Shipping, Trade, and China

Dr. Scott MacDonald's picture

Shipping remains a critical factor in global trade and also has been a key factor in the rise of the Chinese economy since the last decades of the 20th century. However, the 2008 Great Recession caught global shipping in a period of fleet expansion and greater capacity to carry freight per ship. Post-2008 the shipping industry has faced tough times. Trade has not recovered from levels prior to that year. Rates have been drastically cut, company revenues have plummeted, some companies went into bankruptcy (as with South Korea’s Hanjin Shipping in 2016), and other companies have merged.

Financing also has been a problem, with European banks and American private equity firms, traditional sources of capital, cutting off their lending to the sector. Into the financing gap have stepped Chinese leasing companies, such as Minsheng Bank, Bank of Communications, and ICBC, that are eager for new business. As a group they have emerged as a source of badly-needed credit for shipping companies. According to the Financial Times (March 12, 2017), an estimated USD $11.5 billion has been invested by Chinese financing companies in shipping in 2016, much of that going to the three largest container ship operators—Maersk Line, Mediterranean Shipping Company, and CMA COM. While it is a positive development for the shipping industry that financing has become available, there are two things worth thinking about. First, in a time of growing protectionism, a much larger role by Chinese banks in shipping could become a politically charged development if the industry suffers another steep downturn and Chinese financial firms gain ownership over more ships. Second, there are good reasons European and U.S. lenders exited the shipping industry—it is a high risk one. While there is opportunity, shipping is a tough industry, likely to become even tougher considering shifting geopolitics.