Exclusive Interview With Xu Lirong, Chairman Of COSCO Shipping Group: The Epidemic Promotes Innovation, Globalization And Digitalization Will Become An Important Feature Of The Development Of Shipping Industry.

Post epidemic logistics industry reform]

In the evening of June 1, 2020, the general plan for the construction of Hainan free trade port was announced. In the first place of twenty-first Century economic report, exclusive interview with Xu Lirong, chairman of COSCO Shipping Group, which participated in the construction of Hainan free trade port, explained the opportunities and challenges brought by the FTA.

Faced with the changes brought by the new crown epidemic to the world economy and logistics industry, the helmsman of the world's largest shipping company pointed out that although the impact of the epidemic on the port and shipping industry has been impacted, it has accelerated the development of the digital development of the port and shipping industry. He believes that globalization and digital transformation will become an important feature of the development of shipping industry in the post epidemic era.

Although shipping companies are facing the highest risk of bankruptcy in ten years, Xu Lirong believes that there is no sign of bankruptcy and reorganization from the capital market.

Deep layout of FTA

Twenty-first Century: for the public and investors, how can we understand the opportunities brought by the FTA policy to COSCO?

Xu Lirong: the construction of Hainan free trade port will promote regional economic development and promote international economic and trade exchanges, thereby driving the growth of shipping demand and long-term good development of shipping industry. At the same time, Hainan implements a highly free, convenient and open transport policy and establishes a more free and open shipping system. This creates a historic opportunity for COSCO Shipping Group to make good use of relevant policy advantages and continuously enhance its competitiveness.

COSCO will take Hainan as a free trade port as an opportunity to play its professional capabilities in fleet routes, port operations, product innovation, and management system. We should make full use of the policy advantages of free trade ports, further improve the layout of the global network, and comprehensively enhance the comprehensive service capabilities and service levels of shipping, ports, logistics and other supply chains.

Twenty-first Century: as far as the actual situation is concerned, Hainan port's geographical location and hinterland economy are not as good as Hongkong and Guangzhou Shenzhen. How do we see the growth prospects of Hainan port throughput? How do you consider the risks and long-term prospects of this investment? In addition to building additional ports in Hainan, what can you do with the opportunity of the FTA policy?

Xu Lirong: it should be noted that Hainan is the gateway to the new land and sea in the western part of China. It is also an important link between China and ASEAN. In December 29, 2018, COSCO Shipping opened the "Hainan ASEAN (Singapore)" liner route, opened up the direct passage of the western region through Yangpu south to Singapore, and also opened up a new channel for China's coastal port cargo passing through Yangpu to Southeast Asia. It formally declared Hainan Yangpu Port a new fulcrum for the "new channel of the western land and sea".

Over the past two years, COSCO has been accelerating the laying of the Yangpu centric airline network. In 2019, the group built 3 domestic trade and 5 foreign trade container routes based on Yangpu Port, and initially constructed a network framework with Yangpu as the center, connecting to China, and radiating Southeast Asia and South Asia. Driven by the new routes, the container throughput of Yangpu Port increased by 16% over the same period in 2019, and the container throughput of Yangpu shoveling port increased by 76.6% over the same period last year.

In the future, COSCO will further increase its investment in routes and transportation capacity, and form an internal trade route network covering all major ports along the coast of the country. It will actively participate in the new western corridor and the "one belt and one road" construction in Hainan, and accelerate the formation of an open pattern of land, sea and interior linkage and East West two-way mutual aid. It will create an important opening door for China's Pacific and India oceans.

In addition, we also promote the optimization and integration of Hainan port and shipping resources, and create a "new power" for Hainan's economic and trade development. Taking Hainan port Airlines Holding Co., Ltd. as a resource integration platform for public ports in the province, by integrating Hainan port resources, Hainan port's competitiveness in the regional market will be continuously improved.

At present, Hainan port and shipping has started the project of small shovel and beach terminal project renovation. After completion of the reconstruction project of the shoveling beach terminal project, the design capacity of the port will be increased from 650 thousand TEU to 1 million 600 thousand TEU, and the total throughput capacity of Hainan port container will reach 4 million TEU. At the same time, overall planning for the long-term shovel beach expansion project will effectively meet the target of 5 million 100 thousand TEU of container throughput in Hainan port controlled port in 2023.

In addition, COSCO Shipping is constantly strengthening the port status of Hainan port as a regional logistics chain, promoting the integration and cooperation of port resources in Hainan through diversified ways, reconstructing the new pattern of "four ports and five ports" in Hainan, and undertaking the national strategic empowerment for Hainan port and shipping industry.

We will also extend the shipping and port industry chain by speeding up the registration of ships, promoting the development of e-commerce logistics, extending the port logistics industry chain, promoting the cruise business, and promoting the integrated development of Hainan port and shipping industry in Qiongzhou Strait. At present, COSCO has registered 54 ships in Hainan, totaling 2 million 408 thousand DWT.

Shipping after epidemic will be changed

Twenty-first Century: some agencies in the shipping industry believe that the epidemic may cause global freight demand and global port throughput will even increase negatively to -8%. What do you think?

Xu Lirong: the epidemic has caused a major impact on the world economy. Freight demand has slowed down and logistics supply chain has slowed down. This has been reflected and manifested in port throughput at home and abroad, and shipping and shipping related industries are facing severe challenges. However, the impact of the epidemic on the shipping industry all year round depends on when the global epidemic can be controlled, and the recovery process of global production and consumption.

Although we can not underestimate the seriousness of the situation, we should also see that the epidemic has also promoted the development of the digital economy and innovation mode in the whole society, bringing some new characteristics to the development of the global industrial supply chain, which will bring new impetus to the recovery of shipping and port industry. I think there are several aspects to be concerned about.

According to the latest data, 1-4 months, China's ports completed cargo throughput of 42 million tons, down 2.3% over the same period last year. Among them, container throughput was 75 million 840 thousand TEU, down 7.8% compared to the same period. However, in April, the port throughput reached 12 billion tons, and the growth rate has increased from 2.4% to 4.1% over the same month. Attention should be paid to the change in throughput of China's ports from negative to positive.

At present, China's pressing for resumption of production and "quick forward key" will bring impetus to global economic development. At the same time, as countries intensify their efforts to resume work and resume production, foreign consignees are gradually resuming their goods. According to the latest data released by China Port Association, although the throughput of China's eight major hub ports and foreign trade container throughput decreased by 5.1% and 5.6% in mid May, the decline has narrowed significantly. The port metal ore throughput increased by 13% compared with the previous day, the average daily port volume has been restored to the same period last year.

We also note that the epidemic has accelerated the process of digitalization of shipping and ports, providing a basis for improving efficiency and reducing costs. Despite the impact of the epidemic on the port and shipping industry, it has accelerated the development of the digital development of the port and shipping industry. In particular, it puts forward higher requirements for shipping, port supply chain services, intelligent services, customized logistics services and so on, which is conducive to the development of a more efficient, safe and energy-saving industry. A few days ago, COSCO, China Mobile and Dongfeng jointly launched our first 5G full port intelligent port in Xiamen offshore port, which is our exploration of intelligent terminals and a positive response to the smooth supply of global supply chains.

Twenty-first Century: how do you anticipate changes in the shipping market during the post epidemic period? What structural changes will there be? It is said that regional resuscitation may lead to intensified regional cargo flow, while global mobility is greatly reduced. Will this bring about adjustment of the gravity center of the airline industry?

Xu Lirong: the long-term impact of the epidemic on the world economy remains to be seen. The epidemic inspires us to build a more robust industrial chain supply chain and a more three-dimensional and diversified logistics supply chain service network, which is crucial for ensuring the smooth operation of the global economy. Therefore, in the post epidemic era, global layout and digital transformation will become an important feature of the development of shipping industry.

On the whole, the structural changes of the shipping industry in the future will be mainly affected by three factors, one is the adjustment of the global trade pattern, the result is that the growth of the long distance East-West main line is slowing down, and the regional airline growth has accelerated. The two is the trend of green environmental protection and low carbon development, which will promote the innovation of shipping energy, ship type design and airline network organization. Three is the deep transformation of digitalization. To push forward the development of shipping automation, intelligence and networking. These three factors will bring about structural changes in transport demand and supply in the shipping industry.

As a public health emergencies, the follow-up effect is intertwined with the three factors mentioned above. For example, the epidemic will promote the diversification of supply chain of industrial chain to a certain extent, further optimize the industrial layout, and further strengthen cooperation within the region. The epidemic will promote the development of low touch logistics. In this regard, shipping, as the most efficient transportation mode (measured by the volume of freight transported by unit manpower), will receive more attention in the three-dimensional transportation network. For example, in the prevention and control of the epidemic situation and the resumption of work, the "public water" has played an important role, and multimodal transport will accelerate development. In the post epidemic period, the digital transformation of shipping industry will accelerate. Intelligent ships and intelligent shipping will also become the trend of development. Combined with the development requirements of low carbon and environmental protection, we will speed up the upgrading of ships.

Twenty-first Century: in 2008, the financial crisis also hit the shipping industry. At that time, many shipping companies went bankrupt and the industry underwent a round of consolidation. Do you think the epidemic will also bring crisis to shipping companies? Will there be a new wave of bankruptcies? Will the restructuring scale be larger than in 2008?

Xu Lirong: the reduction of revenue and interruption of business caused by the epidemic will really impact the cash flow of shipping companies and threaten the survival of enterprises with more financial fragility. An American consulting firm focused on providing enterprise restructuring and financial advisers has issued a warning that the Altman Z score for liner companies to assess the possibility of bankruptcy is at a record low, and shipping companies are facing the highest risk of bankruptcy in ten years. I also see that since March of this year, Moodie, a rating agency, has changed the credit outlook of some liner companies from "stability" to "negative".

But from the perspective of capital market, there is no sign of bankruptcy and reorganization. The unprecedented economic relief measures and the means of supporting economic recovery have provided sufficient liquidity for the global market, and will also help alleviate the pressure of shipping market operation.

Before April, the group remained stable.

Twenty-first Century: COVID-19 has a great impact on all walks of life and how does it affect the various business segments of COSCO? What is your expected revenue and profit this year?

Xu Lirong: the epidemic caused the slow and stagnation of global logistics, which has a great impact on the shipping industry, including COSCO Shipping.

Many countries in the world have implemented "closed city" measures, and logistics and transportation have been disrupted, resulting in poor circulation of goods. Many ports and coastal cities have imposed stringent inspection and quarantine requirements for ships, and the prolonged production of non productive anchorages has affected the efficiency of logistics. In addition, shipping demand is also affected.

In order to cope with the reduction of transport demand, the shipping company has taken measures such as suspension. According to Alphaliner data, as of May 11th, there were 524 or 2 million 650 thousand standard containers of over 500 standard containers, which accounted for 11% of active capacity. Large scale suspension has increased the operating cost of shipping companies, and the industry has been under great pressure. At the same time, the epidemic limits the labor and logistics channels, reduces the operating efficiency of the airline, and generates additional costs, which also makes the customers suffer a great cost pressure.

In the face of the epidemic, COSCO actively responded, and its economic operation and financial situation remained stable. The group relies on the global airline network and integrated logistics system, innovating service mode, promoting digital transformation, adopting remote office, online services and other means of informatization, strengthening internal collaboration, fully ensuring logistics supply chain services, and trying to minimize the impact of the epidemic. In 1-4 months, the group completed the global freight volume of 4.1 billion tons, realized operating income of 98 billion 500 million yuan, and the total profit was 7 billion 500 million yuan. Next, the group will continue to actively explore the global market, increase the intensity of reducing the cost, ensure that the 2020 annual benefits are stable, and ensure the stability of the supply chain.

Twenty-first Century: how will COSCO Group react to the changing market and trend? How to deal with it?

Xu Lirong: we still take the customer as the center, adhere to the "shipping service essence". All kinds of customer pain points, logistics breakpoints and trade plugging points brought by the epidemic are important opportunities for our innovative service model. During the epidemic, we launched "land to water" and "land to iron" transport products to meet the diversified demands of customers. At the same time, drawing on domestic experience, relying on Piraeus port in Europe, giving full play to the advantages of railway transport between China and Europe, promoting the "water" and "iron" linkage, we have achieved very good results. These innovative actions enable customers to have more choices and give us more competitive advantages.

During the epidemic period, we quickly launched remote collaborative office and promoted online service iteration to meet customer needs well. For example, COSCO has further expanded the influence of GSBN on the basis of the first block chain alliance GSBN in Jianye, and has actively promoted the "visible foreign trade shipping business platform" (Syncon). Hub) services to provide customers with the whole process of integrated logistics solutions, and implement the paperless and zero touch process to ensure the safety of customer service, and actively promote the construction of intelligent ports and intelligent shipping. In the future, we will further adapt to the trend of digitalization, intellectualization and environmental protection in the field of shipping logistics, accelerate the application of digital technology in the field of shipping and logistics, and promote the deep integration of new technologies such as big data, Internet, artificial intelligence, block chain, supercomputing and shipping industry, and promote the digitalization and intellectualization transformation and upgrading of shipping and logistics industry.

We also give full play to the advantages of the whole industrial chain, strengthen the cooperation of the system shipping, ports, logistics and regional companies, expand the market development of emerging markets and third countries, and continuously enhance the international freight capacity of the industrial chain supply chain. Although affected by the epidemic, the total cargo volume of the group still reached 4.1 billion tons in the first four months of this year, down by 0.3% compared to the same period last year, and the container throughput of the port reached 35 million 470 thousand standard boxes, an increase of 0.3% over the previous year.

Epidemic situation promotes digital Shipping Reform

Twenty-first Century: is the state encouraging new infrastructures? Can digital shipping be considered a new type of infrastructure? Do you have any projects related to digital research and use? Besides the application of block chain technology, what are the digitalized future directions of shipping industry?

Xu Lirong: compared with the traditional infrastructure, the "new capital construction" is based on the deep integration of information technology and manufacturing technology, and is based on the cross-border integration of the electronic information industry and vertical industry. We are also carrying out the digital transformation and intelligent upgrading of the shipping industry chain. Taking "technology + scenario" as the starting point, we will carry out the "new capital construction" project around the industrial chain.

We apply big data technology to build a data integration platform and establish a management mechanism of "using data to speak, using data management and data innovation" to enhance the global resource allocation capability. Through data platform, headquarters can control the overall status of the group, including the operation of each unit, cargo flow information, route, ship distribution and real-time state, etc., and the data can be updated to the "minute" level. It also provides a basis for data sharing, data innovation, resource allocation for group co ordination, in-depth mining of customer preferences, and optimization of resource synergy in supply chain.

In 2018, COSCO led the industry's first block chain alliance GSBN. This platform has fully displayed the all-weather, one-stop, zero touch online advantages during the epidemic period, helping enterprises resume work and resume production. The application of paperless import and export in Shanghai port enables customers to complete the operation process of shipping companies and port operators once and for all in the block chain, so that the whole process of import and unloading goods is paperless and operated without delay. At present, the application is also used in automobile parts export projects in Shanghai.

We will also apply new technologies to promote the transformation and upgrading of business models. The new online navigation e-commerce platform Syncon Hub, the IRIS4 global container management system of the container transport hub, the Pan Asian hub domestic e-commerce platform are put into use, providing the basic platform for the digitalization of shipping business, and gradually building the shipping ecological chain.

In addition, the application of smart port in 5G full scene will have important practical significance to help port further improve operational efficiency, reduce labor cost at the terminal, and gradually transform the port from labor intensive industry to automation, intelligence and unmanned transformation.

Twenty-first Century: if you want to promote the digitalization development of China's shipping industry, what aspects do you think you can focus on?

Xu Lirong: digital development has become an irreversible trend of technology development in the global shipping industry. This trend will probably redefine the shipping industry chain and produce a series of new rules and standards. The digital development of shipping industry, in the final analysis, is the action taken by the shipping industry to transform itself from upgrading to upgrading, improving customer service level and core competitiveness. On the whole, it is recommended to increase investment in three fields.

One is to promote the application of key technologies in shipping digitalization. It includes the development and application of key technologies in shipping, including the formation of the Internet of things and the construction of data platform, the construction of shore terminal data center, the application and practice of big data, artificial intelligence, the investment of intelligent manufacturing foundation, the construction of intelligent port, the intelligent collision avoidance and route planning, and the remote control of ships.

The second is to promote the interconnection of industrial chain and digitalized infrastructure. It focuses on data connection among enterprises, between enterprises and governments. It includes data standard, data interface technology standard, interface platform and so on. It solves the problem of digital flow between enterprise and enterprise, enterprise and government, and finally achieves the synchronous development of information flow and logistics.

The three is to promote relevant industry rules and standards. It includes promoting the formulation of international trade and shipping related standards based on block chain, improving the function of tracing and storing certificates, and promoting the construction of international transportation credit information system.