COSCO’s CEO urges more cooperation among carriers, shippers
Wei Jiafu, the president and chief executive officer of the China Ocean Shipping Co. group, the parent company of COSCO Container Lines, has called for more cooperation in the liner shipping industry among carriers, and between carriers, shippers and other parties, saying that a “cooperative game” would be beneficial to all.
In a broad policy speech to a conference in Long Beach yesterday, Wei suggested that this cooperation model could begin in the transpacific trade. “I believe the Pacific services should become a primary platform for liner operators to establish long-term coordinated competition mechanism with each other, as well as with shippers, related service providers, terminal operators, logistics businesses and railway companies in compliance with (the) cooperative game mentality,” he said. “We hope that by establishing this new mechanism, new cooperative patterns will emerge gradually in the industry and will eventually guide and promote the sustainable, healthy and stable development of the liner transport industry.”
The cooperation could occur at different levels, Wei said.
Liner operators should establish a new mechanism of “coordinated competition” and a new mode of “competitive development” in compliance with the mentality of a cooperative game, Wei said, without specifying which activities would be coordinated. However, Wei added that liner operators “should enhance exchanges and cooperation, strengthen mutual trust, safeguard common interest of our industry under the framework of regional and international maritime organizations and liner conferences.”
Although not a traditional member of liner conferences, COSCO has nevertheless joined the discussion agreements in the U.S./Asia and Canada/Asia eastbound and westbound trades in recent years, as well several carrier groups in Asia. COSCO Container Lines is also a member of the “CKYH” global alliance formed in early 2002.
Wei appeared to suggest that the cooperation could be industry-wide.
“We should promote the cooperative and competitive relationship between liner operators and gradually establish a new mutually beneficial and win-win business mode in this industry,” Wei told the Long Beach conference.
Wei said carriers committed their resources to competition, rather than collaboration, with each other. “Many of them are pre-occupied with a ‘single-party-win’ mentality, seeking only to maximize self-interest, and this behavior often triggers vicious competition and will eventually hurt all the parties involved,” he added. “This phenomenon has been witnessed over the past years in the international liner transport market, including transpacific routes on numerous occasions.”
Wei’s comments appeared to mirror what other ocean carriers have called “destructive” pricing competition. It is known that undercutting rates to retain and increase market share has been a common competitive practice among container carriers, particularly in weak markets.
Referring to the game theory of human interactions, in which the outcomes depend on the interactive strategies of two or more persons, Wei said all games can be divided into either a cooperative game or a non-cooperative game.
“In the case of non-cooperative games, the participant focuses on maximized personal interest … this turns out as the worst situation for everybody,” Wei noted. By contrast, a cooperative game scenario “encourages individuals to pursue personal benefit on the basis of a maximized collective benefit,” he said.
Wei believes this approach can be transposed to liner shipping.
“No entity has been created to represent the collective interests of carrier, shipper and other service providers,” he said.
“These three crucial components of the marine transport chain's client-oriented guidelines have not been applied in earnest to other parties in the same supply chain.
“Normally, they focus on creating value for themselves instead of creating value for others, so a mentality of serving each other has not been founded,” Wei said.
“Liner operators should comply with a basic principle of competition as well as cooperation when handling the relationship with shippers, shipping-related service providers and terminal operators,” he said.
A “serving-each-other” mentality should be established among these four parties and each party “should aim at creating value for others,” he argued.
Wei noted that the collaboration between liner operators and shippers should not be limited to the maritime shipping sector only, and should extend into logistics areas.
Wei also called for regulatory harmonization, and more communication between policymakers and the industry.
“The co-existence of excessive regulatory control together with arbitrary attitudes in the shipping policies adopted by various governments have brought a state of confusion and disorder to the market,” he said.
Commenting on China, Wei said that, in recent years, China's container shipping market has witnessed a fast growth and China's liner transport market has become the world's fastest-growing market.
Statistics show that in 2003, China's seaports handled 47.66 million TEUs, 31.7 percent up from 2002, he said.
The Chinese government is aiming to quadruple the country’s GDP by 2020, when compared to that of 2000. “In order to hit this target, China's economy and trade need to maintain a fast growth for a long period of time and annual GDP growth rate is expected to maintain at about 8 percent and annual trade growth rate at over 10 percent by 2010,” Wei said.
In shipping, the Chinese government is promoting a fast development of the liner transport and the shipping industry, Wei reported. “These measures include accelerating construction of maritime infrastructure, regulating the shipping market in compliance with laws and actively promoting modern logistics,” he said. Wei cited the implementation of a new “Port Code” of the People’s Republic of China that will “play a key role in promoting terminal constructions and providing higher quality and higher efficiency port service to both domestic and foreign shipping companies.”
Non-Chinese shipping companies account for 70 percent of deepsea liner sailing from China and 47.5 percent of near-sea liner sailings, COSCO reported.