Major mainland shipping lines that now dominate the domestic container business are set to face competition from smaller rivals following the establishment of the Shanghai free-trade zone, which allows foreign-registered vessels owned by Chinese shipping lines to carry seaborne goods between Shanghai and the other ports along the mainland coast.
Analysts said that could bring an end to what they called a "duopoly" by China Shipping Container Lines (CSCL) and China Cosco on the interport business, which was previously opened only to Chinese-registered vessels.
Although all wholly Chinese-owned companies can register their vessels in China, few - apart from China Cosco and CSCL - actually did so because not only is the ship registration process lengthy and complicated, but vessels flying the Chinese flags are subject to many restrictions on their operations and financing, and the cargoes they carry are also liable to hefty duties amounting to 33 per cent of the value of the goods.
Many Chinese-owned vessels, as a result, are registered in jurisdictions such as Hong Kong, Panama or Honduras, which charge very little or no tax.
But with Shanghai opening its domestic shipping trade to non-Chinese vessels, the hundreds of small local shipping lines owning just a couple of vessels can now hope to take a slice of the cake.
"The opening up of the market would definitely bring challenges to CSCL and China Cosco, which have long dominated the sector, although the new rule also gives the two companies advantages in better deployment of their vessels," said Kelvin Lau, a shipping analyst from Daiwa Capital Markets.
Although domestic sea trade fell 35 per cent to 31.9 trillion tonnes over the first three quarters of this year, according to the Ministry of Communications, the industry said the domestic container trade was accelerating, thanks to increasing demand for consumer goods.
The head of Shanghai's Maritime Safety Administration, Xu Guoyi, said last Tuesday that it was also considering whether to allow foreign companies to register their ships in its major port, Yangshan.
While some mainland media said that might signal a further opening of the domestic sea trade to foreign players, a Chinese shipowner said the flag of an individual city was not the same as a national flag and did not give the vessel the right to conduct domestic container business.
But Huang Zhongming, an official at Shenzhen's Transport Bureau, said the mainland had reasons to improve its antiquated vessel registration system.
"China is undisputably a maritime giant. Its total berth capacity exceeded 200 million deadweight tonnes in 2011, the size of its ocean-going fleet was the world's fourth-largest and six of the 10 busiest ports in the world come from China," he wrote in a journal. "However, vessels that fly Chinese flags made up just 2 per cent of the global fleet capacity, causing an outflow of assets that should have belonged to China."
Markets including Hong Kong and Singapore have offered tax incentives to attract more ship registrations, believing that would result in other maritime businesses in ship brokerage, financing and management. But analysts, including Sunny Ho of the Hong Kong Shippers' Council, say there is not necessarily any relationship between the two.
Xu said on Tuesday that Shanghai would simplify procedures and offer incentives for foreign-registered ships that wanted to switch their "nationality".