Evergreen Rises on Lure of $100 Billion China-India Trade: Freight Markets
China and India, which first traded with each other more than 2,000 years ago on the Silk Road, are luring companies from FedEx Corp. to Evergreen Marine Corp. with a potential 62 percent increase in bilateral trade by 2015.
FedEx began flying a cargo route five times a week between Guangzhou and Mumbai last month, while shipping lines Evergreen Marine, A.P. Moeller-Maersk A/S, China Cosco Holdings Co. and Orient Overseas International Ltd. have added capacity or seen traffic increase in the past year as the leaders of the world’s two fastest-growing major economies pledge to boost commerce to $100 billion.
“The potential is huge in the long run, as we are talking about trade between the world’s two most populous countries,” said Arthur Kwong, a Hong Kong-based fund manager at BNP Paribas Investment who oversees about $800 million in Asian assets, including shares in container shipping lines. Increased trade will boost shipping and capital goods industries, he said, without divulging his stock holdings.
Commerce between the nations has jumped 20-fold in a decade to $61.8 billion as they seek to revive ties that first flourished with the exchange of gems, fabrics and ivory. China and India, which went to war over a disputed Himalayan border in 1962, began direct flights in 2002 and agreed in December to spur bilateral trade that includes commodities, pharmaceuticals and electronics.
“I believe this trade route will emerge as the most important trade line in the world,” said Taarek Hinedi, managing director of Indian operations in New Delhi at FedEx Express, a unit of the largest cargo-airline operator. “With the new flight, we seek to capitalize on the phenomenal potential and grow with the two economic giants.”
Evergreen Marine, Taiwan’s largest container-shipping line, and Simatech Shipping LLC of Dubai jointly started a route last month between China’s Xingang Port and Nhava Sheva port near Mumbai on the Indian west coast. The six container ships the companies are deploying will also stop in Karachi and Colombo.
Taipei-based Evergreen Marine’s shares rose last month to the highest level since April 2008. The shares traded on Jan. 28 at an estimated price-to-earnings ratio of about 6.6 times, less than the 13.5 times for the 730 companies on Taiwan’s Taiex Index. Citigroup Inc. and Goldman Sachs Group Inc.’s analysts have a “buy” recommendation on Evergreen’s stock.
Orient Overseas, Hong Kong’s largest container-shipping line, also may benefit from the rising trade ties between the two Asian nations, said Jimmy Lam, a transport analyst at Daiwa Securities Capital Markets in Hong Kong. Lam has a “buy” recommendation on Hong Kong-based Orient Overseas.
Gems and Textiles
FedEx carries electrical and mechanical equipment, gems, raw materials, textiles, pharmaceuticals and agricultural goods on its China-India flights. In addition to the latest Guangzhou- Mumbai-New Delhi route, which increased weekly capacity between the two countries by 160 metric tons, the company has had direct flights connecting Shanghai and New Delhi since 2005.
DHL Global Forwarding, a unit of Deutsche Post DHL, transports cargo daily between Shanghai and the Indian cities of Madras, Mumbai and New Delhi through its partnerships with various commercial airlines, said Li Wenjun, air-freight director for its China operations. United Parcel Service Inc. declined to comment on its operations between the two countries.
A flight between Guangzhou and Mumbai takes about 6 1/2 hours, while a container ship can take about two weeks to reach an Indian port from a Chinese one, including stopovers in Singapore and Malaysia as it travels through the Malacca Strait.
In contrast to sea and air links, trade by land between China and India, each with a population of more than 1.2 billion people, is nascent. It was only in 2006 that the neighbors reopened the 4,545-meter-high Nathula Pass across the Himalayas, a trade route that had been closed since the 1962 border war.
India and China have had a 2,000-year history of trade engagement and this is a relationship that will get stronger and stronger,” said Amitendu Palit, a visiting senior research fellow at the Institute of South Asian Studies in Singapore who worked at the Indian finance ministry for a decade. “What we need are more direct trade linkages, whether it is by land, sea or air.”
While trade relations are improving, Premier Wen Jiabao and Prime Minister Manmohan Singh at a meeting in December avoided giving details on how they will resolve disputed areas of their 4,200-kilometer (2,600-mile) Himalayan border.
India has protested a recent Chinese practice of refusing to stamp visas into the passports of people living in the Indian-administered part of Kashmir. China opposes the Tibetan spiritual leader, the Dalai Lama, who campaigns for Tibetan autonomy and human rights from exile in northern India.
While companies are adding capacity to their routes, they say they carry more cargo to India than they do away from the South Asian nation.
The volume of cargo transported to India by China Cosco, Asia’s largest shipping line by market value, is more than double that of the return trip, when its vessels carry cotton, textiles, iron and steel products, machinery parts, leather, seafood and fruit. The route currently accounts for less than 1 percent of China Cosco’s sales.
“China still relies on iron-ore imports from India for its steel industry,” said Hong Kong-based Patrick Ho, who helps manage the $13.7-million BNP Paribas China-India Fund. “As a result, the dry bulk shipping industry is benefiting from its growth. From China, India imports capital goods, which they need most for their upcoming infrastructure spending in electricity and toll roads.”
Chinese companies have been bigger gainers in the bilateral trade relations so far, with $40.9 billion of exports to India in 2010 versus $20.8 billion of imports, according to the Beijing-based Customs General Administration. China is India’s biggest trading partner while India is China’s ninth-largest, according to the Chinese foreign ministry, trailing markets led by the U.S. and Japan.
China’s trade surplus over India was $20.1 billion in 2010, widening from about $16 billion a year earlier.
“In the past few years, India’s trade-deficit problem with China has been exacerbating,” said Hu Yifan, chief economist at CITIC Securities Co. in Hong Kong. “India complains about barriers to its higher-value exports such as pharmaceutical and telecoms products to China. On the other hand, China is unhappy about India’s stringent regulations in sourcing power and telecommunications equipment.”
Wen has vowed to respond to India’s request to reduce the trade imbalance by allowing more access for products from the South Asian nation, notably pharmaceuticals, information technology and agricultural goods. Wen and Singh also pledged to increase investment and bank access in each other’s economies.
Indian billionaire Anil Ambani’s Reliance Communications Ltd. is buying phone equipment from ZTE Corp. and Huawei Technologies Co. after India’s government allowed Chinese vendors to supply phone companies in July, subject to security inspections. Both ZTE and Huawei are based in Shenzhen.
Chinese companies signed $16 billion of deals with Indian businesses during Wen’s three-day visit to New Delhi in December. Ahmedabad-based Adani Power Ltd. placed orders for $3.6 billion of equipment with Chinese companies, while Mumbai- based SRM Energy Ltd. gave $1.4 billion of contracts.
Marseille, France-based CMA CGM SA, the world’s third- biggest container shipping company, and Maersk, based in Copenhagen, jointly started a route in June that linked Chinese and Indian ports with six vessels of 5,500 20-foot equivalent units each.
Soren Karas, head of South China at Maersk Hong Kong Ltd., a unit of the world’s largest container-shipping line, said cargo trade between China and India may grow 20 percent this year, more than the 8 percent rate he predicts globally.
In September, Maersk, which has more than 100 offices in China and India, began a new route between China and east India, shipping mostly consumer products, including electronics and auto parts, from Shanghai to Chennai with vessels of about 3,000 20-foot equivalent units each.
“We need to increase the size of those ships in future as we expect growth in this market,” Karas said. “It is an exciting market that has great potential.”
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