The port equipment industry is about to change Port Circle

For a long time, Chinese enterprises with high quality and low prices have occupied an absolute dominant position in the field of port and shipping equipment manufacturing such as port handling equipment and containers. Zhenhua Heavy Industries' quay crane products have a global market share of more than 70%, maintaining the first place for 26 consecutive years; In 2023, the global share of Chinese-made containers will be about 96%. But it is in these two strong areas that the "hurdle" of Chinese enterprises has come.

Recently, United States the White House briefing on quay cranes again, port machinery giant Konecranes announced plans to establish a consortium of United States partners (including steel structure and other suppliers) to build quay cranes in United States to serve North American ports.

On February 21, Biden pledged to spend $20 billion to replace China's quay cranes at United States ports and bring in a trusted Japanese company (PACECO, a subsidiary of Mitsui E&S) to build quay cranes in United States.United States

On April 17, the United States launched a Section 301 investigation into China's behavior, policies and practices in the maritime, logistics and shipbuilding sectors, including port equipment; On May 14, the United States government released the results of a four-year review of the additional Section 301 tariffs imposed on China, raising the tax rate on quay cranes imported from China from 0% to 25%.

Not only United States, but other countries also have some hidden or overt restrictions, India has long required Chinese-made port cranes to pass security clearance; The Germany government has no explicit restrictions, but requires cumbersome and complex documentation, prompting some operators to turn to equipment from manufacturers such as Liebherr; Korea has also inventoried China's port machinery and given preference to local factories, and its first fully automated terminal purchased yard bridges and quay cranes are locally manufactured.

In the field of container manufacturing, restrictions and competition are also increasing, and almost every year, United States lawmakers propose to target China's monopoly in container production. In 2022, the United States blocked CIMC's acquisition of Maersk's cold box manufacturing business on antitrust grounds, and the Financial Times said Germany regulators were also considering blocking the deal.

The shortage of empty containers during the epidemic has provided opportunities for some new competitors, and in recent years, Viet Nam, India and other places have built factories to manufacture containers. Among them, Viet Nam Enterprise and Fa Group, the largest steel producer in Southeast Asia, built a factory in 2021 to manufacture containers, and the first batch was delivered to Viet Nam shipping companies. Recently, Hapag-Lloyd ordered 2,000 20-foot containers from Hefa Group, which are equipped with positioning devices to facilitate monitoring during transportation. Hefa Group said that it will study and invest in the second phase of the project in due course to increase the annual production capacity to 500,000 TEU. As a comparison, in 2022, when the global dry container production is relatively normal, the cumulative sales volume of CIMC's dry containers will be 1.1073 million TEU.

Gangkouquan believes that the dominance of Chinese companies in the manufacture of quay cranes, containers and other equipment is the result of the division of labor in the global market, and it will take huge time and economic investment to break this pattern.

Port and shipping equipment manufacturing is still quite dependent on labor, and the proportion of material costs is high, making it difficult for foreign manufacturers to compete with Chinese companies with low price strategies. From the perspective of industrial chain support, the complete industrial layout and labor cost advantages have also attracted other foreign equipment manufacturers to use Chinese outsourcers.

In 2023, Zhenhua Heavy Industries' port machinery business will account for more than 60% of the total cost of materials, labor costs and other manufacturing expenses, with a gross profit margin of 16.33%, compared with only 10.26% in the mainland where there are many port machinery companies and fierce competition. In the field of container manufacturing, steel costs also account for the majority, and in 2023, the gross profit margin of CIMC's container manufacturing business will be 15.97%.

Low gross margins mean low prices, and companies around the world that purchase these products are reluctant to add additional costs. The United States Association of Port Authorities has repeatedly stated that China's ship-building bridges have found no cybersecurity problems and called for the removal of tariffs. In the preliminary survey, 33 United States port authorities and terminal operators plan to purchase 61 quay cranes over the next five years, based on an average price of $15 million each, which will require an additional $131 million, which will discourage United States port investment.

On the one hand, it will take years for companies such as Konecranes and PACECO to build production capacity, and on the other hand, industry insiders estimate that the price of United States quay cranes could be 2-2.5 times higher than in China due to higher costs. In 2022, the United States Army tendered for the purchase of two small United States-made quay cranes (only 13 rows), and the winning bid price was as high as $48 million, or $24 million each.

United States quay cranes do not have any advantages in cost, and the market share of other companies also shows that in other regional markets, their price competitiveness is not enough, such as India terminal operators have bypassed government restrictions through various means, and Adani Group's automated port has recently opened its port using Zhenhua Heavy Industries' quay cranes.

However, when the government stepped in, port equipment was no longer cost-first. The governments of the United States, South Korea and other countries actively support the port machinery manufacturing industry, and Korea also supports enterprises to build factories in Southeast Asia to manufacture containers. With the trend of "decoupling" getting stronger and stronger, under the intervention of non-market-oriented means such as subsidies and tariffs, the living space of China's port equipment manufacturing enterprises is inevitably overstocked.

Moreover, Chinese enterprises do not have obvious technical advantages in quay crane and container manufacturing, such as quay crane manufacturing is more like an integrated work, and the core components and motor control systems often rely on international companies, and they can find alternatives at a cost, and many port companies even have their own port equipment groups.

Chinese enterprises have their own opportunities, such as large-scale domestic equipment renewal actions, to provide financial and tax support measures, many provinces have issued port and shipping equipment renewal plans, such as Zhejiang Province plans to update 70 sets of port machinery and equipment by 2027. However, in the broader international market, the market barriers in some regions are getting higher and higher, and it is better to cultivate irreplaceable core advantages and look for new growth opportunities in the suppressed quay crane and container manufacturing fields with low prices. Zhenhua Heavy Industries and CIMC have relevant strategic deployments, such as Zhenhua Heavy Industries' intelligent and low-carbon upgrading of port machinery to enter more flow machine segments; CIMC is developing scenario-based logistics equipment and container + products around containers, all of which are transforming to higher-end equipment solutions with higher profit margins. Now, it's time to seize new markets.