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Price war on Sino-Japan routes to heat up mega deal
Last Updated: 2014-05-08 11:37 | ce.cn/agencies
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Three of China's state-owned enterprises (SOEs) signed an agreement to cooperate on Japan routes on May 6, reports the China Business News.

The three companies, namely the China Ocean Shipping (COSCO) - controlled Shanghai Pan Asia Shipping - as well as China Shipping-controlled Shanghai Puhai Shipping and Sinotrans Container Lines, will collaborate on the routes to eliminate competition and maximize benefits. They plan to add capacity and share routes to Japan for operations from the Shanghai, Qingdao and Dalian ports.

This will be the first collaboration among three companies that earlier used to compete against each other.

The collaborative effort will not be applicable to deep-sea routes, such as on the United States or European routes, but only on the Japan routes that were basically operated by China's local companies.

The signing triggered panic price cutting, a ranking official at a shipping company said, adding that a week before Labor Day, shipping prices for Qingdao to Japan were cut to negative US$400/TEU, and cut to negative US$500/TEU after that. The abnormal phenomenon of negative shipping prices has occurred for several years on the Japan routes too, according to the report.

As the routes are short and shipping turnover rates are also short, more and more shipping companies are waging price wars after opening the routes. Negative shipping prices began in 2003, although it was still rare on other routes.

The price war became fiercer in 2006, to the point where the Ministry of Transport had to once publish a notice disciplining four companies for shipping at prices lower than the reasonable level, which hampered fair competition.

"The price war in those years forced some smaller shipping companies to withdraw from the Sino-Japan routes. Japan's shipping companies had no appetite for the market, but were eyeing the more lucrative deep-sea shipping routes, and there were only eight or nine Chinese shipping companies at present fighting each other on the route," the ranking official pointed out.

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