, precisely, will be the relationship between economic activity and seaborne trade? Is growth in import demand for commodities likely to continue outpacing production increases in dependent industries? How will foreign purchases of agricultural commodities evolve? Answers involve a complex range of factors which are far from easy to assess reliably.

Also relevant to the general picture of world maritime trade’s progress is the contribution of other prominent players around the globe. A detailed examination of export suppliers is beyond the scope of this article. As import generating areas, other Asian countries, and Japan and Europe as well as the USA are particularly significant. Also, some emerging economies in the Middle East, South America and Africa are becoming more prominent influences. Currently the advanced economies group (mainly Europe, USA and Japan) is still having difficulty shaking off the long term debilitating effects of the 2009 recession and its problematical aftermath, with adverse implications for seaborne trade. Until there is a stronger import purchases trend in these countries, world seaborne trade’s great reliance and concentrated focus on China will persist.

Bulking up in Africa: China inflates seaborne minerals export trade

by Richard Scott

Visiting Lecturer, Greenwich Maritime Institute and MD, Bulk Shipping Analysis

Africa’s profile as an exporter of dry bulk commodities is rising. Responding to growing import demand from China, India and other buyers in the past decade, many new African suppliers have entered the market. Seaborne dry bulk exports by countries in Africa now exceed 200 million tonnes annually, about 5% of the global total, and further growth is predicted over the years ahead. Expansion has been especially notable in the iron ore and coal trades, the focus of this article.

Seaborne exports growth from Africa benefits the global shipping industry in two ways. Larger volumes moving create additional employment for bulk carriers, many of which are operated by independent shipowners. Also, because a large element of new commodity supply is coming out of West Africa, destined for Asian receivers, long-haul voyages amplify the extra cargo-carrying (deadweight) capacity needed.

There is a remarkable historical precedent. Around fifty years ago, back in the 1960s, Africa rapidly became much more significant as an exporter when iron ore deposits were opened up in several West African countries, mainly to supply the European market. This trade subsequently diminished and was overtaken by the emergence and eventual dominance of South Africa as the continent’s chief iron ore and coal exporter. The current phase starting in the past few years represents, partly, a reprise of earlier events in West Africa, accompanied by some new developments elsewhere.

A steely embrace

For most of the past ten years coal, from South Africa, was the largest dry bulk cargo export movement originating in the African continent. But in 2013 Africa’s iron ore exports, which had been rising, especially in the five years since 2008, became the largest element. Estimates point to last year’s iron ore total reaching about 91mt. South Africa’s contribution comprised more than three-fifths. The remainder consisted mainly of shipments from Mauritania plus the rapidly expanding resumed exports from Sierra Leone and Liberia.

A large proportion of iron ore exports growth reflected China’s expanding requirements amid rapid steel production increases. During the five years period from 2009 to 2013, Africa’s annual ore exports total increased by 49mt. In the same period African cargoes transported annually to China rose by over 48mt, based on official Chinese import figures. This relationship clearly demonstrates the significance of China for the development of African trade. Although South Africa was the main origin of iron ore purchases by Chinese buyers, supplying 43mt last year, increasing volumes were bought from Mauritania, reaching 9mt in 2013. During last year and the preceding year, Sierra Leone became a much more important supplier to China, with the annual quantity surging to 12mt in 2013. Smaller volumes in the past twelve months were derived from Liberia (just over 1mt) plus a minor 0.2mt from Guinea.

Iron ore exports from South Africa more than doubled in the past ten years. From 23mt in 2003, the total rose to 58mt in 2013. The largest part of this growth occurred within the past five years, reflecting greatly increased volumes purchased by Chinese buyers. Ore deposits are mainly located in the Northern Cape Province, where Kumba Resources’ Sishen mine is by far the biggest. This mining area is linked by a railway, 860 kilometres in length, to Saldanha Bay port north-west of Cape Town, which has a terminal (operating since the mid-1970s), designed for capesize bulk carriers.

The ramping up of iron ore exports from West Africa within the past few years is particularly noteworthy. Mauritania’s shipments showed gradual growth over the past decade. Liberia and Sierra Leone, by contrast, remained absent from the international market until 2011 when they both resumed participation on a minimal scale; then there was a rapid building up of sales over the next two years.

In Mauritania, sales historically were focused on Europe’s steel industry, involving a relatively short-haul sea voyage implying lower transport costs compared with more distant sources. Since the mid-2000s a changing emphasis towards Asian markets resulted in the share of long-haul shipments from Mauritania growing. Although the total exported by state-owned iron ore miner SNIM increased only slowly to 13mt in 2013, volumes shipped to China rose very strongly, resulting in China becoming by far the largest customer. This growth was assisted by Nouadhibou port’s recently enlarged ability to load capesize bulk carriers (typically 180,000 deadweight tonnes capacity), often the most economical vessel size for ore trades.

Liberia’s iron ore production ceased during the civil conflict, which persisted from 1989 for fourteen years. In September 2011 global steel producer ArcelorMittal restarted ore exports, when a 63,000 tons panamax size shipment was loaded at Buchanan port. As volumes from the Yekepa, Nimba mine rose, an offshore loading facility for capesize bulk carriers was subsequently introduced. Then, at the beginning of this year, shipments resumed from the long-closed Bong mine. New operators China Union (part of Wuhan Iron & Steel), a majority shareholder in Bong, plan to move 50,000 tonnes monthly through 2014 to China from a new pier at the port of Monrovia.

Also in this mineral-rich corner of West Africa, Sierra Leone’s iron ore mining has come back to life vigorously. A 50,900 deadweight bulk carrier departed from the port of Pepel in November 2011 carrying an ore cargo, reinstating another long-defunct operation. Mining company African Minerals has installed a capesize transshipment facility at Pepel to serve its Tonkolili mine. Another mining company, London Mining, began exporting from its Marampa mine in 2012, utilising river barge movements and a transshipment operation at the port of Freetown.

A curious venture

All these three West African countries – Mauritania, Liberia and Sierra Leone – have plans to greatly expand iron ore production and exports over the next few years at least. Another project, regularly making newspaper headlines, is the plans to develop a vast iron ore deposit contained within the Simandou mountain range of Guinea. This project, which could eventually yield up to 100mt of high-quality ore annually for foreign markets, has seen controversial ownership changes. One prominent problem for the developers is the proposed mine’s remote location, requiring construction of a 650 kilometer railroad through difficult terrain to the port of Conakry. The total cost has been variously estimated at $18-20 billion, including mine infrastructure, building a new railway, plus developing the port to handle large ships.

The renewed prominence of the name Simandou resonates with events about fifty years ago. During the early 1960s, iron ore was being produced in Guinea at a deposit about five miles from Conakry and exported to Europe, mainly to the United Kingdom. The Guinean government decided to purchase a new bulk carrier, intending to employ it in the ore trade from Guinea to the UK. This story is told by Iain Harrison, founder and chairman of shipowners and managers Harrisons (Clyde) Ltd, in his fascinating history of the family company, entitled ‘A Curious Venture’. A bulk carrier of 15,000 deadweight tons named ‘Simandou’ was ordered from shipbuilders Scotts of Greenock and delivered in 1963. Harrisons arranged the deal and were appointed managers. But a long term contract for employment in the intended iron ore trade proved unobtainable, and so the ship was used in open market dry cargo trades around the world.

A generation game

Africa’s coal exports scene has been dominated by South Africa. But the South African trend over the past ten years was fairly flat, as various influences restrained sales despite robustly growing global import demand. Supplies from South Africa mainly comprise steam coal, chiefly used in electricity generation. A small proportion, less than 2 percent, of exports is coking coal used by the steel industry. After totalling 71mt in 2003, there was a dip in the 2008 and 2009 period down to 63mt annually, before a recovery to 74mt in 2013. During this period, emphasis switched away from European destinations towards faster growing Asian markets, especially India, and also China.

Although South Africa is ideally situated to supply both Atlantic and Pacific markets, this advantage was not exploited to maximum benefit in recent years. Most coalfields are located in the country’s north east, and are linked by rail to the principal coal loading port of Richards Bay, on the east coast north of Durban. This port has been expanded greatly to enable huge volumes to be handled, theoretically now 91mt annually, but the higher capacity remains under-utilised. Lack of strong growth has been attributed to inadequate rail transport connections with the coalfields, and also to insufficient mining capacity, together restricting sales.

While South Africa’s coal exports are much larger in volume than exports from other African countries, developments elsewhere in the past few years have often attracted a far greater degree of interest. This characteristic particularly applies to Mozambique, where the challenges for producer exporters could be described as tough, similar to those faced by some new iron ore shippers in West Africa. Mozambique, and also Botswana, possess huge deposits of good quality coal, but developing the infrastructure (railroads and ports) required to enable access to international markets is a hugely expensive and lengthy process.

Coal mines in the Tete province of Mozambique, where coking as well as steam coal grades are available, started exporting small quantities in 2011, leading to more substantial exports of about 3mt in 2012. Brazilian mining company Vale started producing at the Moatize mine in 2011, transporting coal along the 575 kilometre Sena railway to Beira port. Anglo-Australian mining company Rio Tinto began producing at the Benga mine in 2012. Last year, a further increase in the country’s exports, reportedly to about 5mt, was seen.

Expanding the capacity of the existing rail route, and building a new route, will enable more coal to be exported from Mozambique. The Sena railway is being upgraded from a maximum 6.5mt annually to 20mt, and the handling capacity at Beira is being raised. A new 912 kilometre line carrying coal through Malawi to a new deepwater loading port at Nacala in northern Mozambique is due for completion at the end of 2014, with potential for carrying up to 18mt exports.

Problems associated with developing mineral resources for export were highlighted by a news item at the end of July this year. The Financial Times reported that Rio Tinto had finalised the sale of its Benga coal mine and other Mozambique coal assets, to an Indian state-owned company, for $50 million. This price tag is only a small fraction of the $3.7 billion originally paid by Rio Tinto in 2011 for the Riversdale company owning these assets, described by the FT as a “disastrous acquisition.” The logistical challenges of transporting coal from Tete to the coast, and a reduced estimate of recoverable coking coal volumes had been identified earlier as key problems, amplified later by the adverse impact of sharply lower international prices.

Maritime momentum

Looking at how the sea trade scene as a whole has been evolving, the pull of increasing demand from Asian markets, in particular China and India clearly has been a crucial factor stimulating and underpinning Africa’s dry bulk commodity exports growth. Assuming that this influence remains favourable over the years ahead, further expansion in a number of trades seems predictable although timescales and volumes are harder to estimate precisely. Large-scale iron ore and coal mining projects are under way in several countries already, as we have seen, and more are planned, together with related infrastructure developments, aimed at expanding foreign sales.

The sheer magnitude of the task of organising minerals movements, from inland locations to coastal loading ports, for onwards sea transportation to foreign markets, has sometimes been daunting. For several projects the costs are proving almost prohibitive. This problem is, of course, related to commodity prices obtainable on the world market. If prices are high enough, projects with even excessive costs can prove profitable. But recently iron ore and coal prices have fallen steeply from peak levels as huge additional relatively low-cost supplies become available around the world, resulting in greater challenges for some developing African projects.

International seaborne movements of dry bulk cargoes originating in African countries are not entirely confined to iron ore and coal. These two commodities have seen probably the most impressive developments and export growth in the past decade, but others are significant. Among minerals, bauxite and its processed form alumina, especially from Guinea is a key element, while phosphates from Morocco is another prominent example. Altogether, annual mineral exports by sea from Africa have grown by about 50 percent during the past ten years, to an estimated total now exceeding 200mt, as mentioned earlier. This expansion has raised the continent’s status in the global shipping market. It has been reflected in the much higher deadweight volume of bulk carriers employed in trades, many involving long-haul routes, beginning in ports in West African and southern African countries.

China moves oil rig from dispute areas with Vietnam

China says the oil rig that sparked a major diplomatic row with Vietnam by drilling in disputed waters has finished work and is being removed.

In a statement, China National Petroleum Corp (CNPC) said it would now assess the data collected by the rig.

China moved the rig into waters near the Paracel Islands – which Vietnam also claims – in May.

The row over the rig led to clashes between ships from the two nations and major anti-China riots in Vietnam.

Vietnam’s coast guard told Reuters news agency that the rig was now moving away towards China’s Hainan island.

Coast Guard Chief of Staff Admiral Ngo Ngoc Thu said the rig had been moving since late on Tuesday. A senior fisheries official also confirmed that the rig was under way.

The news that the rig was moving came in a CNPC statement carried by China’s state-run Xinhua news agency.

“Signs of oil and gas were found in the operation,” Xinhua quoted the statement as saying, and CNPC “will assess the data collected and decide on the next step”.

China moved its Haiyang Shiyou 981 oil rig into South China Sea waters west of the disputed Paracel Islands in early May, an action the US described as “provocative” and “aggressive”.

Government ships from China and Vietnam then clashed there on several occasions, bumping and exchanging water cannon fire as Vietnam sought to block Chinese drilling operations.

Vietnam also saw three days of anti-China unrest during which angry workers targeted foreign-owned factories in some areas, leaving at least two people dead and dozens injured. Several factories were burned down or damaged.

Both nations claim the Paracel islands and in 1974 fought a brief but bloody war over them.

The introduction of the rig came amid broader tensions between Beijing and South East Asian nations over the South China Sea.

China’s maritime territorial claims overlap those of several of its neighbours and in recent years it has sought to assert these claims in a more muscular fashion.

Ties with Hanoi and Manila have been particularly badly hit. The Philippines is currently taking China to an international court over the issue.

A statement by China’s Ministry of Foreign Affairs spokesman Hong Lei on the rig’s removal pointed out that “the Xisha [Paracel] Islands are integral parts of China” and that the drilling operation was in “indisputable” waters which fell within China’s jurisdiction.

China “firmly opposes Vietnam’s unjustified disruptions” to operations, he added.

more details here

A maritime trade showpiece: starring China this year, old Soviet Union yesteryear

BLOG by Richard Scott, 30 June 2014

Seaborne trade in cereals and oilseeds has been centre-stage in the maritime world for a very long time. From early civilisations to the present day, movements of these commodities have been a familiar feature of the international shipping business. In the contemporary era, what is referred to as grain and soya trade is broadly spread geographically, with many importers and many exporters participating. Among individual importing countries, one is now by far the largest and another, now a relatively minor participant, was the largest player three decades earlier.

China has emerged in the twenty-first century as the biggest single importer, mainly of soyabeans although grain (comprising wheat plus corn and other coarse grains such as barley) is becoming more significant. Not so long ago, in the nineteen-eighties, it was the old Soviet Union that was in a similar position of prominence. In those days Soviet grain imports – mainly wheat and corn, accompanied by limited volumes of soyabeans – were an especially difficult-to-predict element of global dry bulk commodity trade, and the sudden emergence of a large Soviet buying programme sometimes had a jolting impact on the panamax bulk carrier market and freight rates.

During much of the 1980s, the Soviet Union’s demand for grain from foreign suppliers often mesmerised attention in both commodity and freight markets. At its peak this import demand comprised a maximum 25 percent of total global grain and soya trade, and was typically a lower percentage. So it was not really dominant but nonetheless was huge, very variable from year to year, famously unpredictable, and the abrupt changes in monthly shipment volumes gave the trade a reputation for highly erratic progress. Over the following decade it fell back to relatively small volumes.

By contrast the current number one purchaser China, which in 2013 comprised just under 20 percent of global grain and soya imports, exhibits steadier momentum. The usual pattern of activity does not have such a massive disrupting effect on markets as that of the previous top importer, thirty years earlier. Moreover, the longer-term trend for Chinese imports is, arguably, clear: substantial evidence points to vigorous further expansion through the 2010s and perhaps beyond.

Shipping’s Kremlin-watchers

In the decade or so prior to the break up of the Soviet Union into its constituent republics at the end of 1991, grain purchasing on international markets was tightly controlled by the state through its buying agency Exportkhleb. Consequently, Kremlin-watching in the grain and freight markets became an art form. Traders, shipbrokers and shipowners were looking for any signs indicating how much imported grain would be needed, the countries of origin, and what were the likely shipment periods. All these elements greatly affected bulk carrier demand and freight rates.

Dry cargo shipbrokers often focused intently on grain. Although by 1980 iron ore already had been for some time the biggest seaborne dry commodity trade, and coal trade volumes exceeded grain volumes by the mid-1980s, grain retained a disproportionately great influence on the freight market. A widely held view, much of the time, was that grain moved the freight market up and down (although this was not always meant completely literally: it was a broad generalisation).

Several factors explained grain’s market-moving ability. Substantial trade volumes typically entered the market abruptly and, often, unexpectedly. Demand for shipping capacity was augmented by longer loading and discharging operations (compared with mineral trades, for example) with slow discharge rates especially evident in many ports. Delays due to port congestion could be a feature. Relatively inefficient use of a ship’s deadweight (a measure of carrying capacity based on weight lifted) was observed, because some grains were ‘light’ and would fill a ship’s cubic capacity without making full use of the weight capacity available.

Also, characteristically, much grain cargo transportation was arranged on a ‘spot’ basis. Movements often did not form steady flows but were ‘bunched’ (due to the nature of grain buying activity with its fluctuations both in timing and geographically). The related predominant single-voyage charters, as the main chartering mode, amplified the impact of the other features.

All these ship demand enhancing and market-moving aspects were prominently displayed in the Soviet grain import trades. But it was the sheer magnitude (relative to other dry cargo movements in that era) of the Soviet Union’s requirements, and the variability of volumes coupled with forecasting difficulties, which magnified the freight market impact.

Conversation among shipbrokers meeting on the trading floor of the impressive old Baltic Exchange building in St Mary Axe, London had often turned to grain trade. One familiar refrain was “people need to eat” and, as if to underline the point, this discussion might be soon followed by a visit to the luncheon room downstairs to consume a healthy repast. Although perhaps simplistic, the identification of necessary food intake based on imported grain, as justification for a positive view of grain trade and its requirement for shipping capacity, was essentially correct. In the second half 1970s world seaborne grain trade had increased by an average 7 percent annually, although in the 1980s growth was much slower, averaging under 1 percent annually.

More sophisticated arguments were discussed in the 1980s when analysts visited the US Department of Agriculture’s sprawling complex in downtown Washington DC. Talk immediately turned to the Soviet Union’s grain imports. Questions included how much would they buy, over what period, and from where. USDA economists wanted to know whether there were any indications of unusual large-scale activity in the charter markets which could give advance clues to the Kremlin’s import programme ahead, and what might be the impact on ocean freight rates. Answers, if there were any, were often hazy. Most of the time, nobody really knew until the anticipated activity actually happened.

Potent performer: the old Soviet Union

What was the extent of Soviet grain imports in the 1980s and why were the volumes so changeable? Annual imports, mainly wheat plus corn and other coarse grains, together with relatively small quantities of soyabeans, varied between 29 million tonnes and 56mt. For six individual years within the decade, the range was fairly narrow, at between 29mt and 35mt. Three years saw 40-49mt. Within these totals, soyabeans comprised about one million tonnes annually.

The Soviet grain imports peak occurred in trade year 1984/85 (a twelve months’ period measured from the middle of one calendar year to the next, commonly used in agricultural trade statistics) when 56mt was recorded. It was preceded and followed by volumes at the low end of the range, 34mt in 1983/84, and 32mt in 1985/86. This surge and retreat, and some other sizeable year-to-year changes during the decade, had a great impact on short-term demand for bulk carriers.

Large annual variations in the Soviet Union’s domestic grain production, and associated variations in state procurements, mainly explain the fluctuations in foreign purchases, although numerous other factors were reflected in import changes as well. When a poor harvest (compared with the previous harvest) was experienced, mainly caused by changed weather patterns, higher imports were arranged in the ensuing twelve months to offset the shortfall. Conversely, a good harvest was followed by reduced imports. For example, a 20mt (20 percent) fall in grain output in the 1984 harvest, reducing the total to 173mt, prompted the following 23mt imports increase to 56mt.

Production variations (both volume and quality) and, especially, severe shortfalls in some years were not entirely due to weather changes. Temperature or rainfall extremes were detrimental, as in most other grain producing countries. Varying degrees of ‘winterkill’ were experienced, while an occasional sukhovey (extremely hot, desiccating wind) sweeping across the Steppelands of Kazakhstan and Western Siberia severely cut grain yields. Additionally, Soviet farm operational efficiency was not always adequate, and sometimes noticeably lacking, partly reflecting state organisational deficiencies. The results were seen in avoidable planting delays and insufficient seed supplies; inadequate fertiliser or pesticide supply, or mistimed application, or both; and farm machinery shortages or breakdowns and lack of spare parts (for tractors, combine harvesters and other machines).

Another clearly observable influence affecting Soviet grain import requirements was rising demand. Consumption as human food remained fairly static over most of the 1980s period, at about 47mt per year. By contrast, consumption within the feed sector (livestock feed) rose by over 2mt annually, or about 20 percent cumulatively during the decade, amid intentions to boost meat and dairy products availability.

On the supply side, an endemic problem was the large amount of the domestic grain harvest wasted as a result of system inefficiencies. Losses before and after harvesting, and in transport, storage and processing, were proportionately much higher than seen in other countries. USDA economists made estimates for ‘dockage-waste’ varying between 16mt and 30mt annually during the 1980s (10-15 percent of gross harvest output). These amounts included allowances for above-average moisture content (exaggerating the grain volume), and extraneous matter included such as weeds, soil and pebbles which also inflated the total, as well as transport and handling losses.

Soviet Union imports were also affected by changes in grain stocks, and in availability of other domestic crops contributing to livestock feed, known as forage crops. Finally, the amount of grain bought from foreign suppliers depended upon hard currency availability (earnings acquired from oil exports were influential), payment terms, international grain prices, and foreign exchange rates. Ocean freight costs were significant as well.

Powerful player: China

Compared with the predecessor prime player the factors explaining China’s emergence, as the top individual importer of grain and soyabeans, have been more transparent. The country has remained largely self-sufficient in wheat, corn and other coarse grains (as well as rice), although there are now signs of greater dependence on foreign supplies. For soyabeans, which comprise the biggest proportion of overall grain and soya imports into China, there has been a strong upwards trend over many years as domestic production remained limited amid vigorously expanding consumption.

In calendar year 2013, China’s imports of grain and soya reached 75mt, comprising approximately one-fifth of global seaborne movements in that category. The annual total had expanded rapidly over the preceding decade, from 23mt in 2003, a cumulative 234 percent rise. Within this total, the dominant soyabeans imports more than tripled, to reach 63mt last year. Moreover, a sustained expansion seems likely to continue in the years ahead, based on evidence of underlying influences.

Consumption growth was an especially notable trend affecting imports. The capacity of Chinese oilseed crushing mills has been greatly enlarged so that imports of soyabeans, the form in which most foreign soya is purchased, can be processed into the required meal and oil output. Soyameal is a key high-protein ingredient of livestock feed, usage of which has expanded amid increasing domestic production of animals providing meat and dairy products to satisfy rising consumer demand and amid large-scale poultry exports. Soyaoil consumption in food manufacturing and home cooking has risen greatly, resulting from growth in these activities.

The strong soyabeans import trend also has reflected lack of growth, and subsequently reduction, of domestic soyabeans production in China. During the period of five years up to and including 2010, soyabeans harvests averaged just over 15mt. The next three years saw a declining trend to about 12mt in 2013. Another factor boosting imports was the government’s policy of building up strategic reserve stocks (responding to growing dependence on foreign suppliers).

China has been successful in raising its wheat, corn and other coarse grains output in recent years, despite limiting factors such as land and water availability. This trend was encouraged by continuing reforms over an extended period, as the agricultural sector experienced a transition from a planned economy to a market based economy. Last year’s harvest, totalling 346mt, was 51 percent higher than average annual output in 2003-2005. But the domestic market for these grains has tightened, amid rising consumption. Consequently imports, while still relatively small, have increased. In 2013 the total reached over 12mt, an almost seven-fold rise compared with a decade earlier.

Beneficiary: the shipping industry

Both these examples – yesterday’s Soviet Union and today’s China – show how, in different periods, a grain and soya importing country became a very prominent maritime trade feature. In each case the impact on the global shipping industry created substantial additional employment for bulk carriers. Much of the trade involved long-distance voyages from loading ports in the USA, Canada and South America (Brazil and Argentina), as well as shorter voyages from elsewhere, further enhancing ship employment. China is expected to remain an expanding user of maritime transport capacity for this purpose, over the decade ahead.

Direct effects on the ocean freight market, especially when sharp changes in chartering activity occurred, were more prominent during the earlier episode. Soviet chartering often had a great impact on market conditions and freight rates for panamax and other size bulk carriers, although not always for extended periods. The intensity of impact varied amid differing tonnage (vessel) supply/demand balances and amounts of tonnage available on the open market for spot employment. In the early- to mid-1980s, a general global tonnage surplus tended to mitigate the positive impact on freight rates of temporary extra trade volumes.

Although the ‘China effect’ from this commodity category in the present era has not been as striking as the earlier ‘Soviet effect’ was at times, it looks set to be longer-lasting. But all predictions should be treated with caution. As the Chinese proverb says: “he who lives by the crystal ball will die of ground glass”. A useful reminder!

Richard Scott

Visiting Lecturer, Greenwich Maritime Institute and MD, Bulk Shipping Analysis

“Learning the Ropes” on Board the Tall Ship Tenacious written by Yifan LIAO

Though it may be commonplace for a ship spotter to see sailing yachts or Thames Sailing Barges moving through the Old Father Thames, a tall ship in the size of Cutty Sark appearing in the narrow basin of the South Quay is still kind of a thrill. Owned by the Jubilee Sailing Trust (JST), the Tenacious, a traditionally-rigged three-mast sailing ship, more than 60 m in length and more than 40 m in height above the waterline, came back to London on 18 May 2014 and stayed in the dock until 25 May. She is alleged to be the largest tall ship flying the red ensign, about 1.5 times larger than her only sister ship, the Lord Nelson.

As part of a joint sail training promotion initiative, the China Sail Training Association (China STA), a partner of the JST, invited Greenwich Maritime Institute (GMI), University of Greenwich UG) to pay a visit to the Tenacious to observe the structure of a tall ship and the particular organisation and operation of her teamwork. Four UG members, Professor Chris Bellamy, Director of GMI, Dr Minghua Zhao, Director of China Maritime Centre which is part of GMI, Mr Yifan Liao and Captain Pengfei Zhang, both CMC members, embarked on the marvelous barque in the afternoon on 19 May, 2014.

The Tenacious is the second tall ship built by the JST to meet the increasing demand for sail training. Besides the permanent crew (consisting of the shipmaster, deck officers, engineers, medical purser, cooks, etc), the Tenacious was designed to accommodate some 40 trainees (the voyage crew) as well. This function implied that the structure of the accommodation would have to be much more complicated than a conventional cargo ship. As a result the ship was constructed in a very special way. After the keel-laying ceremony taken place on 6 June 1996, during which HRH the Duke of York hammered golden rivets into the planks, the hull was nevertheless constructed up-side-down and then turned to the upright position for outfitting. She was eventually launched on 3 February 2000 and christened 6 April 2000.

While showing the GMI/CMC delegation around, the duty officer illustrated how to set sail with joint effort, what individualised watching responsibilities of the crew are and what facilities are available to help people with restricted eyesight or wheelchair users. In the Accommodation, Minghua noticed a plaque with the tricky word “Heads” hung on the door of a compartment. This is virtually a very traditional seafaring jargon stemming from Nelson’s “golden age of sail”. Undoubtedly, it is only on a sailing ship as such that everyone could smell a real salty taste of the sea everywhere, – a memory of the hardship, courage, devotion, comradeship and pride that our ancestors had once experienced in their sailing lives. To those who are still perplexed with yet interested in the meaning of this sailor’s expression, it is recommended to refer to Roy & Lesley Adkins’ “Jack Tar” (at P. 140) for detailed explanation or to go straightaway to the bow of our neighbouring Cutty Sark to see the self-explanatory facilities inside the similar chambers.

The Tenacious provides equal access to all people of mixed physical ability, able or disabled, young or aged, male or female, with or without seafaring experience. The sea-going duration varies from one day to several weeks, depending on the length of the particular sea leg, in which the intake is involved. Unlike professional nautical skill training, the highlight of the experience in going to the sea on board the Tenacious is to learn how to work efficiently together with other people with diversified backgrounds and how leadership is shaped. To the young generation who are brought up in the “greenhouse” without exposure to the sea, it is arguable that, as far as you can overcome the challenges of the voyage in collaboration with your comrades, you will be able to survive all ordeals throughout the rest of your lifetime.

JST is planning to send their tall ships to explore the South Pacific Ocean in the second half of this year (2014) with the hope to visit China in the return voyages, whilst the China STA has registered to take part in the Falmouth to Greenwich Regatta in September 2014 to inaugurate their enterprise in China, – the only major maritime nation in the world that has yet to possess its own tall ship. Evidently GMI/CMC are the unrivalled partner to support these sail training events. With the support of the China STA and the Royal Borough of Greenwich and the strong recommendation from Dr Minghua Zhao, one Chinese postgraduate student from GMI’s Maritime History Program has joined the voyage crew for the Falmouth-Greenwich passage and undertaken to steer the celebration at the destination as a goodwill gesture to the proposed maritime adventure. Dr. Zhao is also elaborating a promotional plan for the voyage to be executed through her networking in China. There remains quite a lot of work to be done by our GMI/CMC crew to broaden the horizon for the tall ship world.

Exclusive short course on China’s seaborne trade and maritime defence

Thursday 11th September 2014

This short course is organised with the support of the China Maritime Centre and will be led by the Centre’s Director Dr Minghua Zhao, international shipping analyst Richard Scott and naval defence specialist David Wilkinson.

The course will investigate China’s rapid growth in seaborne trade of all types and the impact upon global maritime business; it will also examine the recent history of the Chinese People’s Liberation Army Navy (the PLAN) in the light of American and Chinese concerns.

What will you study?

The key topics covered will be:•China’s Cargo Trade: attaining global giant status
•China’s Oil and Gas Trade
•The People’s Liberation Army [Navy] (PLAN): The rise of capability and ambition

Location and Duration of the Course

This course will take place from 9.30am – 4.30pm on Thursday 11th September 2014 at
University of Greenwich, Queen Anne Court, Old Royal Naval College, Greenwich, London, SE10 9LS.

How to Apply

The cost of the course is £90 per person and will include course materials, lunch, refreshments and a certificate of attendance.
All places must be booked in advance by Sunday 31st August 2014. Please use our booking website http://tinyurl.com/qebczo3

China’s rising energy imports: boosting global seaborne trade

Shipowners around the world have greatly benefited from China’s huge appetite for energy commodity imports, often involving long-distance voyages, over the past decade. Amid rapid expansion of economic activity and industrial output, China needed to supplement domestic energy resources with imported supplies, on an ever-increasing scale.

An optimistic view points to this strong upwards trend continuing. But how realistic is that prospect, in the light of accumulating signs indicating slowing economic growth in the years ahead? And what will be the impact of plans to enlarge the role of China-owned ships within these trades?

Seaborne imports of coal, oil and gas into China, the main energy commodities received, are estimated to have reached about 620 million tonnes in 2013, based on calculations by Clarksons Research and Bulk Shipping Analysis. This massive total, comprising about 15 percent of all world seaborne trade in these categories, resulted from fast expansion in the past ten years. From about 130mt in 2003, the total almost doubled by 2008 and then more than doubled in the next five years. The annual increase last year apparently was about 9 percent.

Among the commodities, coal has been the star performer. China’s imports by sea of steam coal (used mainly in power stations but also in other industries) and coking coal (used in the steel industry) exceeded 300mt last year, growing from a small 10mt ten years earlier. Steam grades currently comprise roughly three-quarters of the coal volume. Seaborne imports of crude oil and oil products (refined oil) are almost as large, reaching over 290mt in 2013, more than doubling over the decade. Gas imports are much smaller, but growing quickly. The largest category of gas imported by sea – liquefied natural gas (LNG) – rose from nil a decade ago, to reach about 18mt last year. Imports of liquefied petroleum gas (LPG) total around 3-4mt annually.

A vast energy market

With a population of 1.35 billion people, the world’s most populous country, and a very rapidly growing and industrialising economy over many years, China’s demand for energy has risen enormously. Among the different contributors, coal is dominant, supplying about two-thirds. Oil is the second largest, at under one-fifth. The remainder is comprised of mainly hydro-power and natural gas, accompanied by nuclear power and renewable sources.

The largest portion of energy consumption consists of power stations generating electricity. These power plants are predominantly coal-fired, but alternative fuels used are gas and uranium (nuclear generation), supplemented by hydro-electricity. Generation from renewables, especially wind, is becoming much more significant. Several other industries also use steam coal. In the steel industry mills based on the blast furnace method producing pig iron, for conversion into steel, consume coking coal. The main contribution of oil is within the transport fuel market – road vehicles, aircraft and ships.

A large part of China’s market is supplied by domestic energy producers – coal mines, and oil and gas fields. Home production of the three fuels has increased over the past decade. But demand from consumers rose more rapidly than producers were able to raise their output. Rising imports trends resulted.

Coal is produced on a gigantic scale in China, the world’s largest producer (as well as consumer) of this energy source. Last year’s output was about 3.7 billion tonnes and although only slightly above the previous year’s figure, it was double that seen ten years earlier. The country’s remarkable economic development has been underpinned by coal, but resulting pollution has led the government to re-evaluate its contribution and to encourage use of alternative, cleaner, fuels.

Domestic crude oil production has also risen, reaching an estimated 213mt in 2013, about 25 percent higher than the volume seen a decade earlier. Most of China’s output is derived from mature fields where it has proved difficult to improve yields. Elsewhere, both onshore and offshore in coastal waters, extra oil production is evolving positively. Currently, the natural gas production sector is much smaller, although output has more than tripled in the past ten years, reaching an estimated 115 billion cubic metres in 2013. This upwards trend is being strengthened by the official policy to promote gas consumption. A small but growing contribution is obtained from shale gas deposits.

Adding to the positive impact on coal import demand, of a shortfall between the amount consumed and the amount produced, were more specific influences. Coal movements over long distances (from mines located mainly in the north, to consuming areas in the south or to the coast for onward transhipment) have been constrained by rail transport capacity and freight charges. Imports became even more competitive when international prices and the delivered cost (including ocean freight) was below domestic prices. Limited volumes, in domestic mines, of the high-grade coking coal used by the steel industry also boosted imports. Conversely, rising land movements from Mongolia were partially offsetting.

Huge imports of oil, gas and coal

China’s need to secure increasingly large volumes of the main energy commodities, from foreign suppliers, has been a great advantage for the global shipping industry. Employment opportunities for bulk carriers, tankers and gas carriers have mushroomed so much that, in all these trades, Chinese import demand is one of the principal influences and a major focus of attention for shipowners and operators.

A key question, therefore, arises. Will this favourable pattern persist, and to what extent, not only in the immediate future but further ahead? Given that, arguably, there are no other signs of growing import demand for these energy commodities around the world of a similar magnitude to that of China, the significance of the answer is crucial for shipping markets. What we can, perhaps, foresee is a somewhat mixed picture evolving, with strong positive elements.

Assumptions about China’s economic growth, and the pattern of its components, are a vital aspect. In both 2012 and 2013, gross domestic product (GDP) increased at a 7.7 percent annual rate, compared with an average 10 percent growth in the previous twelve years. An extended slowing trend is almost universally expected by forecasters, but opinions vary about the pace.

Prospects for seaborne oil imports are widely seen as promising. Consumption of oil in China is growing rapidly, especially in the transportation sector where surging road vehicle numbers are boosting demand for motor gasoline and diesel oil, a trend which is expected to continue. In a recent report Australia’s Bureau of Resources and Energy Economics (BREE) emphasised that increasing household incomes are likely to enable a rising proportion of Chinese families to purchase cars, substantially adding to fuel usage. However, a partial offset is envisaged: steps being taken to lower the economy’s energy-intensity by improving the efficiency of energy use, and also by encouraging consumption of alternative fuels.

Expansion of oil refining capacity, at coastal locations, is another clear sign pointing to strongly advancing seaborne crude oil imports. Further large capacity additions are scheduled during 2014, following last year’s increase. Moreover, China is implementing plans to substantially expand both strategic (state-owned) and commercial crude oil reserves, and new strategic inventory tankage is opening this year. But a proportion of the incremental quantities required will be derived from domestic production. And imports are not entirely delivered by ship: pipeline connections with adjacent countries Kazakhstan and Russia are alternative, land-based routes. Increased refinery capacity may both restrict imports of refined oil products and boost exports.

The outlook for seaborne imports of gas also seems bright. China’s natural gas consumption is set to grow vigorously, with added support from the government’s intention to encourage usage in preference to other hydrocarbons. As well as increasing domestic production, pipelines bringing gas from neighbouring countries, including the huge-capacity pipeline linking China with Myanmar which opened in 2013, will contribute large supplies. But nine LNG terminals at ports are already operating, and a further five are under construction, adding justification for expecting a strong upwards trend in seaborne imports, as emphasised in a recent report published by the US Energy Information Administration.

Overshadowing this view is shale gas. If China’s known gigantic reserves can be developed to ramp up production quickly on a colossal scale, then all other energy consumption and seaborne import predictions for fuels may be proved invalid. This scenario seems unlikely to happen in the near or medium-term future. Exploitation of shale gas is problematical in China. The geology is much more complicated than in the USA, where shale gas has been developed rapidly, requiring the drilling of many more wells. Expertise and equipment on the scale required for truly massive exploration and production could remain limited in China for some time, while the large water supplies also needed are not always available. Moreover, the essential pipeline connections for distributing the gas nationwide are not yet in place.

The prognostications for seaborne coal imports into China are more hazy. Some forecasts a few years ago indicated a strong expansionary trend continuing for many years. That view has proved correct so far, but there are now much greater uncertainties surrounding the outlook. The Chinese government’s intensifying emphasis on shifting energy consumption towards cleaner fuels is prominent, amid a slowing economy. This policy focus could reduce the large volumes (60mt in 2013) of low-grade, highly polluting lignite which is imported mainly from Indonesia. Also, an intention to make the economy’s capital investment spending and infrastructure-building a lower priority, implies that the heavy industry with high energy usage supplying materials such as steel will not be growing as quickly as seen in the past.

These prospective changes have implications for power stations, steel mills and other industries using coal. Although the balance of factors still, arguably, suggests that further growth in China’s seaborne coal import demand is a realistic idea for the years ahead as a trend, the pattern of annual progress may not be steady and could be subject to large variations.

Another feature of shipping demand related to energy commodity imports into China is the trade distances involved. Currently, large cargo volumes are seen on long-haul routes, but there are many examples of short-haul routes as well. Middle East countries together are the largest oil supplier, while Qatar alone supplies a high proportion of LNG imported. Seaborne crude oil imports from West Africa (especially Angola), Venezuela and Russia are prominent. Gas is imported also from Australia, Indonesia, Malaysia and other countries. Within the coal segment, Australia and Indonesia are the biggest suppliers, accompanied by Russia, Vietnam, South Africa and others. Any changes in these patterns affect tonne-miles and required shipping capacity.

Promising signs for shipping

This analysis suggests that the clearest indications of future growth, in China’s imports of energy commodities, during 2014 and probably for an extended period, are visible within the crude oil and LNG trades. These commodity purchases seem set to continue increasing strongly despite an envisaged slowing of the economy’s growth rate. There is some justification also for optimism about further coal imports expansion, but the reasoning is more tenuous, especially given the government’s focus on restraining industrial pollution as a means of improving the environment and air quality.

Finally, how much of this increased cargo volume will be carried by China-owned tonnage? Many additional bulk carriers, tankers and gas carriers are joining the fleets of shipowners based in China. Orders for newbuilding vessels listed by Clarksons Research, mostly scheduled for delivery by the end of 2016, amount to a large volume. Among these, Chinese shipowners at the beginning of March this year were awaiting delivery of 38 capesize bulk carriers totalling 8m dwt; 27 VLCC (very large crude carrier) tankers totalling 8.2m dwt; and 6 VLGCs (very large gas carriers) totalling 1m cubic metres capacity. Numerous other ships were on order.

The China-owned share of the global fleet participating in energy commodity import trades has been growing strongly, and seems set to continue enlarging. Nevertheless, shipowners of other nationalities probably will be carrying larger quantities of expanding trade volumes, even if their percentage share is diminishing.

Richard Scott

China Maritime Centre, GMI and MD, Bulk Shipping Analysis

A Story Dated Back to 1877: recollecting the maritime nexus between China and Greenwich

In October 1877, six odd-looking young Chinese “clad in richly figured flowing garments” wandered in the streets of Greenwich, with their long pigtails swaying behind their half-bald heads. Their destination was the Royal Naval College (RNC).

The six Chinese soon left Greenwich in a year or two. The RNC itself was amalgamated into the Joint Services Command and StaffCollege in 1998, leaving GMI to continue its “maritime history of Greenwich and connections with the Royal Navy” on the same ground. The site is now renamed with an adjective “Old” put in front of “Royal Naval College”, suggesting a strong nostalgic aura. All visible or physical remainders of these Chinese visitors seem to have vanished in the abyss of centuries of history as if they had never been to Greenwich. But –

137 years later, four ordinary-looking Chinese came to the same place. They were so similar to other Chinese tourists now crowded around the World Centre that no one would ever pay them a glance, until they set up their tripod, raised their huge round reflectors and operated their shooting “cannons” (specialist cameras). They were a TV crew invited by Greenwich Maritime Institute (GMI) and China Maritime Centre (CMC) to retrospect the adventure of the six Chinese in the RNC. They were thus made explorers of a piece of long overlooked history of the Sino-Anglo maritime interactions.

The sky was unusually clear all the time – in late January. The tranquility of Greenwich campus was broken only by occasional cries of jolly seabirds. The sublime buildings of the ORNC, the thin prime meridian line between the east and the west hemispheres and the maritime tide regularly running through the Greenwich U-turn of the Old Father Thames idly enjoyed sunshine like taciturn aged sea dogs in the Greenwich Hospital. Veterans were reluctant to open their toothless mouths to strangers, especially after experiencing the vicissitude of the Royal Navy and the British Empire on which the sun never set.

But GMI and CMC knew their forefathers’ secrets behind the mist of history, – their ditty bags had been thoroughly searched for numerous times. They confirmed to the TV crew that the six young men from China were early foreign naval students trained in the RNC. Their names are Yan Fu, Fang Boqian, He Xinchuan, Lin Yongsheng, Ye Zugui and Sa Zhenbing.

They were also the earliest overseas students ever dispatched by Chinese government in the 5k-year history.

With the time-honoured centralised, self-sufficient, looking-inward, complacent Confucian social structure, Chinese authorities and commoners still took for granted in the mid 19^th century that the Celestial Empire was the centre of the cosmos (interestingly Greenwich claims so now!) and that it would be a special bounty granted to its vassal states if their literati subjects were admitted to be fostered with and benefit from the unchallengeable superiority of the only civilised nation. Never had they considered from a reverse angle. They did not perceive how far they had been left behind by the achievements of the Industrial Revolution taken place in Britain until they were unexceptionally defeated by invading guns and warships. While the Qing government eventually suppressed the Long-haired Rebels sweeping more than half of China’s territories with the assistance of modern weapons mainly provided by British mercenaries, a maverick decision was immediately made to study the “sophisticated western science and techniques”. Imaginably this initiative greatly toppled Chinese people’s traditional confidence in their cultural supremacy and encountered fierce critiques. Nevertheless, a naval and shipbuilding enterprise (comprising a “ForeSchool” engaged in shipbuilding education, an “AftSchool” in naval navigation and associated shipyards to construct steamships) was founded in 1867 in Mawei, Foochow, Fujian Province. MaweiNavalCollege retained shipwrights from France and naval officers from Britain to teach its difficultly recruited students including the six ones.

With endeavours rendered by the “foreign” teaching staff, the new-fashioned education proved very successful. The Six graduated together with their fellow students to become the first-generation naval officers in modern sense in China. However, in an era of rapid naval development, Qing government soon realised that the capability to manoeuvre individual warships was far from sufficient. It needed naval officers with modern knowledge and global strategy to command its newly forged fleets and to protect its coastlines. After lengthy consultation between China and the British Admiralty and Foreign Office and subject to “preliminary exams”, the most promising six Chinese naval officers were accepted by the recently established RNC for further training in 1877. They were taught the subjects including mathematics, physics, steam and steam engine, field fortification, etc. In the following decade, more Chinese naval officers graduated from Mawei Naval College were sent to Greenwich for advanced training.

Again, in Greenwich, Royal Naval Officers demonstrated their enthusiasm and professionalism to the Chinese students. On 3 October 1880, a certificate of award was issued by the Qing government in the name of the Chinese Emperor Guangxu (at the age of 9) to compliment John K. Laughton (the then Naval Instructor at the RNC) for his significant contribution to the Chinese naval officers’ successful completion of training courses. People who are interested in the details can approach our neighbouring NationalMaritimeMuseum to see the original award, referring to the Object ID “AAB0519”.

All the earliest Chinese graduates from the RNC later played influential roles in different dimensions in the course of Chinese modernisation.

After transfiguring himself from the President of the later Tianjin Naval School to a great enlightenment thinker in China in the late 1890s, Yan Fu introduced, inter alia, Adam Smith’s leading work “The Wealth of Nations” and Thomas Henry Huxley’s “Evolution and Ethics and Other Essays” to Chinese readers. He stayed in the position of the first President of the “Grand Capital University” (a combination of Ministry of Education of the Qing Empire and BeijingUniversity) until November 1912. Yan Fu’s favourite pupils in Tianjin included a naval officer named Li Yuanhong, later becoming the second President of the Republic of China.

Sa Zhenbing, in his naval career, was promoted to the Commander in Chief of the Imperial Admiralty. He revisited Greenwich 32 years later in company of His Imperial Highness Prince Zaixun to discuss with Admiral President Sir John Durnford of the RNC a rehabilitation programme for Chinese navy. But this was not yet the culmination of Admiral Sa’s success. He was nominated the Prime Minister in 1920. After the Communists took power of China in 1949, Admiral Sa still enjoyed the new government’s respect in the last three years of his life. He was one of the exceptionally prominent statesmen that could have survived all upheavals of three reigns of different natures.

Ye Zugui and Lin Yongsheng were promoted to the rank of Admiral. However, Admiral Lin soon sacrificed his life for his nation in a decisive naval battle. Other RNC trainees later formed a reputable “Fujian/Mawei Alliance” consisting of admirals and senior naval officers tenaciously dominating Chinese Navy until 1945.

Tracing footsteps of these remarkable historic naval images, the TV crew from the other end of this continent arrived on 20 January 2014 at GMI, the successor of the RNC’s maritime history & policy research and education heritage in Greenwich. To make sure that the Chinese guests would be satisfied with the visit and filming, GMI/CMC staff had exercised considerable effort to obtain permits for their access to the Painted Hall and the Chapel of St. Peter and St. Paul (managed by the Greenwich Foundation), the National Maritime Museum, the National Archives in Kew, etc. Dreadnought Library’s specialist librarian of maritime knowledge arsenal Irene Barranco also extended her effective assistance on a very short notice.

In the interview with the director of the documentary programme Ms. Guo, GMI Director Professor Chris Bellamy briefly reviewed the early evolution of British naval education. Then he highlighted the British government’s key considerations to establish a new naval education institution in the home of the Royal Navy in the early 1870s. “Naval officers’ traditional knowledge of navigation and the skills in combating at sea were found not enough at this age”, Prof. Bellamy said, “when dramatic technical development and reshaping of the international political and diplomatic pictures demanded much more reflections of senior naval officers than ever.” Virtually Prof. Bellamy was explicating in his simplified language to Chinese audience the spirit of the RNC’s motto “Tam Marte Quam Minerva” (as much by wisdom as by war).

GMI’s naval historian Dr. Chris Ware was invited to depict, in the corridor in front of GMI’s classroom, the Windsor Castle, QA, a snapshot of major naval forces in the world at a time when steam-powered steel-hull warships were looming to overtake conventional sailing ships. The gross tonnage of steamships registered in the UK would soon surpass that of sailing ships in 1885. Emphasising the particular historic context, Chris continued to illustrate before the video camera the emerging notion of sea power, the interactions between naval force and seaborne trade, the importance of the Royal Navy in formulating new orders of the world after the Napoleonic wars, the influence of naval strategy on shipbuilding technologies, etc. Chinese viewers may particularly be interested in Dr. Ware’s analysis how a continental country could borrow the sophisticated expertise of great maritime power to protect its coastal interests.

Launched on 20 July 2012 in GMI in response to the recent surge of China’s maritime interest, CMC is keen to pull these two maritime powers closer to each other. Despite profuse preparations done for production of the programme, Dr. Minghua Zhao, the CMC Director, happened to be traveling back in China when the crew started their fieldwork in Greenwich. Therefore she authorised Yifan Liao (a GMI/CMC PhD student) to accommodate the crew on CMC’s behalf.

Yifan led a walk around the ORNC campus, showing to Chinese audience the east corner of the north pavilion of King Charles Court, where most lectures for the Chinese naval students were held. Yifan explained, “From the riverside windows of these classrooms, Young Yan Fu and Sa Zhenbing would be able to observe many ships running up and down the River Thames every day. Apart from the courses provided by the RNC, we can imagine how much the Oriental students were impressed by the Victorian achievements and prosperity represented by the powerful Royal Navy and Merchant Navy they saw in Greenwich.” While being asked why he was interested in the history of the RNC and Yan Fu (a domain seemingly irrelevant to his current research), Yifan replied, “The maritime heritage of Mawei and Greenwich is not ancient, remote legend to me. It’s living blood injected into my vein by my Fujian origin, my maritime family and education.”

After filming in Greenwich, the crew moved to Kew and Portsmouth to continue the exploration before they went back to China. It would take another half year to complete the postproduction. This series programme will then be shown by the end of 2014 on CCTV (China Central TV Station) with a nationwide coverage of billions of Chinese viewers. They will for the first time be able to see how the early Chinese naval officers were nurtured with modern science in Greenwich on the screen. GMI and CMC also expect that this documentary will help encourage more researchers and stakeholders to focus on this fascinating story linking Greenwich to China and the past to the future.

Yifan Liao, PhD Student

China Maritime Centre, Greenwich Maritime Institute

After the shipbuilding boom: tough times for China’s yards

Shipbuilding in China has become increasingly a struggle for survival. Shipowners around the world have been much less eager in the past few years to order new vessels, both in China and elsewhere, and consequently shipyards’ orderbooks and production have shrunk. Excess shipbuilding capacity in Chinese yards has become a major problem. Although 2013 has seen a welcome improvement in the order inflow compared with last year’s depressed volume, there seems little chance of a return to the extraordinarily high levels recorded earlier. Even a moderately healthy volume is proving elusive.

The recent history of the Chinese shipbuilding industry has been a fascinating and impressive story. Nothing as spectacular in the country had happened since the fifteenth century building boom. At that time, the massive imperial fleet was being constructed for Admiral Zheng He and his treasure-ship expeditions to south east Asia, Hormuz, the Red Sea and East African coast.

Zheng He’s merchant fleets, built for the seven voyages of up to two years in duration which occurred between 1405 and 1433, consisted of many ships, some of which were very large in comparison with other countries’ vessels of that era. The huge scale of activity required vast shipbuilding capacity and timber supplies. The 1405 expedition was comprised of 62 large treasure ships, 190 smaller vessels, and transported 27,800 men. Other expeditions were of similar size. The biggest ships were much bigger than any produced elsewhere, in fact the largest wooden ships ever built, incorporating advanced designs and technology.

In the modern era, within a very short period since the early 2000s, a massive shipbuilding industry emerged from relatively small beginnings, pushing China quickly to top position globally. Ships are built for Chinese owners, but this industry is heavily focused on the international market. During the first three years of the new millennium, deliveries of all types of vessel from Chinese yards averaged 6% of the world total (based on deadweight tonnes), far below the principal competitors, South Korea and Japan. From this modest contribution China’s global market share rose to a sizeable 23% in 2008 and then almost doubled to an astonishing 43% in 2012. Two years earlier, in 2010, China had overtaken South Korea to become the world’s largest shipbuilding country, measured by deadweight tonnage. In that year and the next, Korea’s output was still higher when measured by dollar value, because Korea produced a larger proportion of more sophisticated, and therefore more expensive, ships. Last year, China’s production became the highest by value as well as deadweight tonnage.

Looking at actual shipbuilding volumes emphasises the dramatic expansion. China’s yards delivered only 3-4 million deadweight tonnes of newbuilding vessels annually in the early 2000s. Growth was then very rapid. The annual total reached 21m dwt in 2008, and two years later the volume had tripled to 63m dwt. This highly impressive performance was achieved partly by expanding existing yards, but mostly by opening new ‘greenfield’ sites, with many new Chinese shipbuilders entering the market for the first time. Over the next two years, 2011 and 2012, output was sustained at slightly greater levels, 68m dwt and 66m dwt respectively.

The orderbook for new ships at Chinese shipbuilding yards reached a phenomenal 221m dwt peak at the end of 2008, according to data compiled by shipping information providers Clarksons. This volume comprised over one-third of the entire worldwide 619m dwt orderbook. In the next three years, as orders were delivered, the China orderbook held up remarkably well, supported by a resurgence of optimism among shipowners, many of whom returned to the newbuilding market to order additional ships. Subsequently, new ordering receded greatly and the Chinese shipyard orderbook was almost halved within two years, falling to 113m dwt at the end of 2012. Since then it has diminished further, although only slightly.

Following the 2008 global financial crisis and economic downturn, and the resulting chronic over-capacity in shipping markets, orders for new ships have been much harder to obtain, both for Chinese builders and their competitors. However, the vast orderbook for new ships already accumulated in China, and therefore huge backlog of work, ensured that output did not immediately plunge downwards after 2008. Over several years that backlog has been drastically reduced and now, newbuilding deliveries are falling sharply.

Shipbuilding output at Chinese yards was dominated by tankers and container ships for a number of years. Then from 2009 onwards a dramatic change in the production profile occurred. As a result of many orders placed by foreign and domestic shipowners during the freight market boom, and afterwards, bulk carriers were built in greatly increasing numbers, becoming by far the largest output category. In 2008 about 22% of China’s newbuilding deliveries of all vessel types consisted of bulk carriers (measured by compensated gross tonnes or CGT, indicating the work content of ship construction). A few years later in 2011 and 2012, bulk carriers comprised well over 60% of vastly higher totals. Building other ship types was still an important activity, since actual production volumes were sizeable.

What factors were instrumental in enabling China’s shipbuilders to achieve such a powerful performance? Low labour costs, and low land costs for many new production sites, buttressed by support from local and national governments, accompanied by abundant availability of finance, were reflected in competitive pricing. Improving management skills, assisting greater efficiency and productivity, also contributed while technological advances and enhanced product quality further boosted competitiveness. The extended period of extremely strong global demand for new ships between 2003 and 2008, followed by a brief resurgence in 2010 before a collapse ensued, provided a strong background for progress.

This year, a contrasting downwards step change in the pace of Chinese shipbuilding activity has been unfolding. Currently, the rapidly shrinking (although still large) orderbook is being reflected in noticeably diminishing output, indicating an annual 2013 newbuilding deliveries total possibly below 45m dwt. Many of China’s shipyards are in an increasingly precarious position, despite an upturn during this year in the inflow of new orders for future delivery. In some cases production has completely ceased, following completion of all contracts, and yards have closed. Numerous other shipbuilders are likely to be facing the same problem sometime in the next twelve or eighteen months, when their work schedule is completed.

The recent ordering upturn has provided a partial respite. After taking only 21m dwt of contracts in 2012, less than one-third of the volume seen as recently as two years earlier, Chinese shipbuilders secured an estimated 37m dwt of new orders in the January to September 2013 period, according to Clarksons. That achievement reflected increased optimism among shipowners around the world about an approaching shipping market recovery, coupled with low and therefore attractively priced deals available from yards for new vessel construction. The improvement suggests that China’s annual total for new orders received this year may be more than double last year’s figure. But a massive surplus of shipbuilding capacity remains an existential problem urgently requiring a solution.

How can these difficulties be alleviated? Earlier this year consolidation of shipyards was being encouraged by the Chinese government, designed to enlarge individual shipbuilding business units as a means of improving efficiency and profitability. Then in early August the government stepped in with additional support. The State Council published a plan entitled ‘Accelerating Structural Adjustment and Promoting Reform and Upgrading of the Shipbuilding Industry’. A radical restructuring is envisaged over the next three years, emphasising reduction of excessive production capacity, and promoting enhanced competitiveness in the world market, partly through more innovation. Specific proposals include reducing reliance on production of less sophisticated vessels (such as bulk carriers) and increasing output of high-tech ships (including gas carriers and container ships) and offshore units (service vessels and drilling rigs).

Clearly also a strong upturn in global demand for new ships would benefit Chinese shipbuilders. As mentioned, there have been signs this year that some owners are expecting a shipping market revival within the next two or three years and are moving to have new and more economical tonnage available at the outset. But, even if a market recovery does occur within that timescale (and many market players remain sceptical about both timing and magnitude), it seems unlikely that all existing Chinese shipyard capacity could be quickly redeployed profitably. So pressure seems set to continue for a major overhaul of the industry.

Richard Scott
GMI visiting lecturer and MD, Bulk Shipping Analysis

Programme of Free Evening Seminars in Maritime Policy, Security and History

Greenwich Maritime Institute holds a range of events, seminars and conferences including the popular Public Research Seminar Series which are held in Greenwich at monthly intervals.

Experts are invited to give a presentation on areas that relate to the three broad themes that the GMI specialises in: Maritime History, Maritime Policy and Maritime Security. Presentations are then followed by questions from the audience. Anyone is welcome to attend these free seminars although advance booking is required via Eventbrite.co.uk.

This year we are pleased to announce a variety of topics such as:

Licensing Private Maritime Security Companies
Navy, Identity & Leisure in 20th Century Britain
Loss of the RB Angus
1412 – The Year China Discovered the World
Designing New Vessels for 21st Century Tidal Thames
Human Rights Considerations in the Maritime Industry
China’s Ship Recycling

GMI Research Seminar Series 2013-14 – Download the brochure in PDF format