Zhao Huxiang: the Challenge after “Integration”

 

-----Interviewing Sinotrans President Zhao Huxiang

 “Reorganization”is a valuable chance for us

Journalist: As we know that the State Council and related governments have approved the reorganization of Sinotrans and CSC since December last year, what do you think are the biggest changes of the new group after reorganization?

Zhao Huxiang: Currently, we are carrying on the related work of reorganization according to the unified plan of the State-owned Assets Supervision and Administration Commission of the State Council (SASAC). As I know, all our staff are supporting this decision, it is in accordance with our country’s policies in the state-owned industries, especially, the new guideline to promote the logistics industry in the recent 10 plans to coordinate and promote. This is a so important and rational decision that the reorganization gave Sinotrans a new historic chance to make our basis, influence and strength more powerful. The total assets of new Sinotrans Group are about 120 billion RMB at the end of year 2008. The revenue of year 2008 is about 100 billion RMB. The number of our present staff is about 150 thousands. Our constituent companies are almost all over the country, in every province, every city, even in some counties. Through the whole country, there are more than 1000 separate legal entities of our new group and the infrastructures are considerably complete.

In the aspect of shipping, our group has a total tonnage of approximately 18 million DWT owning and under construction. After the reorganization, we are pursuing our recent goal to become a Fortune 500 company which the SASAC expects us to be, too. The long-term or medium-term goal is to become a world competitive comprehensive logistics service provider preferred by domestic and oversea clients.

Journalist: As for the industry, what will the new group intend to do in aspects of container shipping, bulk shipping and port sections?

Zhao Huxiang: At present, our new group is concentrating on 3 kinds of industries: the first is comprehensive logistics service; the second is shipping; the third is ship-building. In the aspect of shipping, the total tonnage of our owning and under construction ships is 18 million DWT; Tanker shipping which takes up the largest part of our business and deserves ranking with the best in the domestic industry makes up 50% of the 18 million DWT; Bulk shipping also takes an important part, because we are going to attach more importance in tanker and bulk fields in future;

 At the same time we owns over 20 ro-ro ships and the number of ro-ro ships takes a big part now, as it were the first place in all the ships. We are retaining the leading place in ro-ro, also we want to maintain our superiority in tanker and bulk shipping. As for container shipping, we don’t have the plan to develop the deepsea container shipping, because our accents are in shortsea and internal trade container shipping. We have the biggest freight forwarder business, so make this decision according to our practical situation, our ability and the demand on comprehensive logistics services.

The impact is probably not a "short-term".

Journalist: What aspects have embodied the influences of the International financial crisis on China shipping and logistics industry?

Zhao Huxiang: Mainly in four aspects: the first should be the export trade, it has begun negative growth since last November and lasted for six months. The decline in trade has brought huge difficulties to small and medium-sized enterprises and processing industry including Pearl River Delta and Yangtze River Delta. As the situation of Sinotrans CSC goes, the volume of business and the volume of exports have begun to decline in many areas from last year. The second is that the growth of GDP is under the circumstances of the insufficient of external demand and domestic demand, the second and third industries in a downward trend. The third is that economic growth has experienced a significant slowdown. Our first quarter economic growth rate 6.1%, a decrease of 4.5% compared with the same period last year, CPI downed 6% also. The fourth is that the employment situation is grim. According to the figures released by Social Security Department, there are still 11 million migrant workers did not find a job in the city, the urban unemployment rate is 4.2%.

The shipping and logistics industry is a barometer of the national economy. Substantial decline in imports and exports leads to the weakness of China's foreign trade transportation, the volume of business has experienced a sharp decrease, the container market, the dry bulk cargoes market and the tanker market are faced with unprecedented difficulties and challenges. International container market has entered full depression era, CCFI has gone through a cumulative decline of 22% from October last year. European lines have dropped to 44%, so the container transport is likely to continue down in 2009. The dry bulk cargoes market: BDI Index. The companies that operate bulk carrier benefit a lot before the fourth quarter of last year, the highest BDI Index has reached more than 11,700 points in the first half of last year, but in the second half of last year to December 5 the drop has fallen to 95%, we felt that this was not driven by the real needs of the market, I felt that the pressure that the dry bulk cargoes market faced in second half of this year is still comparatively high.

With the shipping market sunk to a low ebb, the decline in freight demand and the excess shipping capacity give it a double blow from the beginning of the fourth quarter of 2008, the operating conditions of shipping companies has experienced a general deterioration. Financial crisis not only has great impact on world and China's shipping industry, but also has very large negative impact on other various types of logistics companies. The conduction sequence is from logistics related industries which are directly service in foreign trade gradually to domestic production logistics, business logistics and consumer logistics field. Spread from economically developed areas in eastern to the central and western regions. The impact on China's shipping and logistics industry is probably not short-term, a greater challenge is yet to come.

Journalist: Just now，you said it is difficult that the global economy should recover in short time ,but Wei Jiafu, the COSCO Chairman, said that the economy would recover in his report before the first three months this year . How do you think about it?

Zhao Huxiang: In my opinion, everyone has his own idea on the Chinese economy or the world economy，So are the institutes. I think that the world economy will start to recover and made us have confidence in it in second half of this year or the middle of next year.

But the conditions are better in Asia and China. Asia economy could see the light earlier than the world economy. China is likely to walk out of the economy crisis earlier, which is concluded from the talks with some worldwide general managers and also is my opinions. Personally, as chairman, to my group, it will take longer time to cope with economy crisis.

 

Market Calls for Fairness

Journalist: Setting an yardstick which is between zero and ten, zero stands for the lowest level and ten stands for the highest level, which position are the SINOTRANS and CSC in?

Zhao Huxiang: I think we are in Levels 2 or 3. Financial crisis greatly affect us, especial for shipping and logistics. We have a huge shipping section and the trade-related logistics accounts for 80 percent, which descends seriously. However, our overall assets are in good state. The ratio of liabilities to assets is only 50 percent, which is the sum of the group. Our current of cash is plus and greatly overpass. Thirdly, even in the most serious conditions in the first half of this year, we have a good profit at the end of April, not in loss.  Conservatively speaking, we are in second or third position.

Journalist: As state-owned enterprise, in your hope, what the government should do to establish the stable and highly efficient market system and make policy for the new group.

Zhao Huxiang:  As state-owned enterprise, comparing with foreign enterprise and individual enterprise, we have both advantage and disadvantage. Actually, some domestic policies are helpful to state-owned enterprise, on the contrary, state-owned enterprise have their own problems in system and mechanism, for example, SINOTRANS and CSC have 150000 staffs. We are not allowed to lay off any employees according to state policy, we need a fair and competitive market environment, the government really helps the enterprise in the industry solve some difficulties in order to survive in the crisis.