COSCO takes stake in Hamburg Port terminal

Chinese state-owned firm, COSCO Shipping Corporation Limited (COSCO) has gained a foothold in Hamburg, Germany’s largest seaport.

On Sep 21 it was confirmed that COSCO subsidiary, COSCO Shipping Ports Limited (CSPL), will take a 35 percent stake in Container Terminal Tollerort GmbH (CTT). Antitrust authorities have yet to approve the deal.^1,2,3

HHLA, which saw volumes at its Hamburg terminals fall 7.2 percent in the first three months of 2021,⁴ announced in June that negotiations were underway with COSCO. HHLA hopes that additional traffic and infrastructure investment will flow from a strategic partnership with COSCO, while COSCO seek linkage effects for shipping services through the operation of its own global terminal network.⁵

A state champion aligned with Beijing’s maritime ambitions

COSCO is the world’s third largest container carrier measured by capacity, and the fifth largest port terminal operator in terms of throughput.^6,7 It was born in its current form, through the complicated merger, in 2015-2016, of COSCO with its rival, China Shipping Group (CSG), emerging as a formidable national champion.⁸

COSCO’s ownership structure is a hybrid of state owned and public company. The firm’s global expansion is in line with Beijing’s interests, and its growth has been facilitated by access to state capital,⁹ though it can be difficult to disentangle COSCO’s political and commercial drivers.

Beijing’s declared ambition of becoming a global “maritime power”¹⁰ includes the development of China’s maritime industries and merchant navy – a strategy that is clearly in line with the interests of COSCO’s executives and shareholders.

Chinese firms control 10 percent of European shipping

There are three Chinese companies involved in European ports: COSCO, China Merchants Port Holdings Company (CMP) (招商局港口控股), which is the world’s sixth largest terminal operator, and Hutchison Port Holdings Limited (Hutchison) – a private Hong Kong group that is the world’s number two operator. Of these, COSCO is the most relevant actor – it is the only operator that is also a shipping carrier, and it is the only state-owned Chinese actor with controlling shares in European terminals.

COSCO achieved its ambition of operating its own port in Europe in 2008 when, facilitated by the global economic crisis, it gained a 35-year lease to manage piers 2 and 3 at the Athens port of Piraeus. In 2016, the Greek government sold its majority stake in the Piraeus Port Authority (PPA) to COSCO, as Greece was under pressure to repay debt to the EU and International Monetary Fund.

Although the takeover has not been without controversies, Piraeus under COSCO’s leadership has become the busiest port in the Mediterranean and the fourth busiest in Europe, up from 17th place in 2007.¹¹

EU concerns about Chinese firms’ expansion

In Europe, the boom in Chinese investments that followed the global economic crisis has given way to wariness and new regulations for screening foreign direct investments. As ports have “critical infrastructure” status, Chinese investors’ interest in them has received special scrutiny.

• The network effects of Chinese port acquisitions could be significant – The market conditions exist for China to expand its control over European terminals; some scenarios suggest Chinese port operators could gain shares that would give control over as much as half of European throughput. Although the expansion is commercially driven, there are inevitable political consequences to greater Chinese control over global shipping flows, as there are risks to the strategic autonomy of European policymakers and their ability to control supply chains.
• Ownership creates indirect influence – Beijing has recently used freight traffic as a coercive tool against Lithuania. However, diverting cargo away from Piraeus would be a dramatic act of self-harm.¹² While it is not always obvious which levers Beijing would pull to translate its economic significance into influence over policymakers, Piraeus is Greece’s main seaport and an important piece of its economy.    
• China-owned ports in Europe will not become dual-use facilities but can still pose security risks – Beijing is not beyond hiding strategic military intent behind commercial activities but transforming port interests into military facilities takes many years and is not possible without the explicit backing of the host country. Greece remains a sovereign state and COSCO’s concession rights to Piraeus would be irrelevant in a state of war. A more valid concern is that commercial port infrastructure fitted by Chinese companies could be used for intelligence gathering.
• Acquisitions may be detrimental to labor rights - The main complaint against COSCO in Piraeus was that it casualized employment, undermined the unions and intensified work without accompanying protections. In Germany, the Ver.di union has criticized negotiations with COSCO, saying the Hamburg acquisition would undermine social justice in the future development of the port. However, the shift towards a worker-hostile, just-in-time business model is an industry wide phenomenon. In their statement, Ver.di noted that employment conditions are being “increasingly determined by a small, global group of shipping companies.”

Chinese firms are in the market for European terminals. Many independent terminal operators see such deals and sales as making sense in order to guarantee cargo flows. Shipping industry consolidation has generated an oligopoly of three shipping alliances with significant sway over the fortunes of European ports. COSCO is a dominant member of the OCEAN alliance, the largest of these three groups.

The trend in shipping is toward greater vertical integration and consolidation. By turning to COSCO, ports like Hamburg are responding to inescapable market pressures. However, these decisions are likely being made with limited consciousness or concern for the wider strategic consequences. COSCO is competing on an uneven playing field with the backing of the Chinese state, and its market dominance is a potential geopolitical tool for Beijing.

This pattern of consolidation may need to be interrupted in order to protect the resilience of European companies. Any measures taken will need to be enacted Europe-wide, as ports will be reluctant to pass up partnership opportunities when they risk seeing the benefits go instead to competing ports in neighboring member states.

Endnotes

1  https://www.welt.de/wirtschaft/article233222169/Hamburger-Hafen-Die-Hansestadt-wagt-den-heiklen-China-Deal.html
2 https://hhla.de/unternehmen/news/detailansicht/hhla-verhandelt-mit-cosco-shipping-ports-ltd-ueber-strategische-minderheitsbeteiligung-am-terminal-tollerort
3  https://www.ndr.de/nachrichten/hamburg/Chinesische-Reederei-steigt-bei-Hamburger-Hafenterminal-ein,hhla402.html
4  https://shippingwatch.com/Ports/article13041470.ece
5  https://ports.coscoshipping.com/en/#financial-highlights
6  https://www.ship-technology.com/features/the-ten-biggest-shipping-companies-in-2020/
7  https://www.marineinsight.com/know-more/11-major-container-terminal-operators-in-the-world/
8  https://www.seatrade-maritime.com/asia/cosco-shipping-guide-merger-cosco-and-china-shipping
9  https://jamestown.org/program/shipping-finance-chinas-new-tool-becoming-global-maritime-power/
10  https://www.scmp.com/news/china/article/1077858/china-should-become-maritime-power-hu-jintao-says
11  https://www.railfreight.com/intermodal/2020/02/24/gdansk-and-piraeus-most-dynamic-container-ports-in-europe/
12  https://www.scmp.com/news/china/diplomacy/article/3145520/china-halts-rail-freight-lithuania-feud-deepens-over-taiwan