China Merchants Group: Enduring and Adjusting Simultaneously to Tide Over Industry Difficulties

Chen Lu

According to a recent report in China Ship News, China Merchants Industry Holdings Co., Ltd. under China Merchants Group, China International Marine Containers (Group) Co., Ltd.,Shandong Province, Shenzhen and SDIC Innovation Investment Management Co.,Ltd. are setting up “China Offshore Engineering Group” in a bid to build a world-class leader in the overall solution of marine engineering. In the establishment of China Offshore Engineering Group, China Merchants Industry and CIMC plan to inject assets and business related to marine engineering of the two sides, Shandong Province, Shenzhen City and SDIC Innovation will as strategic investors cash in, setting up an offshore engineering group company with market-oriented operation under mixed ownership system.China Merchants Industry did not respond positively to the news. According to insiders close to China Merchants Group, although the market for marine engineering equipment is still depressed,if no special circumstances occur, China Merchants Group will eventually take over the group's marine engineering equipment business.

At present, international oil prices have entered the deep adjustment stage, and the excess capacity can not be completely digested. In order to sell offshore engineering equipment as soon as possible, many shipbuilders have to sell assets by means of price reduction and so on. In this period, why should the China Merchants Group “go against the market"? What is the train of thought of developing offshore engineering equipment manufacturing business?“Since last year, although the offshore engineering equipment market has shown a difference between rise and fall as oil prices fluctuate, with considerable uncertainty, I think the industry has completely emerged from its most difficult period and will gradually recover after the bottom fluctuations.” Li Jianhong,chairman of China Merchants Group,stressed during our exclusive interview“The market for offshore engineering equipment is enduring, but it is more necessary to rely on adjustment, and it is necessary to optimize and adjust the industrial structure.”

Enduring -- Offshore Engineering Industry Has Opportunity Amidst Crisis

Li Jianhong believes that the recovery momentum of the shipping market has been suppressed by the aggravating international trade disputes to a certain extent. Affected by factors, such as the implementation rate of the OPEC production reduction agreement, the reduction of Iranian production and export volume, and the increase of shale oil in the United States, oil prices are expected to remain fluctuating in the range of 40-60 US dollars / bbl in the future, the global offshore engineering equipment market is still touching the bottom, with very little drilling demand, prices are depressed, and although the utilization rate of relevant offshore engineering platforms has recovered slightly, daily rents are still fluctuating at a low level.The market situation is becoming more and more difficult, and the relationship between supply and demand is difficult to reverse. However, it is gratifying to see that the current oil and gas production equipment has remained active and floating for quite a long time. The demand for high-end offshore engineering equipment such as FPSO, FLNG, FSRU is on the rise. In addition, there are some opportunities for wind power installation ships, new environmentally friendly ships,South China Sea resource development,marine green energy development equipment and so on. “Therefore, the offshore engineering equipment industry as a whole is marked by worries in the process of change, dangers in the worries,opportunities in the danger, and difficulties have to be tided over by enduring and adjusting at the same time,” Li Jianhong concluded.

While the offshore engineering industry is in the enduring or suffering stage, China Merchants Group mainly takes destocking and transformation and upgrade as the starting point, and assists the industry to get out the depression as soon as possible. On the one hand, through impairment provision, capital injection increase and other means, it works to reduce burden and pressure, gives play to advantages of the financial sector of China Merchants Group. It engages in destocking by expanding the lease and sale channel,participating in the bidding by integration of industry and finance, operating financial lease, establishing the Great Wall Marine Science and Technology Strategic Development Industrial Fund and other ways. In the past two years, China Merchants Industry has disposed of 11 offshore engineering inventory projects.This year, it has confirmed 4 additional destocking projects, and the number of destocking is far ahead of domestic peers.The destocking model is listed as an industry model by the competent authorities -- the MIIT Equipment Department. On the other hand, the Group has actively stepped up the development of high-end offshore engineering oil and gas equipment,and developed high-end offshore engineering equipment market such as FPSO, LNG carriers and special engineering vessels. A major breakthrough has been made in the FPSO and LNG vessels, laying the foundation for the transformation of the enterprise to the high-end offshore engineering equipment manufacturer.

On February 24, a 2+2 jackup rig rental contract was signed with the United Arab Emirates drilling contractor Shelf Drilling. According to the agreement, Shelf Drilling will acquire 2 GustoMSC CJ46 jack-up drilling platforms at the price of US$174 million, and it is expected to complete the delivery in the second quarter of 2019, and in the same period, use right of two additional jack-up drilling platforms for 3+3 years will be obtained in the form of bare charter with the preemptive right.In Li Jianhong’s opinion, the offshore equipment market destocking is a medium and long term task, to release the current excessive inventory, the first is to have demand and market, the other is to promote the benign circulation and interaction between the manufacturing industry and the financial sector,realize the combination of industry and finance, and reduce the financing costs of enterprises through financial support for the real economy, shape the core competitiveness of enterprises, provide customers with high-quality products,enhance efficiency and expand the market. At present, China Merchants Group is solving the equipment destocking problem in accordance with the two-pronged train of thought.

Adjustment -- Industrial Structure “Segment Upgrade”

In the aspect of the adjustment of the offshore engineering industry,China Merchants Group mainly focuses on the transformation and upgrading and optimizing the industrial structure,and tries to expand the business to the equipment manufacturing business related to the ocean economy.According to Li Jianhong, as the next step, the Group will unswervingly promote the product mix adjustment,firmly establish the concept of differentiated competition, and focus on high-end, green, scientific and technological ocean equipment and cruise ship products.

The first is to make a good job of making the cruise ship. “The success of the cruise ship manufacture is the mark of the optimization of the industrial structure and the product upgrade of the enterprise. The successful construction of the cruise ship, successful construction of the shipyard and good preparation for the establishment of the park will be the Group’s three key tasks in the cruise ship manufacturing for recent years,”he added.

The second is to continue to strengthen scientific and technological innovation. The Group will focus on the innovation of science and technology as the core comprehensive innovation strategy, take sci-tech innovation as the traction for the four-wheel drive strategy implementation. The Group vows to promote the quality and enhance the efficiency with management innovation, promote the transformation and development of the enterprise with the scientific and technical force, and build the scitech innovation development thinking integrating industrial research, product R&D and science and technology industrialization.

Third, further promote the integration of internal and external resources. In the rapid development and high-speed expansion of the business, the Group focuses on straightening the product positioning of each shipyard, strengthening internal resource integration and synergy,external resource cooperation, etc.,and continuing to optimizing the structure of capital and business. As Li Jianhong put it, the Group is currently actively laying out the cruise industry,including the operation of the home port and the construction of the cruise ship. On March 12, China Merchants Group Industry Polar Adventure cruise ship No.1 was officially launched. The ship is the first independently built cruise ship in China, and is the first polar adventure cruise ship in China's shipbuilding history. The construction has accumulated experience for China Merchants Group in the construction of medium- and large-scale luxury cruise ships in China.

Meanwhile, the new scientific and technological revolution and industrial reform, characterized by the deep integration of 4G and 5G communication network technology and manufacturing industry, are giving birth to the rise. Digitization,networking and intelligence have increasingly become the main trend of manufacturing development in the future. The major shipbuilding countries in the world have accelerated the pace of intelligent manufacturing.Shipbuilding and ocean engineering industry is typical discrete production,which has the industrial particularity of make-to-order (MTO), many varieties, small batch, large volume and weight, prone to adjustment in the process of construction, etc., which puts forward special requirements for the application of digital, networked and intelligent technology. Li Jianhong believes that since the 21st century, China's shipbuilding and ocean engineering industry has achieved rapid development, backbone shipyards have gradually established a modern assembly shipbuilding model characterized by the organization and production of intermediate products,and have carried out intelligent transformation and exploration to varying degrees, and have achieved certain results. However, on the whole, China's shipbuilding industry is still in the initial stage of digital manufacturing.

In the face of new challenges and opportunities, China Merchants Group will coordinate and integrate the resources of shipbuilding and ocean engineering industry enterprises.According to the Action Plan for Promoting Intelligent Transformation of Ship Assembly Construction (2019-2021) issued by MIIT and the State Administration of Science, Technology and Industry for National Defense in December 2018, taking China Merchants Group Cruise Manufacturing Company as a pilot, by comprehensively promoting three-dimensional digital design, a single process / manufacturing unit / workshop for automatic production pilot, an integrated ship production information platform will be built, digitization, automation and informationization will be promoted synchronously, combined with the improvement ability of ship type R&D and process and engineering method,and the intelligence unit, intelligent production line and intelligent workshop with international advanced level will be built, and the intelligent shipyard of digital shipbuilding will be basically realized.