As Wei Jiafu is appointed Connecticut Maritime Association commodore, the confident and ebullient Cosco president talks about his track record with the Chinese giant, his love affair with America, and the prospects for shipping

ONE great helmsman greets another every time China Ocean Shipping (Group) president and chief executive Captain Wei Jiafu enters his office on the 11th floor of Cosco’s headquarters in Beijing’s Ocean Centre. Standing on its own plinth is a 1 m high statute of China’s own great helmsman, Mao Zedong, arm outstretched in his customary wave.

Perhaps the surprise is that the statue is of Mao, not China’s great reformer, Deng Xiaoping. But then again, Mao united the country and led an industrialisation programme that paved the way for Deng to open the door to foreign influence and investment in 1978, leading to China’s rise as a global power.

Cosco and Capt Wei have seen, and been part of, this rise in stature first hand. Capt Wei joined China’s largest shipping company as a 17-year-old radio officer in 1967 at the height of the cultural revolution. After graduating from Dalian Maritime University and gaining his master’s ticket, Capt Wei’s first visit to a US port was to Corpus Christi in 1982 onboard a panamax bulker to load a cargo of ore. This was four years after the launch of Deng’s ‘open door’ policy promoting foreign trade and economic investment.

The visit was notable because it attracted the attention of the US Coast Guard and more than 20 staff boarded the ship and carried out a 40 minute inspection. It was only after the ship and crew successfully passed muster that, as Capt Wei tells the story, the coastguard group agreed to drink beer and share cigarettes with the master and crew.

In the following 27 years, including the last 10 with Capt Wei at the helm, Cosco has grown into a $17bn corporation, with more than 800 ships with a total carrying capacity of around 55m dwt and annual cargo volumes of 416m tonnes.

Capt Wei sees being appointed Connecticut Maritime Association commodore as a “great honour”. For its part, CMA says that “with over 10 years of seafaring experience and as a well-experienced captain, Capt Wei has a rich knowledge in international shipping management and operation”.

Association president Beth Wilson-Jordan adds: “As the world deals with unprecedented economic and trade challenges, the CMA is delighted to have as our commodore someone actively involved in the growth and development of world trade.”

On a personal level, Capt Wei has developed an abiding admiration for things American and appreciates Americans’ frankness, directness and willingness to change their opinion. “I like American culture,” he says. So while Mao stands upstairs, there is a Starbucks on the ground floor of Ocean Centre to provide a convenient meeting place for Capt Wei and his visitors.

It is this liking of the American psyche, set against a background of China’s inexorable rise as an economic powerhouse, that maybe makes Capt Wei as bullish, confident and ebullient as he always appears.

That’s not to say he is not a realist, but it is hard to imagine him ever getting depressed.

The current crisis is the sixth to affect the shipping markets and global trade since the 1960s, although this is different from previous events because of the involvement of the banking sector.

Capt Wei says globalisation has exacerbated the downturn because of the way problems, shown by the slump in the car industry, have been “easily transmitted to other economies”.

He says that apart from the obvious influences on the shipping industry, including a surge in newbuildings, falling demand in the US and Europe and tighter liquidity, speculation was another thing that should be mentioned.

Capt Wei adds that as the boom time lengthened, “so more and more new operators and more money flew into this industry”. Financial institutions got deeply involved, which helped push the volume of forward freight agreements up to a record $130bn last year.

“Speculation can make money, but it also could push the market to an artificial level,” he says.

Given the resulting global slump, he welcomes the collective action taken by governments, including those in China, the US and Europe, to launch stimulus plans in an effort to buoy demand. Capt Wei says the measures, including China’s Yuan4,000bn ($588bn) stimulus plan, have already started to boost demand and are being felt in the dry bulk sector. “The stimulus plan is effective. It strengthens people’s confidence.”

China saw iron ore imports surge by a record 46.7m tonnes in February, up more than 43% from the 32.7m tonnes imported in January.

Consequently, the worst is over in the dry bulk market, although the recovery is still fragile, Capt Wei says.

Global recovery will depend on “how fast the US and European Union will walk out of this recession, for consumption will be the decisive factor to be considered”.

As for individual shipping markets, Capt Wei says the prospects for container shipping and car carriers will continue to slide, while the “worst has not come” yet for the shipbuilding sector.

”I am quite puzzled with the tanker business. Hopefully by 2010, with the gradual phasing out of single-hull tankers, the market would be much better than today.”

As far as Cosco’s own prospects, Capt Wei says a special in-house research team was set up in July 2007 to monitor and offer advice as the US sub-prime mortgage crisis started to unfold. When the problems started to affect the US and European banking sector, Cosco decided to take a series of measures.

The first was to convert foreign currency debt into Yuan-denominated debt, while transferring debt to Chinese banks to reduce the firm’s exposure to foreign banks. He says this was to make “cash king”, while “stopping sophisticated investment projects in shipping”. The company also signed a strategic agreement with a banking syndicate for a Yuan74.5bn credit facility.

It was against this background that Capt Wei curtailed plans by Cosco group companies to order a total of 126 bulk carrier newbuildings last year, despite dissent from Cosco executives.

He says staff questioned his decision to cancel the newbuilding proposals when the market was still rising. Justifying the move, he told them his belief that the market would “go sharply down in the near future”.

Capt Wei says strategic partnerships and diversified business operations would help firms ride out the slump. Alliances should give lines more flexibility in terms of shared services and slot exchanges to help reduce costs and increase efficiencies.

Capt Wei says Cosco’s own diversified operations, with a core business of bulkers, tankers, boxships and specialist vessels, together with ship repair, shipbuilding, terminals and logistics, offer more stability.

But as the financial turbulence affects the global shipping industry, Cosco will alter its fleet expansion plans accordingly. The aim is to “increase the flexibility of its fleets, optimise its fleet structures, balance the proportion between self-owned and chartered capacity and rein capacity growth”, he says.

While Capt Wei says it is hard to predict how long the recession would last, “many believe 2009 will constitute the bottom of the recession”. If they are correct, the market will recover by the end of the year.

Capt Wei also sees merger and acquisition opportunities as shipping companies run into financial trouble, or logistics companies expand into shipping to take advantage of low asset prices.

Overall, however, he remains optimistic that the shipping market and wider global economy will recover, as it had done after the five previous crises.

On a personal level, he recognises that management has a particular role to reassure and motivate staff during the downturn.

Within Cosco, each managing director knows they have three people behind them who can take over if they fail.

While such an arrangement might smack of Mao, Capt Wei says that, equally, there is a market economy system when it comes to bonuses. Good work has resulted in a substantial bonus. “It encourages people to work harder in the future,” Capt Wei says. Surely this is the kind of incentive that Deng would have understood.

It is difficult to imagine Capt Wei leaving Cosco. He has been linked to a raft of government positions, including the mayor of Chongqing and governor of Jiangsu and other provinces.

But as a master and a senior engineer with a doctorate in ship structural design and manufacture, there is a sense that Capt Wei’s work at Cosco is not yet over, especially with the maritime industry in the grip of a worldwide crisis.