US companies re-examining Chinese supply chains, top shipping boss says

US companies are starting to cut their reliance on Chinese supply chains and seek out alternative shipping routes in Asia as relations between the two superpowers deteriorate, according to the head of one of the world’s biggest container companies.

Rodolphe Saadé, chief executive of France’s CMA CGM, predicted that the overhaul would take several years because potential beneficiaries like India, or south-east Asian countries such as Vietnam and Thailand, still lack the infrastructure to accommodate the very largest container ships.

“We have clients telling us they do not want to put all their eggs in one basket in China, so they are looking for other solutions,” he said in an interview.

“The movement has begun, but not yet at large volumes. It will take time. Maybe in five or 10 years, if India and south-east Asia build port terminals that can accommodate large ships, then they will play a different, bigger role,” he added. Saadé did not name any of the US companies.

The Covid-19 pandemic and the Russian invasion of Ukraine have highlighted the risks of global supply chains underpinning everything from energy to medical supplies.

Rodolphe Saadé
Rodolphe Saadé: ‘After what we’ve experienced in the past two and a half years, anything that happens after that is a hard landing’ © AFP via Getty Images

The motivation for companies to examine their supply chains in China has been heightened by fears over the economic and political fallout were Beijing to order an invasion of Taiwan, a democratically ruled country over which China has long claimed sovereignty.

Shipping companies have been one of the biggest winners from globalisation but are now facing the abrupt end of a three-year boom that delivered record profits.

The pandemic-driven disruption that drove freight rates higher has eased as Covid-19 restrictions end and consumers cut back spending.

The slowdown left CMA CGM with its first contraction since the pandemic-induced boom, with revenues dropping 3.6 per cent in the fourth quarter to $16.9bn. Profits also declined to $3bn, with margins sliding to 33.7 per cent from 46 per cent in the third quarter.

AP Møller-Maersk and MSC Mediterranean Shipping Company have also been hit by the steep drop in freight rates over the last six months. On routes from China to the US west coast, these are 85 per cent below their peak.

The shipping industry has long been prone to boom-and-bust cycles. “After what we’ve experienced in the past two and a half years, anything that happens after that is a hard landing,” Saadé said.

The boom helped drive CMA CGM to a record net profit of $24.9bn last year, while revenue rose 33 per cent to $74.5bn. Ebitda profit margins hit almost 45 per cent last year, up from 12.4 per cent in 2019, before the pandemic.

Saadé said that about 10 per cent of group profit would be paid out in dividends, with the rest reinvested in the business. Given the Saadé family own 73 per cent of the group, they have been spectacular winners from the shipping boom. The family has a net worth of almost $24bn, according to Bloomberg.

Although the shipping group does not give specific guidance, Saadé projected CMA CGM would turn a profit again this year, adding he was optimistic that the US would avoid a recession.

Next year could be a tougher, however, as shipping companies take delivery of new vessels equipped to meet stricter environmental standards, causing a potential overcapacity problem, he added.

Like other shipping executives, Saadé argued that a shift away from China, particularly among US companies, did not signal an end to globalisation, but an evolution towards more regional supply chains.

Rolf Habben Jansen, the chief executive of German shipping group Hapag-Lloyd, said this week that India could be one of the big beneficiaries.

“Certainly a lot of people are looking at India as an alternative or an addition to China,” Habben Jansen said.

Like its rivals, CMA CGM has been using the cash amassed during the boom to fund an acquisition spree. It has acquired more port infrastructure and is diversifying with a big push into logistics businesses, including “last mile” delivery operations as well as other forms of freight such as air cargo. It bought a 9 per cent stake in Air France-KLM as part of a partnership with the airline group.

“We will continue to do acquisitions in our core businesses,” said Saadé.

Additional reporting by Oliver Telling

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