China's ports could leave SE Asia's high and dry

China's ports could leave SE Asia's high and dry
By Nazery Khalid

(Republished with permission from Japan Focus.)

No discussion of China's tour de force economic performance would be complete without taking a look at its maritime strengths and port development, as a majority of its international trade is carried by sea.

China has been ranked as the world's third-largest trading country by the 2005 US-China Business Council Report, and its fourth most important maritime state in terms of number of merchant vessels and its 6.77% contribution to the world's total shipping tonnage [1]. At the end of 2004, China commanded a 6.2% share of world trade generated in terms of value.

The explosion in international trade has had a tremendous impact on the growth of China's port sector and has excited state planners to hurriedly continue expanding the country's port capacity to support trade and container traffic growth. This has become a matter of national interest, as the coming years promise to see China sustain its strong trade performance. This is expected to boost its cargo base, especially from the manufacturing sector, and demand more of its ports, shipping and associated services. Accordingly, the government's 11th Five-Year Plan lays down a systematic strategy to develop its ports, and a huge amount of funds have been allocated for this purpose.



Today, as a result of the economic boom across Asia, no doubt galvanized by escalating trade with China, 14 of the world's top 20 container terminals are Asian-based [1]. An amazing seven of these terminals are in China, underlining the rapid growth of its trade and economy and its growing clout as a maritime power.


Main Chinese ports have grown tremendously to be listed in the above ranking of the world's top 20 terminals, displacing such ports as Kobe and Yokohama. Their growth rates have also far outstripped other, more established Asian ports. For example, Hong Kong, the world's busiest port since 1992, has been growing more slowly than the Shanghai and Shenzhen ports, which have experienced a more than threefold increase in throughput from 1999 to 2004.


Leading the explosion of growth of Chinese ports is Ningbo Port, which notched the highest-percentage gain in 2004. The port has registered an astounding average growth rate of 44% in TEU [2] terms for the past six years. The Shanghai port is projected to be the biggest hub port in East Asia and to serve as China's distribution and logistics services base for global trade. The concentration of a vast cargo base and increasing foreign direct investment (FDI) has resulted in the Shanghai region's growth outpacing other areas in the country. It is expected to be able to


handle 25 million TEUs annually by 2010, double the volume handled in 2004.


Besides container ports, other types of terminals are being commissioned to serve China's emerging energy needs and growing demand for bulk commodities such as iron ore and grains. The largest Chinese oil terminal, able to unload VLCC (very large crude carrier) vessels, is being constructed in Dalian, equipped to serve six refineries with a total capacity of 46 million tons.


The formation of economic clusters of regions has also contributed to the development of Chinese ports. The economic regions include the Yangtze River Delta, the Pearl River Delta, the Beijing-Tianjin-Hebei area, the western region, the central China region and the northeast industrial region.


As more manufacturing industries move from the south to the eastern and northern regions of China, infrastructure development in this region has intensified. With the concentration of manufacturing activities in the Yangtze River corridor, the need for China to improve the connectivity between central China and its coastal ports has become more critical. With the opening of the Three Gorges Dam, container movement is expected to intensify in the area. River transport and river ports have also been given priority in infrastructure development to meet China's growing trade.


The booming Chinese economy has led to increasing container volumes going in and out of China, resulting in the increase of feeder services. Feeder lines are bringing in more cargo from industrial centers and small, less accessible ports along the Yangtze River to main ports, where the cargo is consolidated for loading on mainline carriers. This was underlined by the construction of the 3-million-TEU-capacity Yangshan Port, aimed at providing spare capacity for the predicted traffic growth in the Yangtze River Delta.



China and Southeast Asia
Reflecting ever-growing inter-regional trade, containerized trade between China and Southeast Asian countries is expected to grow across the board this year. In 2004, bilateral trade volume between China and Southeast Asian states reached US$105.9 billion and, according to Chinese state media, soared to $130.4 billion in 2005, a 23% increase. Yi Xiaozhun, a Commerce Ministry vice minister, said that ASEAN (the region represented by the Association of Southeast Asian Nations) became the fifth-largest export market for China and the fourth-largest source for imports in 2005, partly because of tariff reductions on about 7,000 categories of goods.


President Hu Jintao is bullish regarding trade with the region, setting a $200 billion target by 2010 during a visit to Southeast Asia in April 2005. This bodes well for port throughput and port development in the region. Regional ports such as Singapore and Malaysia's Port Klang and Tanjung Pelepas have benefited tremendously from the flourishing Chinese economy, recording substantial growth in throughput, and will continue to enjoy the patronage of Chinese trade.


Chinese ports have also engaged in strategic alliances with foreign port-management companies. The port of Dalian has entered a strategic partnership with APM Terminals, Cosco Pacific and the Port of Singapore Authority to develop the port to serve the northern regions of China. The Xiamen Port Authority has also signed an agreement with APM Terminals to finance the development of a new three-berth terminal estimated to cost $350 million. These engagements underline the ambition of Chinese ports to grow in line with the explosive trade growth in the country.
A good example is Singapore's foray into China, via PSA International's operations in the ports of Dalian, Fuzhou and Guangzhou. Its involvement in these ports has enhanced their cost of service, value for money, average speed to berthing, onsite facilities, turnaround time, frequency of liner calls and overall efficiency and management. Underlining the positive impacts of this strategic alliance, PSA China secured the Best Emerging Container Terminal Award for Guangzhou Container Terminal at the Lloyd's List Maritime Asia Awards in 2004.


In addition to PSA's initiative, the Maritime Port Authority of Singapore has been at the forefront of capturing business from growth markets such as China via strategic alliances. In May 2004, Singapore and China signed a memorandum of understanding on maritime cooperation, paving the way for cooperation in areas such as port management and development, shipping, training and research and development. The two countries also signed a protocol to allow their shipping companies to set up wholly owned subsidiaries on each other's turf without any geographical hindrances.


Energized by strong performance in trade with China, ports in the ASEAN region have also expanded and improved not only in terms of infrastructure and sophisticated equipment but also in their functions and business activities. Many have added and improved value-added logistics and ancillary services to gain a competitive edge to attract cargo from China and to facilitate exports to it. With ever-increasing international maritime container cargo movement in and out of China, and the deployment of ever-larger container ships to accommodate this, several key hub ports in the region have upgraded their facilities, even building new ones.


An example is the new port city in Zhangjiagang, which in the past few decades has seen tremendous development around its port. The port acts as a multifunctional trade harbor servicing the city and industries along the Yangtze River. Part of the larger Suzhou Port organization that includes Changshu and Kundhan, Zhangjiagang Port has 40 berths with 10,000-ton-class capability and handles 40 million tons of cargo annually. If it meets the expectation of being able to handle 100 million tons by 2010, it will become the first port to reach that capacity in Jiangsu province.


The influence of the "China factor" on the development of ports - a crucial facilitator of international trade - has been momentous and looks set to color the ports scene in the years ahead. Although the consequences of the impact may not be applicable to all the ports in the Southeast Asia region, some effects are particularly noteworthy because of their magnitude or because they mirror global trends in port development. These include advances in shipping technology and practices, the concentration of resources and processes, and door-to-door delivery stretching across the supply chain [3].


Larger ships with better technologies are being built, requiring ports that are able to match their features with the capacity and skills to facilitate their visits. The spate of mergers and alliances among shipping economies to achieve economies of scale will continue to push the envelope for ports to enhance their infrastructure and manpower to cater to bigger ships with more loads. Just-in-time production and the increasing pressure to deliver more goods at lower cost and shorter time to wider market areas have spurred the development of multi-modal transport, facilitating the seamless movement of goods across the various transport modes. These have been critical to the planning, organization, development, management and operation of seaports in the region.


Challenges for ASEAN
Challenges abound for port planners in the Southeast Asian region to plan their port development, enhance their infrastructure, keep updated with state-of-the-art technologies, increase their productivity, organize their operations efficiently, invest wisely and allocate resources effectively to cater to greater Chinese maritime trade volume. In light of the growing trade between the ASEAN region and China, and the projected growth due to the free-trade agreement between the two, regional ports keen to capitalize on growing cargo volume should enhance their capacity and competitiveness to attract mainline operators and process ever-growing throughput.


Notes
1. United Nations Conference on Trade and Development (UNCTAD), Review of Maritime Transport, 2005.
2. Twenty-foot equivalent unit (TEU) is the standard measure for counting shipping containers.
3. Nazery Khalid, "The Impact of Cargo Trends on Terminal Developments in Asia", paper presented at the third ASEAN Ports and Shipping Conference 2005, Surabaya, September 22, 2005.


Nazery Khalid is a research fellow at the Maritime Institute of Malaysia. This article appeared in China Brief, March 29, and was posted on Japan Focus on April 8 2006.