China’s logistics needs improvement, according to a Chinese Vice Minister of Commerce. “In order to expand domestic consumption, it is urgent for us to implement a modern logistics technology system to reduce distribution costs, especially in improving distribution for agricultural products,” Jiang Zengwei, Vice Minister of Commerce, said in March. “In addition, it is important for us to put more emphasis on logistics challenges in e-commerce, both in domestic and cross-border businesses,” said Jiang. High transportation costs and a lack of modern logistics facilities have been an outstanding problem in China’s supply chain for years. “There are many scattered logistics companies in China, but most of them are small because the threshold for entering the industry is low,” said Fu Yuning, Chairman of China Merchants Group. Among China Merchants Group’s 11 biggest sectors, which include shipping, commercial property and banking, Fu said the rate of return from the logistics business is the lowest, yielding about 5% in profit. Although trials to replace business tax with value-added tax have been conducted in the logistics industry, the program needs improvements because various fees and taxes are still high. “The fundamental way out for logistics is prompting standardization in transportation and technology, even at each transporting link,” said Fu. He also suggested to establish big players in the industry, the China Daily reports.

The net profit of China Merchants Holdings (International) rose 10.3% to HKD4.2 billion last year, with the port operator attributing the “satisfying results” to increased handling capacity and earnings from overseas acquisitions. The throughput handled by the company rose 18.5% to hit a record 71.32 million TEU. Overseas port projects contributed, for the first time, more than 10% of total throughput. Since the second half of 2012, the firm had acquired port operations in Djibouti, Taiwan and France. Total throughput contributed by the overseas projects reached 7.49 million TEU last year. Vice Chairman Li Jianhong said he was confident the overseas projects would further demonstrate their potential this year. Emerging markets, including Africa, South Asia and the Middle East, were all under consideration for further expansion. However, the acquisitions added debt pressure to the company’s financing structure. By the end of last year, its interest bearing debts had increased by HKD8.1 billion, raising its net gearing ratio to 42.1% from 27.3%. The company also announced it would issue mandatory convertible securities to raise HKD15.3 billion to repay debt and as capital expenditure.

Maersk Line, the shipping unit of Denmark’s Maersk shipping and oil conglomerate, is speeding up plans to offer a wider range of services in China because more Chinese companies are keen to move to emerging markets. Jens Eskelund, Managing Director of Maersk China, said China will continue to grow and one of the most important changes is the composition of its foreign trade. Growth in trade with mature markets in the United States and European Union is modest, while trade with new markets in Africa and South America is surging. In Africa, Maersk Group’s logistics arm, Damco, is partnering with a major Chinese petroleum company to expand in the African market. Because it needs to send large machinery and equipment from China to plants in Africa, Damco is putting a strong emphasis on timely deliveries and product security with zero damage to the cargo. The handling capacity of heavy equipment at African ports is relatively limited. Cranes at the ports may not be able to lift more than 50 metric tons. The Danish company has built inland container depots to reduce congestion levels at the terminals in certain places and deployed Chinese speaking staff in key destinations in Africa to coordinate with local teams and check all the arrangements before a shipment arrives, the China Daily reports.

Chinese banks are stuck in a lose-lose legal battle between domestic shipyards and foreign buyers over billions of dollars in refund guarantees that are supposed to be paid out if shipbuilders fail to deliver on time. One in three ships ordered from Chinese builders was behind schedule last year, according to data from Clarksons Research. Although that was an improvement from 36% in 2012, it was well behind rival South Korea, where shipyards routinely delivered ahead of schedule. That means Chinese banks may be forced to pay large sums to buyers if the yards cannot meet contract terms, with little hope of recouping the cash from the yards. China is the world’s biggest shipbuilder, with USD37 billion in new orders received last year alone. Buyers pay as much as 80% of the purchase price up front. Shipyards have filed injunctions against banks in Chinese courts to prevent payouts for late delivery, but buyers usually have a refund guarantee from a bank to ensure their money is returned if the yard defaults. Lawyers say that in many cases, banks did not require shipyards to pledge any specific collateral, leaving them exposed. If banks obey local court injunctions and hold off from issuing refunds, they risk being taken to court by ship buyers in foreign jurisdictions. But if they pay out under the refund guarantee or seek compensation from the shipyard for the loss, bankers say they risk alienating local governments, which can damage the banks’ business interests in the region, the South China Morning Post reports. Nearly all refund-guarantee contracts stipulate litigation must be conducted in a foreign court.

The Shanghai Maritime Court detained the Japanese bulk iron ore carrier Baosteel Emotion, owned by Japanese shipping firm Mitsui OSK Lines (MOL), following a verdict ordering the ship’s owner to pay delayed rent and losses to a Chinese firm. The ship was allowed to leave after Mitsui paid JPY4 billion in compensation and litigation fees.

The ship was seized at Majishan port in Zhejiang province. A Chinese company had sued the Japanese shipping firm in 1988 in the Shanghai maritime court over alleged delays in rent for two ships, plus economic losses. The two Chinese cargo ships were rented in 1936 by Daido Shipping Co, which was purchased by Mitsui OSK. Daido failed to return the two ships it had rented after the one-year contract expired in 1937. In 1940, Daido said the ships were “legally captured” and owned by the Japanese government. One sank near Japan in 1938 and the other one in the South China Sea in 1944 while China and Japan were at war. The Shanghai Maritime Court ruled in 2007 that MOL should compensate the Chinese firm Zhongwei Shipping Co USD28.4 million, including delayed rent and operating losses. Mitsui OSK appealed, but the Shanghai High People’s Court upheld the ruling in 2010, and China’s Supreme People’s Court rejected Mitsui OSK’s request for a retrial. The Shanghai Maritime Court issued an enforcement notice to Mitsui OSK in December 2011. The two parties tried to negotiate a settlement but failed to reach an agreement. The court said it would dispose of the ship if MOL continued to refuse to fulfill its obligation. Chen Rulang, a lawyer specializing in maritime lawsuits in Shanghai, said Chinese courts had rarely, if ever, taken such a tough stance to recover wartime reparations from Japan. “The verdict has been made so the action is absolutely legal, but it is quite unusual”, he said. The seizure of the ship was unrelated to wartime compensation, said Chinese Ministry of Foreign Affairs Spokesman Qin Gang, while Japan’s Chief Cabinet Secretary Yoshihide Suga said the seizure “undermined” the 1972 joint communique that normalized ties between Japan and China, in which Beijing agreed to renounce “its demand for war reparation from Japan.” Mitsui has argued that it is not liable to pay compensation given that the ships were requisitioned by the Japanese military during the war. Analysts expect more cases against Japan are likely to be filed in Chinese courts.