MEL IN THE PRESS

Lloyd's List
April 27, 2005

China may mean end to boom and bust box cycle says Philip Green, P&O Nedlloyd CEO
(writes Janet Porter in Rotterdam- Monday April 25, 2005)

Container shipping may be coming to an end of the boom and bust cycles that have characterised the industry for the past three decades and entering a period of sustained expansion, P&O Nedlloyd chief executive Philip Green said in MEL's Distinguished Lecture Series on Friday.

The historic link between global economic activity and container trade growth could be broken by the China effect, Mr Green told students and industry representatives attending his presentation at Erasmus University.

In the past, increased demand has led to container lines, including P&O Nedlloyd, investing in more capacity with the inevitable result.

“The industry has been here before: ordering new vessels as the economic cycle creates a boom in demand which precipitates a crash as supply eventually and unsurprisingly outweighs demand as the economic cycle turns down,” he acknowledged.

But this time the outcome may be different, with the world undergoing a second industrial revolution inspired by the “Chinese economic miracle”.

European outsourcing to Asia has barely begun, while US high-end products have yet to be outsourced, said Mr Green.

“In essence, the container shipping industry may no longer be at the whim of a vicious cycle of boom and bust but may, in fact, be responding to a steady upwards curve in demand which will remain for the foreseeable future,” he predicted.

Industry experts are becoming divided about the near-term outlook for the industry.

After an unprecedented level of ordering in the first quarter, many brokers are now more concerned about prospects for the containership charter market in 2006 and 2007 than they were a few months ago.

And a slump in charter rates would probably also hit freight rates, they are warning, as shippers take advantage of the tonnage surplus to drive a hard bargain.
On the other hand, consultants such as Drewry and financial analysts like Handelsbanken have recently issued very upbeat assessments on the future of container shipping, based largely on the much longer voyages from Asia to Europe and North America as more manufacturing is shifted to China. Mr Green admits it would be “fanciful” to suggest that China’s current levels of growth can continue unabated.

“That clearly is not the case but China’s economy is built on solid ground,” he maintained.

There has been a genuine economic shift in the form of outsourcing. China enjoys political and economic stability, almost immeasurable output capacity and potential, and a level of western demand that is guaranteed, the P&O Nedlloyd boss continued.

He believes the Chinese miracle dwarfs all economic shifts since the US became a world superpower in the 19th century.

“It is this dramatic scale that allows us to refer to the Chinese phenomenon as more than just a trend but as the second industrial revolution,” said Mr Green.
And just as the first industrial revolution would not have been possible without the development of canals and steam trains, so the second one “could not and would not be taking place without containers and container shipping”.

Source: Lloyd's List, 25 April Issue