Sixth Symposium(Presentation of Qingdao:Qingdao Port (Group) Co.,Ltd

Coalition: The trend for a stronger and large port

Ladies and Gentlemen,

Good afternoon.
I am very pleased to come to the beautiful Cebu Port for the annual meeting of INAP, to listen to your advice on port development and to consult the international shipping tendency and cooperation between friendship ports.
Time flies. Our last meeting in Qingdao seemed like it happened yesterday. What makes us know that one year has past is the progress achieved by all INAP member ports. In 2003, Qingdao port processed 140 million tons of cargo, its third consecutive year of 20 million ton growth. The foreign trade volume is well over 100 million tons, ranking second on the Chinese Mainland. The 4.24 million TEU of container traffic made it the second highest in the northeast Asia area north to Shanghai, and 14th in the world. The crude oil throughput of 28.82 million tons is the highest in China. The iron ore volume of 45.24 million tons, of which 34.95 million tons is imported is also the most in China and second in the world.
The topic of this INAP symposium is just right for the present maritime situation. There are several points I would like to consult with you.

First: My personal understanding of port privatization.
The theme of this conference: Port Privatization or Private Sector Participation in Port Operations- Profits as Incentive for Better Public Service is of great significance under the present circumstances. It involves an ownership change from state-owned to non-state-owned or privatized.
Personally I think that port privatization is a very general idea, it may indicate that the private sector become engaged in the operation of port, even as far as semi-ownership, including rent, joint venture or exclusive investment. And the government shall withdraw partially or totally from direct ownership or direct management, and only play a macro adjustment function on the port construction and planning through the enforcement of regulations and laws. The aim of privatization is to promote the port’s development by improving its management and operation system, on the other side, this will lower the financial expense made by government on port construction, and uplift its management efficiency by improving its technical level with investors’ large capital input.
The present privatization mode mainly includes foreign and/or domestic investment, purchase by private capital, withdrawal of state capital and transfer to enterprise operators and employees. For a small port, it is quite possible to be exclusively owned by a single investor, but it is almost an impossible situation for a large port. To own a large port by one investor is not a choice preferred by the majority of investors or government. This may explain why large-scale ports use the coalition mode of joint venture and cooperation. This coalition helps to bring in advanced management, steady cargo flow, and to tap potential from all sides.

Second; The coalition tendency of enterprises worldwide
Strong competitiveness and risk-proof capacity can be gained through coalition of enterprises. The coalition trend of enterprises has been growing rampantly in the past few years covering a great number of industries including iron & steel, medications, telecoms, transportation, energy, consumable and regional services like public utilities. For example, Arcelor, a top steel company, is based on the merge of three steel companies from France, Spain and Luxembourg. Global strategic alliance of aviation is also coming into shape with the formation of large coalitions like One World Alliance, Sky-Team. Statistics show that 35 of the top 41 airline companies are members of coalitions, representing a market share of 80%.
The coalition trend between port, carrier and shipper is becoming obvious. Almost all the major lines have engaged in the investment and management of container ports. The following five companies, Maersk, Evergreen, COSCO, OOCL and APL have engaged in the operation and investment of more than 30 ports worldwide. In China, all the major ports, like Shanghai, Shenzhen, Qingdao, Tianjin, Dalian, Ninbo and Guangzhou have entered joint venture for their container operation.

Third: The coalition situation in Port of Qingdao
In the past decade, the cooperation strategy has facilitated the container business of Qingdao to develop at a speed of nearly 30% year on year. All the major ocean carriers have started services in Qingdao. There are over 80 international major haul services, making more than 400 calls per month. Some famous names, like COSCO, MSC, APL and CMA even make it their international transshipment base.
Joint venture with international top 500 companies and famous ocean carriers has forged alliances for far-reaching and successful cooperation. Excellent economic achievement has been made to Cosport, a JV with COSCO, and container depots with OOCL and Evergreen and others respectively.
On July 21, 2003, we signed an 887-million-SD Contract for the operation of a world class container terminal with Maersk, P&O and COSCO. The signing ceremony was highlighted with the attendance of Chinese Premier Wen Jiabao and British Prime Minister Tony Blair. The joint venture was officially launched on January 9 this year. In the first 9 months, 19 new services have been added and the volume increased by 28%. The coalition by four partners from three countries has brought in technical know-how, management experience, haul services and cargo flow, as well as capital. On Oct. 19, 2003, within less than 3 months after signing, we received the mother vessel AR6 from Maersk. August 2, 2004 saw the launch of TP2 major haul service and the reposition of Maersk Northern office from Tianjin to Qingdao. The coalition has already attracted the attention of the shipping community.
The coalition development is also true with the cooperation between port and shipper, such as the cooperation between port and steel plants, and coalmines. Take the cooperation with Sinopec, a top 500, for example, Qingdao Port transferred the ownership of 1.8 million cubic meters of crude oil storage tanks to Sinopec, and both parties reached the intent of co-constructing a 300,000-ton crude oil facility. This sharing of resource has not only improved the oil giants’ economic efficiency, but provides regular cargo flow through the port. In 2003, Port of Qingdao handled 28.82 million tons of petroleum, ranking no.1 in China. In the first 9 months of this year, 24.26 millions tons have been handled, and 31 million tons can be expected for the whole year. For sulphur acid tanks we entered cooperation with MITSUI &CO., LTD and Sinochem Shangdong Branch has been one of the most important import and export facility of it kind in China. The bulk cement silos we co-funded with MITSUBISHI have served as the largest distribution center of North China with a capacity of 400,000 tons per annum. We also start an ABB logistic center for low-voltage products with Swedish ABB.
Through strong coalitions, Port of Qingdao has joined hands with carriers and shipper for a winning future.

Fourth: some key factor to win strong cooperation
To stay and keep growing in a market of harsh competition, one of the most important ways is to start winning cooperation by taking advantage of complementary advantages of partners. But how does a port win cooperation?
First, sound infrastructure is absolute necessary. Simply, one needs a big and deep terminal for main stream vessels, and even the largest vessels in the world, as well as domestically and even internationally advanced IT guarantee. For the past decade, aiming at the trend of larger vessels, deep berths and specialization, the port of Qingdao has been leading the domestic port construction by having constructed and commissioned a series of large modern terminals in China. Now the port is fully ready to accommodate the largest vessel in the world. It boasts the largest container terminal, iron ore terminal, crude oil terminal on the Chinese Mainland and a world-class coal facility and a dedicated grain wharf. It has become the only port with five key competitive cargo types, that is, container, coal, crude oil, ore and grain. A large investment has been put into the IT facility, and containers, coal, crude oil, ore and grain are handled by a central control system. Its information center is the largest of its kind among mainland ports, and its EDI had been upgraded from a dedicated line to web EDI based on the internet. It is connected to the Customs, Quarantine and Inspection Office, and the Maritime Safety Administration. Each day, more than 1000 electronic messages are handled between the port, carriers, agencies, and shippers.
Second, service quality should always be in the process of improving. For the past few years, we have been upholding that quality. Service and credit are the lifeline of Qingdao Port. There is no sustenance for the Port of Qingdao without shippers and shipping operators; the shipper’s satisfaction is the object of our high-quality work; we provide a competitive price, fast-track procedures and round-the-clock service. We will do whatever we can to satisfy customers’ needs. Inside the port, we continue to improve our quality, and have gained accreditation of ISO9001, OHSAS18001 and ISO14001. Credit service is carried out with the implementation of civilized production, service and management. Eight services have been awarded national satisfaction service.
Aiming at the world-class handling efficiency, we work hard to reduce the turnaround time, to save money for shippers and carriers with high quality service. Based on the modern facility, we offer a 10-hour catch-up service, which means all container vessels, no matter how big they are, will be finished within 10 hours. Mr. Xu Zhenchao, chief of our quayside container team, created a series of unique techniques in the handling of box. He and his team members broke the world handling rate twice, and the rate of 381 boxes per vessel/hour shows Zhenchao’s efficiency. The Beijing Government has set him up as an outstanding example of industrial workers in the new age. During his special visit to Port of Qingdao and Xu Zhenchao, Oremier Wen Jiabao pointing out that: “Zhenchao Spirit and Zhenchao Efficiency have become a strong pitch of our age, the spiritual wealth of socialist modernization, and the formidable drive for the overall construction of a well-off society”. He also said: “All cadres shall learn from Xu Zhenchao, so do I”. Inside the port, a great campaign has been carried out to learn from Zhenchao. Everybody is making on-the-job practice, and over 1200 unique techniques have appeared. The iron ore discharging rate pre vessel/day has broken 100,000tons, and the vessel/hour rate has reached 6098 tons, the third successive world record. The top-handling rate of wood pulp is 1548 tons per vessel/hour, the fifth successive world record.
The strong comprehensive advantage of Qingdao port has found favor in the eyes of carriers and shippers. They have been entering into cooperation and joint venture one after another. So far, seven of the top 500 have settled down in Port of Qingdao. The strong coalition has endowed Qingdao port with powerful competitiveness and a sustainable, fast and healthy development. In first nine months of this year, 122 million tons were handled, increasing 17 million tons or 17% compared with the same period of last year. 3.76 million TEU was handled, increasing 640,000TEU or 21% compared with the same period of last year. 160 million tons of total volume can be expected for the whole year, increasing 20 million tons for the fourth-straight year, and 5 million TEU can be handled for the container business.
The globalization of world economy, especially China’s entry to WTO, has created a broader space for the coalition development of the port. Looking into the future, we will continue to actively implement strong coalitions, and make our port business stronger and bigger. By the year 2010, we expected a total traffic of 200 million tons including 10 million TEU of container. We aim to become the hub port of container transportation in Northeast Asia.
In the end, my sincere gratitude goes to Port of Cebu for hosting such an important symposium, and best wishes go to everybody.

Thank you.