China Merchants Group will take advantage of merger and acquisition (M&A) opportunities in China’s fragmented logistics and infrastructure sector as local governments deleverage, said company Chairman Fu Yuning. “There will be lots of mergers and acquisitions in the logistics industry in China as oversupply will lead to industry consolidation,” said Fu, who is also the Chairman of Hong Kong-listed China Merchants Holdings (International) and China Merchants Bank. There are over 100,000 logistics players in China but there is a lack of major players with advantages of scale. China Merchants’ logistics arm will expand its services to upstream and downstream customers, Fu said. Over the past 20 years, China Merchants has established a network to support nationwide sales outlets for brands like Tsingtao Beer, Coca-Cola and Procter & Gamble. It is now aiming to further develop supply chain services for manufacturers as well as last-mile delivery services, which have received a big boost because of the enormous growth of e-commerce. With the recent acquisition of a minority stake in SF Express, one of the major courier companies in China, China Merchants is seeking to leverage the e-commerce boom.

Maritime officials from China, the United States and the European Commission held their first joint meeting in December in Washington to review the proposed P3 Network, a pooling arrangement among the world’s three largest operators of container vessels. Denmark-based A.P. Moller-Maersk Group, Mediterranean Shipping Co of Switzerland and French carrier CMA CGM agreed in June to establish the long-term operational alliance on East-West routes to optimize resources and lower the cost of container shipping. The alliance will operate a total capacity of 2.6 million TEU, initially using 252 large-capacity vessels on 28 loops on three trade lanes: Asia-Europe, trans-Pacific and trans-Atlantic. While the P3 Network vessels will be operated independently by a joint vessel operating center, the three shipping companies will continue to have fully independent sales, marketing and customer service functions. The P3 Network intends to start operations in the second quarter of 2014, subject to obtaining regulatory approval. Luo Renjian, Researcher at the Institute of Transportation Research under the National Development and Reform Commission (NDRC), said unlike ship-sharing deals among smaller-sized shipping companies, the establishment of the P3 Network will encourage European carriers to grab more market share from Chinese companies. “Battling overcapacity and fierce global competition, Chinese liners are struggling to make a profit. Meanwhile, the government has stopped offering subsidies for container vessels built in domestic shipyards,” Luo said. Chinese companies such as China Cosco Holding Co and China Ocean Shipping (Group) Co have urged the China Shipowners Association to raise concerns about the P3 Network and the impact on competition. The three shipping companies have a combined 37% of the global capacity for container vessels, the China Daily reports.

Container shipping firms are hoping for a better year as freight rates rebounded in the lead-up to the Lunar New Year holiday. Spot rates on the China-Europe route rose 17% week-on-week, or 39% year-on-year, in the week to January 3, according to the Shanghai Export Container Freight Index. The spot rate from China to the Mediterranean Sea rose 14% week-on-week, or 55% from a year earlier. China-U.S. spot rates rose just 1% week-on-week, as larger vessels are deployed on the route. Spot rates for China to the U.S. west coast plunged 18% year-on-year, however, while rates to the east coast tumbled 7% in the week to January 3. The freight market will be quiet after the Lunar New Year as migrant workers leave factories for visits home. “Taking into account the improved demand and supply situation this year, I believe freight rates will gradually go up in March,” Huang Xiaowen, Managing director of China Shipping Container Lines said. “The sustainability of rate hikes would depend on the liners’ ability to control the supply in an effective way,” said Geoffrey Cheng, Manager of Transport at Bocom International. New orders for dry bulk vessels increased over the last quarter of 2013.

Shanghai Zhenhua Heavy Industries Co (ZPMC), the world’s largest maker of cranes and large steel structures, is negotiating the acquisition of a German shipyard－part of its drive to diversify and expand its maritime engineering business. ZPMC aims to buy JJ Sietas Schiffswerft, a Hamburg-based shipyard with a history of more than 300 years, Huang Qingfeng, Vice President of ZPMC, told China Daily. The Chinese company made an offer for the bankrupt European facility because it wants to boost its research and development (R&D) capability for vessel engineering, Huang said. ZPMC’s parent company, China Communication Construction Co, already owns a U.S.-based maritime engineering center－Friede Goldman United, which provides design services and equipment for offshore drilling rigs. A Russian shipyard in St. Petersburg has also submitted a bid for Sietas. ZPMC lost money from 2010 to 2012 as a result of rising steel prices and yuan appreciation. Since its new Chairman, Song Hailiang, arrived in 2012, the company has been trying to diversify its portfolio. According to its 2013 first-half statement, ZPMC returned to profit. Its contract value in maritime engineering and large steel structures surged 71.3% to USD997 million, representing 33.3% of its total revenue. But contracts for port equipment fell 32% to USD1 billion, representing 34.6% of revenue. Zhang Zhongjie, Industry Researcher at Essence Securities Co, said ZPMC’s recent comeback was the result of its non-core business. Maritime engineering is the company’s bright spot, and there’s considerable growth potential in the sector, especially overseas, the China Daily reports.

China Railway Corp (CRC) is expected to raise freight rates early this year to relieve its massive debt burden and speed up market-oriented reform in the industry, which it monopolizes. However, such a move may further reduce the competitiveness of rail against road freight, which has rapidly overtaken it in market share. The rail freight rate in China may rise from CNY0.12 per ton per kilometer to an average of CNY0.15, which the railway operator said would be “more reasonable”. “Freight services are a major source of income for the railway operator. However, the freight rate has long been under the market value,” said Li Hongchang, Railway Expert and Economics Professor at Beijing Jiaotong University. CRC was spun off from the former Ministry of Railways (MOR) in March last year, taking over its entire assets and debts. A reform in the railway freight sector has since been at the top of its agenda. Statistics from the National Audit Office show that the new national railway operator was bogged down in debt of CNY2.9 trillion in June last year, while its total assets were valued at CNY4.66 trillion. “The primary goal for the company is to increase revenues and cut costs. To raise the freight rate is a natural solution,” Li said. A rise in freight rates would also be an important measure to make the highly monopolized industry more lucrative for potential private investors, analysts say. As the rail network expanded, the country’s annual rail freight volume increased from 2.04 billion tons to 3.9 billion tons between 2002 and 2012. The average freight rate rose from CNY0.08 to CNY0.12 per ton per km during the decade. The research shows CRC would be able to pay off its debts within seven to 10 years assuming the freight rate rose to CNY0.13 per ton/km and annual growth in railway freight and passenger volume remained at 5% to 8%. Over the past three decades, railway freight has lost market share to road transport. The railway network’s share of the country’s freight volume shrank dramatically from about 48% to 17% between 1980 and 2012, CRC General Manager Sheng Guangzu said earlier. By contrast, the market share of road freight jumped from 6.4% to 35%. One reason is the overtaking of “dark goods” by “white goods”. Dark goods, a term used in the railway industry to describe coal and other raw materials, are the principal type of railway cargo. While the volume of dark goods has remained steady in recent years, that of “white goods”, which are those other than raw materials, has been growing rapidly, and they are mostly transported by road.