[Congressional Record (Bound Edition), Volume 150 (2004), Part 6]
[Extensions of Remarks]
[Pages 7263-7264]
[From the U.S. Government Publishing Office, www.gpo.gov]




        U.S.-CHINA MARITIME RELATIONS AND THE EMERGENCY OF COSCO

                                 ______
                                 

                         HON. JAMES L. OBERSTAR

                              of minnesota

                    in the house of representatives

                       Wednesday, April 21, 2004

  Mr. OBERSTAR. Mr. Speaker, I would like to commend the Federal 
Maritime Commission for its actions on March 31 in granting the 
petitions of three Chinese maritime carriers to provide relief from the 
30-day waiting requirement for reduction of tariff rates of the 
Controlled Carrier Act. These carriers will now be able to make rate 
changes within 24 hours, which is the current market standard for all 
shippers.
  These recent FMC actions, along with the formal signing of the U.S.-
China Maritime Agreement in February, signal that the commitment made 
by both nations to develop closer maritime and commercial relations and 
to open markets is closer to becoming a reality. The increased economic 
cooperation between the United States and China is becoming more 
tangible, as evidenced by the fact that a business in my district made 
its first ever shipment to China this year.
  Mr. Speaker, one of the Chinese carriers whose petition was recently 
granted by the FMC is the China Ocean Shipping Company (COSCO), which 
played an important role in supporting the U.S.-China Maritime 
Agreement. COSCO will soon celebrate the 25th anniversary of the maiden 
voyage of its first ship in the United States in 1979, an event which 
marked the re-establishment of U.S.-China trade relations for the first 
time in 30 years. COSCO was a leader at that time and continues to lead 
today.
  COSCO has transformed itself to become a leading global shipper that 
operates under market rules. Recently, COSCO's CEO, Captain Wei Jaifu, 
gave the keynote address at the Trans-Pacific Maritime Conference in 
Long Beach, California. Captain Wei and COSCO where profiled in a cover 
story by the Journal of Commerce that explained COSCO's goals to expand 
services and eventually to be publicly listed on the New York Stock 
Exchange. Mr. Speaker, in order to share more information with my 
colleagues about COSCO's role in supporting trade with the U.S. and 
globally, I would like to submit the March 22 Journal of Commerce cover 
story for the Record.

             [From the Journal of Commerce, Mar. 22, 2004]

                          COSCO Sets Its Course

                          (By Peter T. Leach)

       Capt. Wei Jiafu is a man who knows where he's going. He 
     should; he's a former deck officer who now is president and 
     chief executive of China Ocean Shipping (Group), China's 
     largest ocean carrier. Wei is what Gilbert and Sullivan might 
     call the model of a modern capitalist, were it not for the 
     fact that COSCO is owned by the avowedly communist state.
       As chief executive since 1998, Wei is steering a capitalist 
     course for COSCO that is designed to accomplish three long-
     term goals, which he discussed in an interview before The 
     Journal of Commerce's 4th annual Trans-Pacific Maritime 
     Conference this month in Long Beach, Calif. Wei said he aims 
     to make COSCO one of the top five shipping companies in the 
     world by doubling the size of its container fleet in the next 
     four years; to expand COSCO's logistics business to provide 
     more revenue balance; and to list the company's stock on the 
     New York Stock Exchange.
       Wei added a fourth goal last week that is raising questions 
     in the industry. In his keynote address to the conference, he 
     called for the establishment of ``a long-term stable 
     development mechanism'' based on fair regulation, cooperation 
     among carriers, and cooperation among carriers, shippers, 
     terminal operators and service providers.
       The fact that his remarks attracted questions from shippers 
     and carriers such as, ``What did he mean?'' indicates the 
     prominence that COSCO has attained in the six years since Wei 
     took over. COSCO's reputation has evolved from that of a 
     rate-cutter trying to elbow its way into the trans-Pacific 
     and Europe-Asia trades into a first-tier carrier whose rates 
     have reached parity with its CYKH alliance partners, ``K'' 
     Line, Yang Ming and Hanjin.
       By contrast, China Shipping Group, COSCO's arch-competitor 
     and one of China's other state-owned shipping companies, is 
     now widely regarded in the industry as a company that is more 
     prone to cut rates. Wei said COSCO currently ranks as the 
     world's seventh, ``or sometimes the sixth,'' largest 
     container carrier, and that China Shipping ranks 10th. Wei 
     predicted COSCO will be among the five largest lines by 2010.
       Though China Shipping is growing faster than COSCO because 
     its container business is emerging from a smaller base, COSCO 
     is ``expanding faster in all segments of shipping,'' 
     including tankers, dry bulk carriers and specialized project 
     cargo vessels, Wei said. He said he was especially proud of 
     two new semi-submersible project cargo vessels delivered last 
     year that were designed to carry and anchor offshore oil 
     rigs, using new technology to pinpoint locations.
       Wei said COSCO and China Shipping compete, but that he does 
     not regard the competition as a ``threat alone'' to COSCO's 
     business. ``We have been trying to establish a new kind of 
     cooperative relationship between carriers.'' COSCO and China 
     Shipping began discussing some kind of ``cooperative 
     relationship'' in 2000, but the relationship has not been 
     defined.
       Both companies are ``100 percent state-owned, so it is very 
     natural that we have the same language,'' Wei said. ``COSCO 
     is always making great efforts to upgrade and strengthen the 
     good relationships between the two companies. We are not part 
     of each other, maybe one day through the stock market.'' He 
     defined this cooperation as vessel-sharing alliances and 
     slot-sharing agreements, the kind of cooperation COSCO is 
     conducting with its CYKH partners. ``Cooperation can benefit 
     COSCO and China Shipping,'' he said. ``Each company has got

[[Page 7264]]

     its own operational competitiveness, but neither of us can 
     cover every corner of the market, so there is the opportunity 
     to cooperate.''
       Wei's polite words about his competitor mask the fierce 
     rivalry that has developed between the companies and between 
     Wei and China Shipping President Li Keilin, whom many in the 
     in-dustry believe has the access to the ears of China's 
     leaders. China Shipping has been expanding its fleet rapidly 
     and is atop the list of new ships on order. It will deploy 
     8,500-TEU container ships in the transPacific this summer.
       Yet COSCO is not standing still. It added seven new ships, 
     with total capacity of 20,000 TEUs, in 2003. It has ordered 
     another eight vessels with a total capacity of 54,000 TEUs. 
     Five of these, totaling 37,500 TEUs, will be delivered this 
     year. Another eight vessels with capacity of 68,000 TEUs have 
     been chartered. This will bring COSCO's total container 
     capacity to 300,000 TEUs by year-end.
       Wei said COSCO's fleet capacity will expand to 320,000 TEUs 
     next year, to 420,000 TEUs by 2007 and to 600,000 TEUs by 
     2010, the year in which he predicts it will join the ranks of 
     the world's top five container lines.
       China Shipping plans to stay hot on COSCO's heels. Its 
     China Shipping Container Lines subsidiary plans to expand its 
     fleet to a total capacity of 500,000 to 600,000 TEUs by 2010. 
     China Shipping's Li has been quoted in the Shanghai press as 
     hoping its container fleet will attain a capacity topping 
     350,000 TEUs by the end of 2005.
       Container shipping is only part of COSCO's business. 
     Logistics is another part that is ``growing very rapidly,'' 
     Wei said. Revenue from COSCO Logistics, established as a 
     separate unit three years ago, increased by what he called a 
     ``surprising'' 50 percent in 2003. ``We are going to expand 
     our logistics business (to) take advantage of the booming 
     Chinese economy and further strengthen our competitiveness,'' 
     Wei said.
       COSCO faces competition in its logistics business from 
     another state-owned company, Sinotrans, which also competes 
     with its container business. The container competition now 
     appears to be easing, because ``Sinotrans has gradually 
     transformed itself into an international logistics provider 
     rather than a global liner operator,'' Wei said. Sinotrans 
     ended its service in the Asia-Europe trade lane in 2002 to 
     concentrate on the trans-Pacific and intra-Asia trades, ``so 
     based on the transformation of the business strategy, its 
     liner business in major east-west trade lanes will not be 
     further expanded in the future.''
       How does COSCO plan to finance all of this additional 
     container capacity and logistics growth? ``I believe getting 
     listed on the stock market is certainly a good choice,'' Wei 
     said. COSCO has listed seven of its subsidiaries in both 
     domestic and overseas stock markets, he said. Two of them are 
     what he called ``blue chip'' stocks. COSCO Pacific became a 
     component of the Hang Seng Index in Hong Kong last year, and 
     COSCO Singapore became part of the Straits Times Index in 
     Singapore this month. Both are the equivalent of the Dow 
     Jones Industrial Index on the New York Stock Exchange.
       The Big Board is also on Wei's radar screen. ``We will list 
     in the U.S. stock markets soon. We want to list our core 
     business on the New York Stock Exchange,'' he said. ``COSCO 
     has a very good reputation, so its listing in New York will 
     be very attractive.''
       China Shipping is planning to take a leaf from COSCO's book 
     by listing the stock of China Shipping Container Lines in an 
     initial public offering on the Hong Kong Stock Exchange as 
     early as May. The IPO is supposed to raise up to $2 billion, 
     though Hong Kong analysts have expressed skepticism that it 
     would reach that amount. The $2 billion estimate appears high 
     for a company that posted losses from its establishment in 
     1997 until it finally earned a profit last year.
       This rapid expansion by Chinese shipping companies comes 
     amid the boom in China's containerized trade. ``China's rapid 
     growth in economy and trade has become the main engine to 
     drive the international shipping market,'' Wei said. China's 
     containerized trade increased by 11 million TEUs to a total 
     of 48 million in 2003, pushing China into first place 
     globally, ahead of the U.S. with 40 million TEUs last year. 
     COSCO forecasts that China's containerized trade will grow by 
     another 5 million TEUs this year.
       Wei is someone who has set and attained goals throughout 
     his career. Born in 1949--the year the People's Republic of 
     China was formed--into a peasant farming family in Jiansou 
     Province, he served at sea from the late 1960s through the 
     early 1980s. He was then named to a senior post at a COSCO 
     subsidiary, Guangzhou Ocean Shipping Co., where he witnessed 
     the initial steps taken by China's then-supreme leader Deng 
     Xiaoping to open the region adjacent to Hong Kong to economic 
     development. He earned a master's degree in shipping 
     management.
       As he rose through the ranks at COSCO, he managed a joint 
     Chinese-Tanzanian government shipping company and 
     subsequently ran COSCO's Tianjin-based bulk shipping 
     division. As chief executive, he is confronting perhaps his 
     biggest challenge: transforming COSCO from a traditional 
     shipping concern into a logistics services provider, a 
     central element of the company's long-term strategic plan. 
     Container shipping, which accounts for more than half of the 
     group's revenue, is affected by the unpredictable and wild 
     gyrations of global freight rates, a reality that has forced 
     COSCO and other companies to diversify into sectors more 
     likely to yield stable and higher margin earrings.
       Wei has a window of opportunity to accomplish this goal. He 
     said he expects cargo demand will stay ahead of the increase 
     in the supply of new ships. ``Looking ahead, the ship order 
     book remains at a moderate level, so the market over the next 
     12 months will be demand-driven,'' he said. ``In the 
     container shipping market, supply will rise by 7 percent this 
     year, and demand will increase by 8 percent, which means 
     freight rates will continue to rise.'' He said demand will 
     stay ahead of supply for the ``next two or three years.''
       But Wei is concerned that the long list of shipbuilding 
     orders will catch up with demand after that and affect the 
     shipping market. ``Therefore, I am obliged to ask everybody 
     in this industry to work together and slow down this 
     unreasonable fleet expansion and keep the market stable.''
       That's what has the industry reading the tea leaves to try 
     to figure out what he meant with his Long Beach speech's 
     references to cooperation. ``I think what he meant is that 
     carriers and shippers have to get together to agree to even 
     out supply,'' said Howard Finkel, senior vice president of 
     trade at COSCO North America Inc. ``We have antitrust 
     immunity; we need to use it better.'' He said one forum for 
     this discussion might be the Transpacific Stabilization 
     Agreement, where carriers and shippers can discuss rates and 
     set voluntary rate guidelines. COSCO plans to accomplish this 
     fourth goal of Wei's, Finkel said, because it is ``determined 
     not to be the wild man out.''

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