China port and shipping lines have increased their investments in European ports as part of the ‘Belt and Road’ initiative
China is investing billions of dollars into its Belt and Road initiative, where it is attempting to create better connections to Europe. A significant part of this involves the investment of Chinese port and shipping companies into European container terminals.
A Drewry Consultants webinar in September highlighted the dramatic rise of overseas port investment by Chinese port operators in Q3 this year. Drewry Shipping Consultants director of container research Neil Dekker said that M&A activity this quarter is related to the Belt and Road initiative, adding “Chinese investors are willing and able to pay a premium for port assets.”
Chinese overseas container port investments have risen from eight in 2002 to 30 in 2017 (see figure: The rise of Chinese International port investments).
It looks as if there will be more international port investments by Chinese players such as COSCO Shipping, as Mr Dekker pointed out that Chinese bank loans to support these initiatives only have 2.5-3.5% interest rates, meaning these companies have scope for more aggressive bids compared to other players.
A majority stake in the Greek Port of Piraeus was acquired by COSCO Shipping in Q2 2016. COSCO Shipping also announced in June 2017 that it was acquiring a 51% stake in Port of Valencia’s Noatum terminal. In March 2016 China Merchant Group confirmed an investment in Klaipëda port container terminal in Lithuania. The most recent European port investment took place in November 2017, when COSCO Shipping Ports agreed to acquire 100% of APM Terminals’ Zeebrugge shares.
Port of Zeebrugge chief executive Joachim Coens told Container Shipping & Trade “The upscaling of vessels and downscaling of the number of shipping lines has led to the slowdown of trade and this has had an impact on Zeebrugge.” He said that this had led to a decrease in the importance of deepsea containers to the port’s disadvantage and to the advantage of hubs like Rotterdam.
But all this changes with COSCO Shipping Ports’ acquisition of APM Terminal’s shares in Zeebrugge, which will lead to a boost in container traffic. COSCO bought 24% of APM Terminals’ shares in 2014, before buying the remaining 76% stake in a deal that was completed in early November 2017.
Mr Coens said “We have to find reasons for us to be on the map and one of these reasons is the accessibility we have to the UK and our transhipment possibilities. But despite this we needed the interest of a big shipping line.” This of course has been realised by COSCO’s acquirement of APM Terminals’ facility.
COSCO is already calling at the terminal and now that it fully owns it, Mr Coens said he expected the shipping line would announce new services to call there by the end of the year.
Mr Coens said Zeebrugge was attractive to COSCO due to its transhipment links to Scandinavia and the UK, its capacity for large vessels, good maritime access and a beneficial location toward the markets.
He added “This is a very important platform for COSCO and complements its port acquisitions in Spain and Greece, as Zeebrugge gives the shipping line access to the North Sea.”
China’s Belt and Road initiative has also benefited Zeebrugge, as a train carrying containerised cars to the port from China was launched in Q2 2017 and runs four times a week.
The port is also currently in discussions with Chinese logistics companies to establish distribution centres at Zeebrugge.
Elsewhere, Antwerp Port Authority is seeking Chinese investment in its container terminals. It was one of the first European ports to actively show interest in the Belt and Road initiative of President Xi three years ago. Working with different stakeholders including Chambers of Commerce and Flanders Investment and Trade, it is jointly looking at opportunities to enhance links and trade between Belgium and China.
Antwerp Port Authority director of international relations Luc Arnouts told CST that Chinese port investment would allow it to “anchor container flows” from Chinese shipping lines including COSCO Shipping. He said the port authority was “actively” seeking Chinese investment and speaking to Chinese companies about opportunities.
“Our terminal operators would love to see Chinese investment,” he said, explaining that such investment would boost Port of Antwerp’s development and expansion plans, including building a new dock and adding more cranes.
Port of Antwerp already has Chinese investment – COSCO Shipping has a 20% share of Antwerp Gateway, one of the first investments the Chinese shipping conglomerate made in Europe.
In Q3 this year the port struck a collaboration agreement with the port of Caofeidian in China as part of the Belt and Road project – and is investigating the possibility of a rail connection between the two to further boost trade. Shipping transport will also be improved thanks to the introduction of a regular liner service.
Antwerp Port Authority has also boosted its presence in China by establishing key account manager offices in Shanghai, Beijing and Taipei.
Mr Arnouts said he felt the Belt and Road initiative had strengthened in 2016-2017. “This has been talked about since 2014. At first there were just lots of conferences and seminars on the subject. But now we are seeing tangible things like investments taking place, meaning that we are moving from words to deeds.”
So what next from Chinese port investors? Drewry’s Mr Dekker said “Chinese players may well seek to acquire part or all of some of the other major global/international terminal operators, in the same way that China Merchants acquired 49% of CMA CGM’s Terminal Link for example.”
He added that they can be expected to pursue further Belt and Road asset acquisitions, not just ports and terminals but landside and land transportation assets.
Indeed, this is an important factor in European acquisitions. Hong Kong Trade Development Council assistant principle economist Louis Chan told Container Shipping & Trade how one of the ongoing “hallmark” projects is the Budapest-Belgrade rail link, which is scheduled for completion by 2018. “This is designed to improve the overland connection between Asia and major European hubs such as seaports in the Adriatic and Mediterranean Seas, including the Greek Port of Piraeus,” he said.
Freight forwarder Damco – part of the AP M¸ller M¿rsk Group – has also launched a block train from China to France, which Maersk chairman and chief representative for north Asia Tim Smith described as an example of how Belt and Road is starting to bring in more products and services that generate opportunities in transport. “It is an interesting complementary service to sea – a good alternative niche between sea and air,” Mr Smith said.
Indeed, he described Belt and Road as the “biggest opportunity” for Maersk Line within north Asia. “Anything that has one of its goals as generating US$1.5Tn in the next 10 years is going to provide more cargo opportunities,” Mr Smith said, adding that the infrastructure needed for the project would allow Maersk opportunities spanning investment and development of ports and warehouses.
“Improved connectivity and infrastructure brings costs down and spurs new trade,” Mr Smith summed up. “In a world of more protectionist sentiments, China is looking to try to stimulate demand which, from our perspective, is an exciting opportunity.”
Belt and Road – an explanation
“The ‘Belt and Road’ refers to the land-based ‘Silk Road Economic Belt’ and the seagoing ‘21st Century Maritime Silk Road’. The routes cover more than 60 countries and regions from Asia to Europe via southeast Asia, south Asia, central Asia, west Asia and the Middle East, currently accounting for around 31% of global GDP and around 34% of the world's merchandise trade.
To enhance connectivity among and across all the Belt and Road countries, land, air and sea transport are naturally of utmost importance to the success of the initiative. To this end, both dry ports and seaports are crucial elements.”
Hong Kong Trade Development Council assistant principle economist Louis Chan