Any global shipping trends come home to roost in China, finds Stevie Knight.
While everyone talks about the scaling up of ship sizes, the effects in East Asia – and especially China – are interesting when combined with the overall growth: the top ten Chinese ports saw, collectively, a 7.1% jump driven largely by a revived US demand.
However, according to Jason Chiang of Royal HaskoningDHV (RHDHV), “no sooner had the freight rates shown signs of stabilising then there were record orders by CMA CGM and MSC for 22,000 teu containerships”.
Despite this, the step up in scale isn’t immediately driving the hub ports into revising their own dimensions.
“In East Asia, the topic of port expansion has become relatively muted over the past couple of years,” says Fox Chu of McKinsey. “It’s all much quieter than it was.”
Chiang also points out ship sizes haven’t, in reality, changed that much; the first 14,000 teu mega-vessel back in 2007 was only 5 m shorter (397 m vs 402 m) than the latest orders “and most of the hubs in the region have now settled on 16 m depths – the lines know the ports are not going to be pushed into another round of infrastructure investment”.
But the scaling up is having an impact, if indirectly. Obviously, vessel sizes have played into shipping line consolidation: “Last year saw the number of large, competing alliances shrink to just three,” says Mr Chiang. “The problem for the ports is that bigger ships, carrying more cargo, has resulted in higher peak demand and tighter schedules. Therefore the terminals’ ability to deliver a consistent level of service is getting impacted, there’s a reduced margin of error. Any issues will tend to snowball,” says Mr Chu.
All of which leaves the door open for technology.
Automation demand
While China’s not had the high-cost workforce issues of the US or Europe, the faster, lower tolerance environment – and the rising cost of retaining skilled labour – has resulted in the “automation discussion” growing in intensity, explains Mr Chu. So last year saw a couple of China’s ports take the plunge.
Qingdao started in May 2017 to a media fanfare, and as Mr Chiang says, “it got the bragging rights of opening the first, fully automated terminal in China”.
There is certainly something to boast about. The initial phase has seen two berths with 660 metres of quay and capacity for 1.5m teu gain no less than 38 battery-powered automated guided vehicles (ASCs). These slide boxes from the seven remotely operated quay cranes to the stacks where 38 ASCs stack and sort, effectively emptying the yard of people and allowing the terminal to work on through the night, earning Qingdao the nickname of ‘Ghost Port’.
There is an anomaly here. “Mostly when people automate, safety concerns results in slowing down operations but in Qingdao’s case it seems that they have actually achieved higher productivity rates,” Mr Chiang says. In fact, Qingdao’s cranes are now reaching 39.6 containers per hour – double that of most automated terminals.
The trick seems to have been using automation almost across the board so there are few human bottlenecks: “What used to be done by hand is now done by machines... for example releasing cones and twistlocks from containers,” he adds.
And then in December, Shanghai finally opened its long-awaited, $1.95bn, Yangshan Phase IV. Shanghai International Port Group (SIPG) had been holding back from committing for a while says Mr Chiang; the plans had been on the table for a few years before construction really got underway – partly a result of the financial crisis, but SIPG may have wanted to make sure the technology was not going to be quickly outpaced.
The result is the largest single automated terminal in the world with no less than seven deepwater berths, 2.3 kilometres of quay and capacity for 4m teu. The handling kit which includes 40 rail-mounted gantry cranes, 50 AGVs and 10 remotely operated quay cranes is a tour de force from Chinese manufacturer Zhenhua (with a little European input from companies like BTG) and centre stage is SIPG’s own TOS.
Easing bottlenecks
Can Yangshan now take the edge off Shanghai’s congestion? It’s hoped so. Last year the world’s number two port saw an outstanding 8.4% increase to 40m teu but at the same time it lost port calls, with ships queuing outside for 10 days. However, if Yangshan’s automation continues to deliver, the new technology could help propel volumes even higher, especially since the terminal has plans to expand its automated kit to 26 remote quay cranes, 120 rail-mounted gantry cranes and 130 AGVs, all supporting volumes of 6.3m teu.
Could Shenzen be next? The latter is, after all, ranked the world's third-busiest after Shanghai and Singapore. Located just across from Hong Kong, (which Shenzhen overtook in 2013), it’s long been expanding capacity to serve southern China’s well-established manufacturing base. But it wouldn’t be surprising if Ningbo-Zhoushan were now also considering automation, partly because last year it saw a sharp 14.1% rise to 24.6m teu.
However, there’s another strand of development in the weave: port consolidation. Following the establishment of Ningbo Zhoushan Port Group in 2015 it seems that a number of people have been smitten by the concept of ‘one province, one port’ and soon enough, Liaoning brought together the well-matched Dalian and Yingkou ports alongside smaller facilities of Jinzhou and Dandong, resulting in a stock exchange boost for the main players as people grabbed a chance to speculate.
Jiangsu also started putting in place the structure to absorb Nanjing and Lianyungang ports halfway through last year; the port group also embracing half a dozen others such as Nantong and Taizhou which also have significant levels of activity. Local media noted that it should bring an end to the somewhat heated rivalry.
More recently in Shandong, the territory of Qingdao, Yantai and Rizhao ports, the province’s governor has been saying it is “necessary to strengthen land and sea co-ordination, integrate coastal port resources [and] optimise port layout”. The writing, as they say, is on the wall.
Now, virtually all China’s coastal facilities have, or are heading toward, port group status.
Troubles ahead?
That does not mean it is plain sailing: obviously, there are interests that don’t want to sign up to any deal that they suspect will nail them to a second string position. Plus there are legal issues to overcome in places like Guangdong Province far in the south, which is looking to embrace ports as diverse as the mega-port of Shenzhen, along with Guangzhou and Dongguan, all of which have a range of ownership structures making it less than straightforward to merge.
Despite this, Mr Chu says that as many neighbours have tended toward rather intense competition “integration makes sense”, adding that one decently-sized port group will beat a number of smaller, disparate and disjointed operations on both costs and efficiency.
It may ring in some necessary changes, adds Mr Chu. He explains that port performance hinges on asset utilisation and assuring the delivery of a consistent service by remote operators, difficulties being amplified by geography.
It will, he believes, require sophisticated communication solutions – solutions that are just beginning to blossom. For example, China is now looking at 5G mobile networks, complete with NB-IoT and AI, as well as augmented reality handsets and tablets. The possibilities for business use are almost endless - and for those worried that this leaves a window open for cyber attack, there’s a promise of security: the end of last year saw the world’s first hack-proof, quantum-encrypted video call between China and Vienna, via the new Chinese Micius satellite.
So according to Mr Chu, those of China’s port groups willing to take on the challenge and jump into the digital age “could really leapfrog ahead”. He does not say it, but the implications is that those that bury their heads in the sand might just find themselves choked.
Other side of the coin
However, not everyone in the region is seeing volumes blossom. “Over the last few years Taiwan’s economy’s been stagnant and it’s just not generating cargo in the way that it used to,” says Mr Chiang, adding, “its ports have seen transhipment move over to Shanghai or the regional hubs."
Although it’s been proud of the record tonnes moving through its Free Trade Zone – which have risen almost 57% - the volumes speak, well, volumes: Kaohsiung’s were down by 1.9% last year to 10.27m teu.
As a result, although there are plans for a new terminal, Kaohsiung port Phase VII, “so far, nothing much has come of that; growth just isn’t strong enough to support it” says Mr Chiang, adding that the lines are now sharing and simply don’t need their own dedicated berths.
Myanmar is also a tricky subject: more than 90% of the cargo is handled in the ports of Yangon and Thilawa International Terminal, serving the main hinterlands around the capital and Mandalay which lies much further up the Irrawaddy River. However, both have limitations; there’s no direct sea access and while Thilawa can handle 2,000 teu vessels, Yangon is limited to 1,000 teu size ships.
So, given that a deep sea oil port built at Kyaukpyu for the Chinese market didn’t take off, it was thought that the facility could, instead, move cargo into the Mandalay region. However, the reality is now hitting home that it’s on the wrong side of the country, 1,200 kilometres away from Mandalay and there’s no existing freight connections to speak of. Plus, there’s still some wrangling with the authorities as its Chinese ownership – even though that’s been dropped to 70% from its original 85% - has also proved a sore point for Myanmar which feels threatened by China’s growing economic influence.
BUSAN BOUNCES BACK
Rebounding from the Hanjin bankruptcy in 2016 which sliced 10% off its volumes overnight and threw the regional container business into disarray, Busan Port in South Korea finally broke the 20m teu barrier last year.
It’s got might on its side: Busan already has 23 berths in operation and has plans for six more. However, the port is aiming squarely at growing its transhipment capability which already makes up over half its total volume. In fact Busan, at the moment ranking sixth in the top ten list of global container ports, will probably make it to the number five spot this year by displacing Hong Kong from which it’s been steadily taking transhipment traffic destined for the Bohai Bay area.
Will Busan be able to keep growing its transhipment? The jury’s out on this one. While it might keep stealing Hong Kong’s cargo, the general trend is for an increasing number of direct calls to Chinese ports. In short, while Busan could retain or raise its transhipment market share, the available volumes might well level out.
Further, it’s now got rivals of its own: a 65/35 joint venture between the Japanese ports of Nagoya and Yokkaichi (which sit less than 40 kilometres away from each other) is looking to take on Busan with a new container terminal: the joint venture is already looking around for private investors to help it move forward.
However, Busan and it’s little sister Incheon – which has also had a remarkably good year, adding 13.8% to make over 3m teu – might be helped in their ambitions by the WON1.5tr ($1.4bn) pot of money that’s been put aside to boost the hinterlands of South Korea’s biggest ports.
KHORGOS NO COMPETITION FOR SEA CARGOES
Khorgos is, according to some, “a Dubai in the desert”, as it promises to be the biggest dry port in the world, connecting the central European country of Kazakhstan to China by rail. It’s making the most of the gauge-switch bottleneck by building a huge special economic zone modelled on Jebel Ali’s - without the ships or water.
Certainly, Chinese enterprises are willing to take a bet on its predicted initial 15m teu volumes: last year saw COSCO and Lianyungang Port grab a 49% stake.
However, while China’s clout will make it happen, Khorgos Gateway might still not grab market share from the sea route. As RHDHV's Jason Chiang explains, though the train is much faster, halving the time to get to Central Asia to 20 days or so, “going by ship means you can carry 18,000 boxes at a time while rail has a limited capacity; by train, you can only take 110 containers per trip”. He adds, though frequency is being raised, “there are only so many trains you can put on a track”.
His point is that anything that’s not needed in a hurry will probably continue by sea, “so my guess is that the railway might take market share from the air, but it’s not going to be competitive for the longer, less time-sensitive cargos which will probably continue by ship”.
