Xu Lirong: Globalization and digitalization will
Although shipping companies are facing the highest risk of bankruptcy in a decade, Xu Lirong believes that from the perspective of the capital market, there are no signs of large-scale bankruptcy and restructuring.
On the evening of June 1, 2020, the much-anticipated 'Overall Plan for the Construction of Hainan Free Trade Port' was announced. The 21st Century Business Herald interviewed Xu Lirong, chairman of COSCO Shipping Group, who participated in the construction of Hainan Free Trade Port, for the first time and explained the free trade port in detail. The opportunities and challenges presented.
Facing the changes brought about by the new crown epidemic to the world economy and logistics industry, the head of the world's largest shipping company pointed out that although the epidemic has had an impact on the port and shipping industry, it has also accelerated the process of digital development of the port and shipping industry. He believes that in the post-epidemic era, globalization and digital transformation will become important characteristics of the development of the shipping industry.
Although shipping companies are facing the highest risk of bankruptcy in a decade, Xu Lirong believes that from the perspective of the capital market, there are no signs of large-scale bankruptcy and restructuring.
In-depth layout of the free trade port
'21st Century': How should the public and investors understand the opportunities that the free trade port policy brings to COSCO SHIPPING?
Xu Lirong: The construction of Hainan Free Trade Port will promote regional economic development and promote international economic and trade exchanges, thereby driving the growth of shipping demand and benefiting the development of the shipping industry in the long run. At the same time, Hainan implements a highly free, convenient and open transportation policy and establishes a more free and open shipping system, which creates historical opportunities for COSCO SHIPPING Group to make good use of relevant policy advantages and continue to enhance its competitiveness.
COSCO SHIPPING will take the opportunity of building a free trade port in Hainan, give full play to its professional capabilities in fleet routes, port operations, product innovation, management systems, etc., make full use of the policy advantages of the free trade port, and further improve the global network layout. Improve the comprehensive service capabilities and service levels of the supply chain of shipping, ports, and logistics.
'21st Century': According to the actual situation, the geographical location and hinterland economy of Hainan port are not as good as that of Hong Kong and Guangshen. How do you view the growth prospects of Hainan port throughput? How do you consider the risks and long-term prospects of this investment? Apart from building additional routes in Hainan, what else can your group do with the opportunity of the free trade port policy?
Xu Lirong: It should be noted that Hainan Province is the outlet of the new land-sea channel in western my country and an important connection point between China and the ASEAN region. On December 29, 2018, COSCO SHIPPING opened the 'Hainan-ASEAN (Singapore)' liner route, which opened up a direct route from western China to Singapore through Yangpu South, and also opened up China’s coastal port cargo to pass through Yangpu The new channel for transit to Southeast Asia officially announced that Hainan Yangpu Port has become the new fulcrum of the 'new western land-sea channel'.
In the past two years, COSCO SHIPPING has continuously accelerated the laying of its route network centered on Yangpu. In 2019, the Group relied on Yangpu Port to lay three new domestic trade and five foreign trade container routes, and initially established a network skeleton of transit routes with Yangpu as the center, connecting domestic and radiating Southeast Asia and South Asia. Driven by the newly opened routes, the container throughput of Yangpu Port in 2019 increased by 16% year-on-year, of which the container throughput of Yangpu Xiaochan Beach Port increased by 76.6% year-on-year.
In the future, COSCO SHIPPING will further increase its investment in routes and capacity, and form a domestic trade route network covering major coastal ports across the country. This will help Hainan actively participate in the construction of the new western land-sea channel and the 'Belt and Road' construction, and accelerate the formation of land-sea internal and external linkages, east-west two-way The open pattern of mutual aid has created an important opening door for China to the Pacific and Indian Oceans.
In addition, we have also promoted the optimization and integration of Hainan port and shipping resources to create a 'new driving force' for Hainan's economic and trade development. With Hainan Port and Shipping Holdings Co., Ltd. as the province’s public terminal resource integration platform, through the integration of Hainan’s port resources, the competitiveness of Hainan’s ports in the regional market is continuously improved.
At present, Hainan Port and Shipping has started the renovation project of Xiaochan Beach Terminal. After the completion of the Xiaochantan Wharf start-up project transformation project, it is expected that the design capacity of the terminal will be increased from 650,000 TEU to 1.6 million TEU. By then, the overall container handling capacity of Hainan's ports will reach more than 4 million TEU. At the same time, the overall planning of the long-term Xiaochan Beach expansion project will effectively meet the target of 5.1 million TEU of port container throughput controlled by Hainan Port and Shipping Station by 2023.
In addition, COSCO SHIPPING is continuously strengthening the status of Hainan Port as a node of the regional logistics chain, promoting the integration and cooperation of Hainan's port resources through diversified methods, reconstructing the new pattern of Hainan’s “four parties and five ports”, and empowering Hainan Port and Shipping to undertake national strategies .
We will also speed up the registration of ships in Hainan, promote the development of e-commerce logistics, extend the port logistics industry chain, promote cruise business, and promote the integrated development of Qiongzhou Strait port and shipping, etc., and actively rely on the Group's logistics ports, shipping resources and industrial synergy to extend shipping , Port industry chain. At present, COSCO SHIPPING has registered 54 ships in Hainan with a total of 2.408 million deadweight tons.
'21st Century': Some organizations in the shipping industry analyze that the epidemic may make global freight demand sluggish, and global port throughput may even grow negatively, reaching -8%. What is your opinion?
Xu Lirong: The epidemic has already had a major impact on the world economy. The demand for freight has declined and the logistics supply chain has slowed down. This has been reflected and revealed in stages in the cargo throughput of domestic and foreign ports. Shipping and shipping-related industries are facing severe challenges. . However, the impact of the epidemic on the shipping industry throughout the year depends on when the global epidemic can be brought under control and the recovery process of global production and consumption.
Although we cannot underestimate the severity of the situation at present, we should also note that the epidemic has also promoted the development of the digital economy and innovative models of the whole society, and has brought some new features to the development of the global industrial supply chain, which will give shipping and The recovery of the port industry brings new momentum. I think there are several aspects that deserve attention.
According to the latest data, from January to April, my country’s national ports completed a cargo throughput of 4.2 billion tons, a year-on-year decrease of 2.3%. Among them, the container throughput was 75.84 million TEU, a year-on-year decrease of 7.8%. However, in a single month in April, the national ports completed a cargo throughput of 1.2 billion tons, and the growth rate has turned from a negative 2.4% to a positive year-on-year increase of 4.1%. Pay attention to the change in China's port throughput growth from negative to positive.
At present, our country presses the 'fast forward button' to resume work and resume production, which will bring momentum to global economic development. At the same time, as countries step up efforts to resume work and production, foreign consignees are gradually resuming receipts. The latest data released by the China Ports Association shows that although the throughput of China's eight major hub ports and foreign trade container throughput decreased by 5.1% and 5.6% year-on-year in mid-May, the decline has been significantly narrowed. The port metal ore throughput increased by 13% compared with the first half of the year, and the average daily port volume has returned to the same period last year.
We have also noticed that the epidemic has accelerated the process of shipping and port digitization, providing a foundation for the port and shipping industry to improve efficiency and reduce costs. Although the epidemic has had an impact on the port and shipping industry, it has also accelerated the process of digital development of the port and shipping industry. In particular, higher requirements are put forward for shipping, port supply chain services, intelligent services, and customized services for full logistics solutions, which are conducive to the development of the industry in a more efficient, safe and energy-saving direction. A few days ago, COSCO SHIPPING, China Mobile, and Dongfeng jointly launched my country's first 5G full-scenario smart port at Xiamen Ocean Terminal. This is not only our exploration of smart terminals, but also an active response to ensuring smooth global supply chains.
'21st Century': How do you predict the shipping market changes in the post-epidemic period? What structural changes will there be? It is said that the regional recovery may increase the regional cargo flow, while the global flow will be greatly reduced. Will this bring about the adjustment of the center of gravity of the route?
Xu Lirong: The long-term impact of the epidemic on the world economy remains to be seen. The epidemic has inspired us to build a more robust industrial chain supply chain and a more three-dimensional and more diversified logistics supply chain service network, which is essential to ensure the smooth operation of the global economy. Therefore, in the post-epidemic era, globalization and digital transformation will become important characteristics of the development of the shipping industry.
From an overall point of view, the future structural changes in the shipping industry are mainly affected by three factors. The first is the adjustment of the global trade cargo flow pattern, which is manifested by the slowdown in the growth of the long-distance east-west trunk line and the acceleration of the regional route growth; the second is the green The trend of environmental protection and low-carbon development will promote the innovation of shipping energy, ship design and route network organization. The third is the in-depth advancement of digital transformation, which will promote the development of shipping automation, intelligence, and networking. These three factors will bring about structural changes in the shipping industry's capacity demand and supply.
As this epidemic is an emergency in the field of public health, its follow-up impact is intertwined with the above three factors. For example, the epidemic will promote the diversification of the industrial chain and supply chain to a certain extent, the industrial layout will be further optimized, and regional cooperation will be further strengthened. The epidemic will promote the development of low-contact logistics. In this regard, shipping, as the most productive mode of transportation (measured by the volume of freight completed by a unit of manpower), will receive more attention in the three-dimensional transportation network. For example, in the prevention and control of this epidemic and the resumption of work and production, the 'revolution of water' has played an important role, and the development of multimodal transport will accelerate. In the post-epidemic period, the digital transformation of the shipping industry will accelerate its development. And smart ships and smart shipping will also become the trend of development. Combining the development requirements of low-carbon and environmental protection will speed up the upgrading of ships.
'21st Century': The 2008 financial crisis also hit the shipping industry. At that time, many shipping companies went bankrupt and the industry went through a round of major integration. Do you think this epidemic will also bring crisis to shipping companies? Will there be a new wave of bankruptcy? Will the scale of restructuring be larger than it was in 2008?
Xu Lirong: The reduced revenue and business interruption brought about by the epidemic will indeed impact the cash flow of shipping companies and threaten the survival of companies with relatively fragile finances. An American consulting company that focuses on providing corporate restructuring and financial advisors has issued a warning that the Altman Z score used by the liner industry to assess the possibility of company bankruptcy is hitting a record low, and shipping companies are facing the highest risk of bankruptcy in a decade. I also see that since March this year, the rating agency Moody's has also changed the credit outlook of some liner companies from 'stable' to 'negative.'
But from the perspective of the capital market, there are no signs of large-scale bankruptcy or restructuring. Countries have adopted unprecedented economic relief measures and means to support the recovery of the economy, providing sufficient liquidity for the global market, and will also help ease the operating pressure on the shipping market.
The group was generally stable in the first four months
'21st Century': COVID-19 has had a great impact on various industries. What is the impact on various business sectors of COSCO Shipping Group? What is the estimated revenue and profit of your company this year?
Xu Lirong: The epidemic has caused the slowness and stagnation of global logistics, and it has indeed had a huge impact on the shipping industry, including COSCO Shipping.
Many countries around the world have implemented 'city closure' measures, and logistics and transportation have been interrupted, resulting in poor circulation of goods. Many ports and coastal cities have imposed stringent inspection and quarantine requirements on ships, and the unproductive berthing of ships has been extended, and logistics efficiency has been affected. In addition, shipping demand is also affected.
In order to cope with the decrease in transportation demand, shipping companies have taken measures such as suspension of shipping. Alphaliner's data shows that as of May 11, there were 524 idle container ships of more than 500 TEUs and 2.65 million TEUs worldwide, accounting for 11% of the active capacity. Large-scale suspension of shipping has increased operating costs for shipping companies, and the industry is under greater pressure. At the same time, the epidemic has restricted labor and logistics channels, reduced airline operation efficiency, incurred additional costs, and put customers under great cost pressure.
In the face of the epidemic, COSCO SHIPPING actively responded, and the overall economic operation and financial situation remained stable. Relying on the global route network and integrated logistics system, the group innovated service models, promoted digital transformation, adopted information technology such as remote office and online services, strengthened internal collaboration, spared no effort to guarantee logistics supply chain services, and strived to minimize the impact of the epidemic. From January to April, the group completed global freight volume of 410 million tons, realized operating income of 98.5 billion yuan, and total profit of 7.5 billion yuan. Next, the Group will continue to actively explore the global market, increase cost reduction and expenditure reduction, to ensure stable benefits throughout 2020 and ensure the stability of the supply chain.
'21st Century': How will COSCO SHIPPING Group respond to changing markets and trends? how to respond?
Xu Lirong: We are still customer-centric and stick to the 'essence of shipping service'. The various customer pain points, logistics breakpoints, and trade jam points brought about by the epidemic are just an important opportunity for our innovative service model. During the epidemic, we launched transportation products such as 'Land to Water' and 'Land to Rail' to meet the diverse demands of our customers. At the same time, drawing on domestic experience, relying on the port of Piraeus in Europe, taking advantage of the China-Europe-Europe Sea Express train transportation advantage, promoting the 'water' and 'rail' linkage, and achieved very good results. These innovative moves give customers more choices and give us more competitive advantages.
During the epidemic, we quickly launched remote collaborative office and promoted the iterative update of online services, which satisfactorily met customer needs. For example, on the basis of the establishment of the industry's first blockchain alliance GSBN, COSCO SHIPPING further expands the influence of GSBN, and actively promotes the 'Visual Foreign Trade Shipping E-commerce Platform' (Syncon Hub) service to provide customers with full-process online integrated logistics solutions The plan is to implement paperless and zero contact throughout the entire import delivery process to ensure the safety of customer service. At the same time, it actively promotes the construction of smart ports and smart shipping. In the future, we will further comply with the trend of digitalization, intelligence, and environmental protection in the shipping logistics field, accelerate the application of digital technology in the shipping logistics field, and promote new technologies such as big data, the Internet, artificial intelligence, blockchain, and supercomputing and shipping logistics. The deep integration of the industry has promoted the digital and intelligent transformation and upgrading of the shipping logistics industry.
We also give full play to the advantages of the entire industrial chain of the system, strengthen the cooperation of system shipping, ports, logistics and various regional companies, increase the development of emerging markets and third-country markets, and continuously improve the international freight capacity of the industrial chain supply chain. Although affected by the epidemic, in the first four months of this year, the group's overall freight volume still achieved 410 million tons, a decrease of only 0.3% year-on-year; the port container throughput reached 35.47 million TEUs, an increase of 0.3% year-on-year.
The epidemic promotes changes in digital shipping
'21st Century': The country is encouraging new infrastructure, can digital shipping also be regarded as a type of new infrastructure? Does your company conduct related digital research and use projects? In addition to the application of blockchain technology, what other digital future directions does the shipping industry have?
Xu Lirong: Compared with traditional infrastructure, 'new infrastructure' is based on the deep integration of information technology and manufacturing technology, and is based on the cross-border integration of the electronic information industry and vertical industries. We are also carrying out new infrastructure projects for digital transformation and intelligent upgrading of the shipping industry chain. With 'technology + scenario' as the starting point, the 'new infrastructure' project is carried out around the industrial chain.
We apply big data technology, build a data integration platform, and establish a management mechanism of 'using data to speak, use data to manage, and use data to innovate' to enhance global resource allocation capabilities. Through the data platform, the headquarters can control the overall status of the group, including the operation of each unit, cargo flow information, routes, ship distribution and real-time status, etc. The data can be updated to the 'minute' level. This also provides a basis for realizing data sharing, using data innovation, coordinating resource allocation for the group, digging in-depth customer preferences, and guiding and optimizing supply chain resource collaboration.
In 2018, COSCO SHIPPING took the lead in creating the industry's first blockchain alliance GSBN. During the epidemic, this platform fully demonstrated its all-weather, one-stop, and zero-contact online advantages, helping companies resume work and production. To realize the paperless import delivery application in Shanghai Port, customers can complete the operation process through the shipping company and the port party on the blockchain at one time, and realize the paperless import delivery process and zero delay operation. Currently, this application is also actually used in Shanghai's auto parts export project.
We will also apply new technologies to promote the transformation and upgrading of business models. The newly launched visual shipping e-commerce platform Syncon Hub, the IRIS4 global container management system of China Container Lines, and the Pan-Asia Container Shipping domestic trade e-commerce platform are put into use to provide a basic platform for the digitalization of shipping business and gradually build a shipping ecological chain.
In addition, the 5G full-scenario application of smart ports has important practical promotion significance to help ports further improve operating efficiency, reduce terminal labor costs, and realize the port's gradual transformation from a labor-intensive industry to automation, intelligence, and unmanned.
'21st Century': If you want to promote the digital development of my country's shipping industry, in which areas do you think you can focus on breakthroughs?
Xu Lirong: Digital development has become an irreversible technological development trend in the global shipping industry. This trend may redefine the shipping industry chain, which will lead to a series of new rules and standards. The digital development of the shipping industry, in the final analysis, is the shipping industry itself, starting from the perspective of transformation and upgrading, improving customer service levels and core competitiveness, and exploring measures to stimulate internal vitality and motivation. Overall, it is recommended to focus on increasing investment in three areas.
One is to promote the application of key technologies for shipping digitalization. Including the development and application of key cutting-edge technologies in shipping, including the formation of ship-side Internet of Things and the construction of data platforms, the construction of shore-side data centers and big data, the application and practice of artificial intelligence, basic investment in smart manufacturing, the construction of smart ports, and smart Collision avoidance and route planning, remote control of ships, etc.
The second is to promote the digital infrastructure connectivity of the industrial chain. Focus on solving the problem of data connection between enterprises and between enterprises and governments. Specifically, including data standards, data interface technical standards, interface platforms, etc., solve the problem of digital flow between enterprises and enterprises, enterprises and governments, and finally realize the simultaneous development of information flow and logistics.
The third is to promote the construction of relevant industry rules and standards. Including promoting the formulation of international trade and shipping-related standards based on blockchain, improving the traceability and deposit function, and promoting the construction of an international transportation credit investigation system.