Making the best of it

What a difference two years makes. Before 2008, China’s ports had been moving from strength to strength, registering double-digit growth rates and planning a huge amount of new capacity to cope with rapidly increasing cargo levels.

But with the financial crisis, growth has been on a downward spiral. The total throughput at China’s main ports in 2009, at 98.7m teu, was down 5.6% on the same period in 2008. From double-digit growth, some of China’s busiest ports were suffering double-digit declines – Shanghai saw its throughput slump 10.7%, and at Shenzhen, cargo volumes sank 14.8% (see table). This drastically changed landscape means China’s terminal operators have had to radically alter their plans. The emphasis has swung from expansion to optimising existing space and cutting costs. Consultant GHK (Hong Kong) estimates that surplus capacity in terminals in southern China is around 11-13m teu, a problem it expects to last until at least 2015.

Martin Christiansen, APM Terminals’ CEO for Asia Pacific region, acknowledges the knock-on affect the global economic crisis has on capacity. "We have temporarily put a stop on new developments and, instead, are concentrating on how we can optimise what we have and how we can get more cargo through our existing facilities."

Plans on hold by APMT in China include the expansion of the joint-venture terminals at Dalian and six additional berths planned for Qingdao.

The Netherlands-based company says it is adapting to the declining volumes of cargo through a strategy called "Best out of the crisis", which comprises three areas: capacity curtailment, and therefore "doing more with less"; working more closely with customers; and eliminating waste in the system with an increased focus on driving performance throughout the organisation.

"We are partnering with customers to improve operational performance and take costs out of the system," explains Christiansen. "For example, one area that we are looking at is idle time for carriers. If there is one hour of idle time before the ship starts operating at the quay, what can we do to reduce this to 30 minutes, and therefore reduce fuel consumption?

"Other initiatives involve improved co-operation with customers, such as reducing the travel distance within the yard and eliminating the need for extra moves, all of which allow us to retain our customers and win new business.

"We are also looking at process excellence, with the focus on engaging all stakeholders to increase efficiency."

Indeed, creating better links between the various stakeholders is something Christiansen singles out as being particularly important. "To eliminate waste in the system, the way we work with customers at all levels is critical. By creating stronger co-ordination, we can sharpen our focus on operational efficiency, offer them the best price and eliminate costs on the carrier side,"

APMT’s strategy of cost reduction and maximising the use of existing facilities is mirrored by other major terminal operators in China. Hong Kong-based China Merchants Holdings International (CMHI) – whose portfolio includes facilities at Shenzhen, Shanghai, Ningbo, Qingdao, Tianjin, Xiamen and Zhanjiang – is on reducing costs. An example is the decision to convert handling equipment from diesel to other forms of fuel, which the company says is "significantly" reducing costs, as well as creating a "green port policy".

At southern China’s Shenzhen complex in the Pearl River Delta (PRD) there are also postponments of planned expansion projects. Michael Zhou, MD of Shekou Terminal, says: "There is overcapacity due to the downturn. In this situation, we have no plans to expand our capacity for the next five years. "We can increase our existing capacity by making the best use possible of our operational system."

Part of the strategy is upgrading the terminal’s IT system. This is expected to improve RTG fleet utilisation – currently running at 48% – increasing efficiency and saving costs.

Shanghai International Port Group (SIPG), the principal owner of Shanghai port, has adopted similar principles, shifting from a policy of capacity expansion to one of improving services. "In the past, capacity was a big issue and our major focus was on shipping lines as customers," says Jiang Haitao, secretary of SIPG’s board of directors. "Now we are looking at more than shipping lines and want to better understand shippers and overseas consignees."

To this end, he says, SIGP is conducting a market study of shippers in the port’s hinterland to see how it can improve its services.

The plan includes constructing a booking centre in the hinterland to improve operational processes and creating a network of depots for shippers to help reduce costs.

These trends continue right across China; numerous ports and terminal operating companies are culling capacity plans and focusing on optimisation.

However, one area has no overcapacity problems. At Bohai Bay, in the north, Qingdao, Tianjin and Yingkou were the only ports to register any significant growth last year, increasing throughput respectively by 2.4%, 2.3% and 24.6% (see table).

Arguably, ports in southern China have been hit hardest by declining volumes, as they tend to be more exposed to the badly hit transpacific and Asia-Europe trades. whereas the Bohai Bay ports are more involved in the more robust intra-Asia trades. Also, Bohai Bay is close to Shandong province and the ports are used to move the fruit and vegetables produced there for markets in north-east Asia, such as Japan and South Korea.

Indeed, Fu Yuning, CMHI chairman, says: "Central government has also highlighted this region [Shandong] as a new economic area, and wants to increase trade connections with the international market. "There are now more global links there, with multinational companies building facilities in the area."

With investments in Qingdao and Tianjin, CMHI is planning to build a major trade hub at the latter port, along with a bonded area.

The trend towards moving more Chinese manufacturing inland is also having a knock-on effect on port policy, and many operators are expanding their reach into the interior through upgrading and opening smaller river ports and investing in barge and rail systems.

"As manufacturing is moving inland, more river ports will open, and others will be upgraded," predicts Christiansen. "This, together with improved barge and rail connections will become an increasingly important source of volume growth for the coastal ports."

SIGP’s Yangtze strategy is intended to extend and strengthen its network along the river into the hinterland. "The strategy is to build a port in every strategic area along the river, and integrate the terminals with our barge service," explains Haitao.

The group has six terminals in operation along the Yangtze: Juijiang, Changsha, Nanjing, Jiangyin, Wenzhou and Wuhan. To develop its reach, two more are under construction – Yibin, with capacity for 600,000teum and Chongqing, with 1.98m teu capacity.

The Shenzhen port complex is also busy linking its facilities more closely to the interior. The three terminals – Shekou, Chiwan and Yantian – are developing a network of inland container depots targeting important manufacturing areas, and offering advantages to shippers such as reduced haulage costs from factory to gateway and shorter transport time and distance.

The most recent to open is Shekou and Chiwan’s facility at Dongguan, one of the most important manufacturing areas in China, located in the western PRD. Already operational are depots at Shunde and Siu Lam in Zhongshan, Changsha, Nanchang and Waihai in Jiangmen and Pingnan in Guanxi.

The two terminals are also involved in the development of rail. CMHI has been involved with upgrading and expanding rail links to surrounding areas, and the network extends as far as Changsha. Rail time to the city from the terminals has been cut from 36 to 28 hours, and last May, trials at Nanchang and Liling began, linking the hinterland of Hunan and Jianxi with Shenzhen. CMHI has also built up its southern China barge service network. "Since we established our barge shuttle programme five years ago, we have extended it as far as Vietnam," says Fu. "This network supports all our main terminals and is helping shipping lines expand their outreach, not just carrying containers from 30 terminals in 15 cities, but expanding to more cities and increasing efficiencies. This policy has also been helped by the building of bonded ports, so transportation and transhipment is more efficient."

Indeed, international transhipment is a major focus for several of China’s ports, especially at Shanghai’s most recent terminal, the Yangshan Deepwater Port Terminal, which has a natural water depth approaching 20 metres. SIPG wants to turn the terminal into the major transhipment hub for north-east Asia.

In 2008, it contributed 8.23m teu of Shanghai’s annual throughput, 34.7% up on 2007. Water-to-water transhipment at Yangshan accounted for 50% of volumes.

"None of the Chinese ports is recognised as a real transhipment hub, so the percentage of international transhipment last year was small [5%]," says Haitao, "but there is good potential and we want to develop this." Prior to the development of Yangshan, the lack of deepwater ports able to handle the largest container ships meant shippers had to tranship via Busan, in South Korea, or Kaohsiung, in Taiwan. Now, goods from the Yangtze River area and beyond can be transferred to mega-vessels and sent direct to Europe and the US.