The China effect

East Asia's ports are finding their feet again, but they're taking tentative steps. Stevie Knight reports

A very mixed picture is emerging as the dust settles on East Asia’s part of the financial fallout. Although, as Dr Mark Yong of BMT Asia explains, it is a little soon to be talking about “winners” and “losers” just yet.

In Japan and southern China, for example, the downturn hit particularly hard, and lines started to close up their capacity. Martin Christiansen, chief executive APM Terminals (Asia Pacific), says that the Asian APM terminals that are faring best “had the least exposure and are less dependent to the Europe and US trades".

However there are exceptions, explains Dr Yong who adds “there’s a cluster of ports around Shekou in the deep south that has taken less of a hit because they have more of an intra-Asia bias".

Further, Dr Yong says, in China’s north, around the Bohai Gulf, port volumes have actually risen, “although it has to be said they started from a lower base line”. The Bohai rim ports serve the heavy industrial base in the north eastern Shangdong province as well as shipping to Korea and Japan. So, adding to the area’s boost, these ports have benefitted through investment from Japanese and Korean companies.

In Qingdao, APM has expansion plans as part of a new joint venture between China Merchants, Pan Asia, DP World and Cosco Pacific. “It is the key port on the Bohai Sea Rim,” says Mr Christiansen, and adds that it is the sea route for many inland provinces. Recently the port has seen a stream of coal push its volumes up, and even boxes are showing a 5% year on year increase for 2009.

Procedural initiatives have also helped the region. Yantai port sits at the eastern tip of the Shandong Peninsula, bordering both the Yellow Sea and Bohai Bay. According to operator ICTSI, the new bonded port area simplifies the turning over loads for both foreign and domestic lines.

However, the northward rise didn’t immediately balance the fall from the large southern ports like Shanghai, Guangzhou and Shenzhen which greatly affected the whole foreign trade figures for the first half of last year.

With reference to the southerly Pearl River Delta, Mr Christiansen says the region “is and will remain a key market in China", despite growth rates lower than that of the North and East, and adds it is important to note that one out of four trades is generated by this area.

“In addition we believe that as the Pearl River Delta and South China in general were the first markets to be impacted by the slowdown of the global economy we expect that they will benefit more than any other part of China as soon as economies in the West rebound.”

He adds: “Shenzhen will remain a very important market for us, especially as Europe and the US come out of the current economic downturn,” going on to say that operations in the area are very resilient, with “a good supply and demand equilibrium.”

Indeed, a turnaround has already started to help some of the southerly Chinese ports back up the ladder, resulting in lines thinking about adding more capacity if the results keep coming in.

One reason for this it seems is that China is pushing inwards. This in itself is not new: China has a very uneven development, with the richer, better connected coastline sucking up most of the wealth, and the poor interior lagging well behind – a situation that the government wants to address, not just for reasons of inequality, but because opening up the hinterland provides the coasts with some much needed competition from behind. But recently there have been developments that have started to have an effect.

The Yangtze River area, with big river ports like Chongqing, Wuhan and Nanjing, are benefitting from the development rush as iron, coal and construction bulk is shipped up river. To put that into context, China is still the world's biggest importer of iron ore, bringing in nearly 630m tonnes of it in 2009, up 42% on 2008.

Dr Mark Yong explains that as the Yangtze River is benefiting from the drive for connectivity, that particular region’s growth looks like running at 7%-8%. In fact, Nanjing port is readying itself to launch itself whole-heartedly into a programme with Sinotrans, who will inject capital into the port group – with the aim of developing an international logistic hub. The joint venture will build a multifunction container and dry bulk transhipment centre in the Yangtze River Delta says the port authority. However, it seems that there is a pre-nuptial agreement also in place that says, in effect, if there is no firm agreement inside six months, the marriage is off.

“Ports like Wuhan as well as others on the river are winning private funds, partly because they have cheaper land costs, along with generally lower fees, and this combines to keep transport costs in hand. But the government is also offering attractive investment terms, with large tax breaks to companies investing in China’s west and interior,“ says Mr Runckel. However, Dr Yong notes that though the megaships are calling, the Yangtze still has draught issues in some areas.

And if you see the web as the ‘retina’ of global trade, it is worth noting an area located close to the most southerly point of China is now showing up with more detail. Just a year or two ago if you looked, you might well find Guangxi province sitting apparently by not very much at all. More recently the whole area has become subject to massive development that is, quite literally, putting itself on the map.

Nanning, on the Yongjiang River and very close to Vietnam, is being billed as part of China’s gateway to South East Asia. Beyond road, rail and air connections, it also has nearby Qinzhou and links to the Beihai Gulf which can carry goods directly to Singapore, Malaysia, the Philippines and Indonesia. Further, river links can even get as far as Guangzhou, Macau and Hong Kong.

The Chinese idea is to use Nanning as a central hub that will open a ‘corridor’ to other ASEAN countries, building up road and sea infrastructure to create a large free trade zone. Mr Runckel says, Guangxi, being closest to the rest of south-east Asia “is becoming an increasing force” in international trade.

Another interesting point that APM obliquely refers to is the introduction of new opportunities for revenue streams. Dr Yong says the operators may be looking at diversification into broader logistics operations, finance and even shipbuilding – driven by the presently full order books. However, Dr Yong has a note of caution on this last point: “Yes, we have busy yards now, but there is a time lag, work may well dry up in a couple of years around 2013 when the capacity reaches the customers, and what then?”

However, it seems that a whole other dust storm is about to be kicked up by the super-hike in China’s freight charges.

Some of this too comes, at least partially, on the back of the inward development. Dr Yong explains: “What is interesting is that China is once again scrambling to get more iron ore. And yes, the approach is still pretty much the same as last time, so it looks as if we will see exactly the same problems at Chinese ports as we did a couple of years ago.” If true to form, this could mean a backlog of ships waiting to berth, huge stockpiles and the prices being forced up by people playing the market.

Mr Runckel adds: “The increase in shipping charges has been huge, a $300 to $400 rise, so there has recently been a rush to get shipments off before the charges hit – and a consequent queue at places like Ningbo and Shanghai.” He goes on to say there is usually a seasonal rise every year, but this steep jump is a reflection of oil hikes as well as labour and other port costs.

Further, it seems while export volumes to Japan, Korea and Taiwan have dropped, companies from these areas have been more competitive than their Chinese counterparts.

Mr Runckel says that China is getting more expensive for both industry and cargo, and despite the known infrastructure problems, ships are calling to Vietnam at the expense of China and (to a lesser extent) Korea.

In fact, a growing number of companies are taking the opportunity to up stakes completely, moving the lower-cost, high labour goods like textiles out of the area to Vietnam and Bangladesh. This is not just a European or US company phenomenon, as Korean, Japanese and Taiwanese companies are also on the move, “so of course this is being reflected in total shipment volumes", says Mr Runckel. It may be that this phenomenon will help Vietnam raise its game in turn.

However, Mark Yong says: “There is enough volume to share around the region: China’s exports are growing into the more high-end, high value products, with the lower end now moving out to Vietnam. It is, after all, a natural cycle.”

Looking at the whole, Mr Christiansen says that though it is true that Japanese and Korean operations have suffered badly from the downturn, “the Chinese have done a very impressive job to drive their growth” and he expects this to continue. As to the future, he says that a lot depends on the effect of the global stimulus packages. “We believe that there will be growth again in our industry, but that growth rates will be slower than before, something that we refer to as the “new normal".

On a final note, Mr Christiansen, Dr Yong and Mr Runckel seem to agree that a lot depends on a rebound in the West….Europe and the US “just have to sort themselves out” says Mr Runckel.