China ports growth slowing down

China ports growth slowing down

The Chinese economy has bid goodbye to high speed growth as well as stable foreign trade volumes; which is placing pressure on the operations of Chinese ports, Ningbo Port Group Chief Economist Tong Mengda told delegates at the Intermodal Asia 2015 Conference in Shanghai in March. As manufacturing shifts inland, investment in Chinese ports has declined. In 2014, investment declined 3.1% to 95.2 billion yuan ($ 15.1 billion), according to statistics provided by the Ministry of Transport of China. This decline coincides with drops in container volumes, as April and May of 2015 saw China’s top 20 ports record container volume growth averaging just 1%. 

Despite declines in investment and volumes, capacity at Chinese ports continues to grow. At the end of 2014 there were 5,834 berths in operation of Chinese coastal ports, up 159 from 2013. The ratio of cargo handling capacity to throughput now stands at 1.22 for Chinese ports, Xie Xie, a Researcher with China’s Water Transport Institute, part of the Ministry of Transport, told IHS Maritime. The ratio means that there is a 22% capacity surplus in the port sector. The surplus comes as most Chinese ports have witnessed single digit growth in the throughput in recent years. For ports’ future development, Tong advised them to foster ‘New Edges’ over competitors in areas such as information technology and management.

 

Hong Kong volumes could decline by 50% – Lesson for transhipment ports

Hong Kong’s container throughput could halve in the next decade as a host of factors begin to stack up against the port that has seen a steady decline in volumes over the past year. This stark prediction was made by Deutsche Bank in a detailed study that said the port could expect a 30% fall in throughput at best and in a worst case scenario the volumes would be slashed by 50%. That would drop the throughput to 11 million TEUs a year and take Hong Kong out of the top 10 rankings. 

The bank study closely examined the transhipment portion of Hong Kong’s throughput that makes up 70% of the port’s total laden throughput. 

This type of cargo was described by Maersk Line’s North Asia Head Tim Smith as being ‘highly portable’, meaning it could be shifted out of Hong Kong by the carriers with relative ease. Of the transhipment cargo, almost 30% is related to South China and the Pearl River Delta (PRD), 11% to other Chinese ports and around 60% to foreign countries. But ultimately, around 75% of all the transhipment containers flowing through Hong Kong are related to China.  

The bank then asked the obvious question: given the obvious geographic and cost advantages of shipping via Shenzhen viz-a-viz, why do cargo owners and carriers continue to use Hong Kong as a transhipment hub for South China cargo? After discussions with industry contracts, the bank found that Hong Kong’s connectivity was the most widely cited reason. 

Hong Kong’s current total port calls are more than twice those of Shekou’s and four times greater than those recorded by Chiwan. 

More frequent sailings to wider destinations globally greatly shorten the overall transit time and reduce carrier operating costs. 

However, what could be in store for Hong Kong once ranked as the busiest port in the world can be a lesson for transhipment ports.

 

Escalating race for mega boxships

Not long after Maersk Line announced in May a deal for up to 17 vessels of 19,630 TEU at Daewoo Shipbuilding and Marine Engineering, Cosco Shipping Line last week was reported to be joining the ordering spree. 

The company is said to be close to signing a deal for nine 20,000 TEU boxships, with an option for four more, at three Chinese shipyards: Shanghai Waigaoqiao Shipbuilding, Nantong Cosco KHI Ship Engineering and Dalian Shipbuilding. Brokers indicate that each vessel will be priced at around $ 150 m and scheduled for delivery in the second half of 2017. 

The carrier has yet not confirmed the deal. China Cosco Holdings Board Secretary Guo Huawei told Lloyd’s List that the management was still evaluating and observing the market. 

Cosco earlier expressed concerns over whether it had the ability to fully load the giant vessels in an industry weighed down by overcapacity and whether the development of port infrastructure could keep up with vessel upsizing.  A recent report from SeaIntel Maritime Analysis found that the utilisation in Asia-Europe trade, the only route where the ultra large tonnages can be deployed, had declined considerably due to a lacklustre demand. 

In January-March this year, utilisation on the Asia-Northern Europe trade lane route to 72.5% from 77.8% a year earlier. If the negative year-on-year development in utilisation level continues, carriers need to adjust capacity in the trade, as an improvement in the carrier’s utilisation level is essential to achieve the full benefit of the ULCs, the report said. 

There are also indications that the current vessels may be too big for many ports, not just physically but also from an economical perspective, SeaIntel Chief Executive Officer Alan Murphy told Lloyd’s List. 

However, the choice and time left for Cosco might be limited, should it wish to remain in competition with other more assertive players. 

Having ordered six 21,100 TEU ships in March, Tung Chee-chen, Chairman of Orient Overseas (International) Ltd., the parent of OOCL, said the arms race for ULCs would not end, as liner companies had realised that ordering bigger vessels to save unit cost and improve operating efficiency might become the only way to survive. 

The deal, if realised, would make Cosco the second member of the CKYHE alliance to acquire ultra large tonnage, after Evergreen finalised a contract for 11 boxships of similar size in January.

 

Container freight rates soar – can it hold?

Drewry’s World Container Index covering the Shanghai to Rotterdam route rocketed up by an unprecedented 405% to reach $ 1,808 per 40 ft container during the first week of July, compared with just $ 358 several days earlier. 

Recent capacity reductions coincided with strengthening volumes at the start of the peak season to boost rates on this trade, at least temporarily, Drewry commented. 

Shipping lines will closely monitor how the rates hold up or not, before deciding the timing and quantum of the next GRI, the firm continued.  

The fledgling recovery was followed up on Friday by the latest Shanghai Containerised Freight Index, which had started to show a turnaround a week earlier as panellists gave indications of what they expected to be paying in the coming days. The China-North Europe component was 60% higher at $ 879 per TEU this week, having rebounded from $ 205 to $ 548 per TEU in the final days of June. But last week’s spot rate is still well below that of a year ago, when the SCFI’s China-North Europe element stood at more than $ 1,400. 

Furthermore, the past year has been a real roller coaster as each upturn was quickly followed by another collapse. This latest recovery has been supported by some decisive action from a number of lines, most notably the Ocean Three Alliance, which is taking out an Asia-Europe loop for at least 12 weeks in order to help lift utilisation levels. Others have been adding additional ports of call into their schedules 

In an effort to fill ships, or are planning to adjust ship sizes. Rates from Shanghai to Mediterranean ports have also rallied, with the SCFI showing a 49% improvement over the past week to $ 941 per TEU.  This should be the most profitable time of year for ocean carriers as merchandise for Thanksgiving and Christmas is shipped from Asia. Instead, they are struggling to halt the catastrophic collapse in prices on most routes over the past weeks and months.

 

Shipping alliances, no signs of price fixing

At a meeting in Brussels, maritime competition authorities representing China (MoT), the European Union (EC) and the United States (FMC) concluded that there were no signs of price fixing as a result of the formation of new Alliances in container shipping. 

Nevertheless, the three agreed that the increased co-operation in liner trades needs to be monitored and warrants ever closer contact and better communication between competition and regulatory authorities. Prior to the meeting, European Shippers Council (ESC) presented their White Paper on ‘Shippers, Alliances and Fair Completion’.  

As a result of an investigation triggered by a complaint of the C3 Alliance, a co-operative of Shanghai Pan Asia, Shanghai Puhai Shipping and Sinolines (Sinotrans), on unfair competition from local players, the Chinese authorities have punished twenty-one container carriers for misreporting or not reporting freight rates in the China-Japan trade, for being unwilling to be probed or for providing falsified information. 

The list includes Maersk Line, Evergreen, OOCL and many small players, but interestingly also the parents of Shanghai Pan Asia (Coscon) and Shanghai Puhai Shipping (China Shipping).

(The writer a Maritime Economist is a Chartered Fellow (Logistics Transport), Chartered Shipbroker (UK), Chartered Marketer (UK) and a University of Oxford Business Alumni. He is also a Fellow of NORAD/JICA and Harvard Business School (EEP).)