Ports ponder growth plans amid decline in shipments
To build or not to build is a question on the minds of some port executives and even officials in southern China.
Trade growth in Shenzhen was 9 per cent in the first half, down from an average 21 per cent last year as the city felt the impact of tougher labour laws and tax policies, as well as the United States economic downturn.
Other challenges await the ports. The Guangdong government has laid out a plan to substitute low-end industries with high-value-added ones, a move that will force ports in the south to undergo a structural change.
'The upgrade in the industry will increase the value of the goods inside a container box but it will also decrease the number of boxes,' Ma Yongzhi, the vice-director-general of the Bureau of Communications of Shenzhen, said last week.
However, the port expansion plans in south China, including Shenzhen, Hong Kong and Guangzhou, show no signs of a slowdown. Provincial governments are still in talks with investors on expansion at Yantian eastern port, Dachan Bay phase two and Nansha Port phase three. In addition, new projects are set for Gaolan, Humen and Huizhou.
'In the next five years, there will be about 20 million teu (20-foot equivalent units) of new capacity starting operation, creating 30 per cent excess capacity,' said a senior executive of a local port operator.
He forecast the utilisation rate of ports in the region would fall to 70 per cent from the present full capacity within five years.
Others share his pessimism.
Container terminal capacity in south China will exceed 70 million teu by 2013, up from 50 million teu this year, according to a forecast by consultancy GHK. However, international cargo demand in the region will increase to only 48 million teu in 2013 from 30 million teu this year.
'The surplus of supply could be filled by domestic cargo or transshipment cargo, only the revenue from both is much less than from direct ocean cargo,' said Jonathan Beard, the managing director for GHK.
Transshipment means the port has to unload one vessel, then load the cargo onto another, but it is paid just once instead of for each lifting.
Commissioned by the Hong Kong government, GHK compiled a port master plan for the city, that was released in April.
Mr Beard predicted that trade growth for Guangdong would slow to 8.7 per cent a year for the five years beginning in 2011, from the 10 per cent level from 2006 to 2010 because of the maturing economy of the province.
That means the ports in the Pearl River Delta will have to jostle for shrinking import-export cargo volume growth in Guangdong and fight for less profitable domestic and transshipment cargo.
Container terminals in Shenzhen felt the change in trade growth first. Container throughput growth was halved to 7 per cent in the first half from 14 per cent on average last year.
Hong Kong posted 5 per cent growth in the first six months compared with 2 per cent last year. That was because about 60 per cent of the cargo handled by the city is transshipment cargo, which leads to double counting in throughput numbers.
Guangzhou managed high growth since more than 60 per cent of its cargo originates domestically. The port handled 42 per cent more containers to 4.75 million teu in the first half over the same period last year.
Before 2006, new terminal growth could not keep up with the import-export trade growth in the south.
The promising future of port businesses was clearly noted by local governments throughout the region, resulting in 'overlapping construction'. Every administrative district from Gaolan to Nansha, Dachan Bay Port, Humen and Huizhou rushed to submit new terminal plans.
'The regulators in Beijing should exert more power in rationalising the functions of different ports [to avoid overcompetition] and decide which operator should invest,' Mr Ma said.
Hong Kong is studying the environmental impact of the proposed Container Terminal 10 in Tsing Yi, which GHK suggested would be needed by 2013. However, an independent think-tank said the time to build the terminal had passed.
'There is no rail connection into the port area in Hong Kong,' said Zheng Tianxiang, a professor for Sun Yat-sen University. With growth in the delta falling off, the only way out was to enlarge the port's coverage to Changsha, Chengdu and Wuhan in the northwest, he said.
Compared with Hong Kong, Mr Zheng said Nansha Port was in a better position to absorb shipments beyond the province. Nansha's location at the mouth of Xijiang where it flows out to the sea enables the port to catch freight all along the river to Guangxi's Nanning. Besides, Guangzhou port has railways connected to the track line of the Beijing-Guangzhou railway, enabling it to extend its catchment area farther.
Hong Kong switched focus to transshipments after losing its competitive edge in direct shipments because the ports in Shenzhen were closer to the factories there. About 60 per cent of the cargo handled in Hong Kong is ocean-to-ocean freight.
But when the restrictions on mainland ports handling ocean-to-ocean shipments are lifted, Hong Kong's niche will be adversely affected. Shanghai is pressing hard for a waiver on transshipment cargo.
Shenzhen, the traditional direct ocean cargo port, has started to pick up market share in domestic cargo that is dominated by Nansha Port.
Private port operators acknowledge the economics of overexpansion but still cannot resist government invitations to build new berths.
'If I do not invest in the new berths next to me, other operators will come to operate it and compete with me,' one port operator said.
Out of the box
Cargo container values set to rise but numbers likely to decrease
After growth of about 21 per cent last year, this year's first-half figure is: 9%