The container port figures from China for 2011 revealed more than a few surprises. Foremost among them was the clear trend that ports not reliant for traffic on traditional exporting centres in the south outperformed those that are fed by the fabled ‘factory of the world’ by significant margins.
Thomas Knudsen, Maersk Line chief executive in the Asia-Pacific, says the trend of faster growth at north and central China ports compared with rivals in the south became “unmistakable” last year.
Northern container ports as Yingkou, Ningbo, Tianjin/Xingang, Dalian and Lianyungang recorded healthy double-digit growth through much of last year. Shanghai in central China also saw container traffic increase 9.2% in 2011 to 31.7m teus.
However, southern ports, the traditional gateways for China’s export sector, fared far less well. Shenzhen, for example, was the worst performing major box port in Mainland China with volumes increasing just 0.27% last year to 22.6m teus. Hong Kong’s growth was only marginally better.
“Without a doubt the northern ports are doing better than those in the south,” says Neil Dekker, editor of Drewry’s quarterly Container Forecaster.
A DP World spokesperson says that while volumes through Hong Kong slowed as 2011 progressed “with quarter four particularly poor considering it is usually the peak season”, volumes elsewhere were far healthier. “There does seem to be a well-documented shift, which lines also report, in volume away from the southern ports.”
Of course, given that exports have been the bread and butter of ports such as Shenzhen over the last decade, then flailing import demand from Europe and a bumbling US recovery were inevitably going to have a major impact on volumes, much as the financial crisis in the West in 2009 also saw volumes take a hit. Some carriers also changed their Asian strategies to incorporate direct calls instead of transhipment which explains part of the shift in box volumes northwards and also to places such as Vietnam which can now offer improved facilities at ports such as Cai Mep. The growth of intra-Asia trades and rising imports to China as domestic demand has bloomed, bolstered by a gradually strengthening Remnimbi, also accounted for some of the growth at northern ports.
But some analysts believe the divergence in growth rates is part of a far more fundamental restructuring of the Chinese economy, changes that will have huge consequences on how China trades with the rest of the world and, therefore, on port development.
Land, labour and other production input costs have been rising with almost indecent haste in the Pearl River Delta region in recent years. This has prompted some low cost industry to relocate to Vietnam, Cambodia and other parts of South East Asia. But far more companies have concluded that China remains the best location for mass production processes which require large inputs of affordable power, land, skilled and unskilled labour.
The difference now compared with ten years ago is that those resources are only available in less-developed northern and inland regions rather than near the southern coast. Government policy is also a factor in the equation, with tax incentives and new infrastructure proving powerful ‘pull’ factors for companies to move inland.
The most notable examples of the inward migration of industry can be found in the vicinity of Chongqing and Chengdu, cities which have been transformed in a matter of years into world-leading centres for electronic and automobiles production and offer the added benefit of also being central enough to serve large swathes of the China domestic market.
The new breed of inland and northern industrial factory complexes is far less likely to need to use ports in the south as export gateways. “Part of the reason [for the divergence in container port growth rates] is the gradual migration of manufacturing from southern regions to northern and inland locations because of production and labour costs,” says Mr Dekker. “Manufacturing is moving away from its traditional Guangdong stronghold to north and central China. Some has also moved to Vietnam although is pretty difficult to put this into percentage terms.”
Jens Drewes, managing director, Kuehne + Nagel Central and Northern China, says the Western migration of industry within China is especially noticeable for multinationals in the high tech, industrial goods and automotive industries.
“For many years, the Chinese government has been attaching high significance on inland cities to boost the domestic consumption – for example, three of the nine new logistics zones proposed by the central government are located in inland China,” he says.
“Rising costs of manpower and other inputs in the eastern provinces along the Chinese coast are one major reason for many global manufacturers to move their facilities and production to the western parts of the country.
“The hinterland of China is also a huge market. China is already the largest automotive market and according to reports, surpassed the US in terms of PC sales in the second quarter of 2011.”
Mr Dekker expects growth at north and central ports to again be reasonably strong this year, with particular focus on intra-Asia, domestic and emerging or growing markets such as the Middle East, Africa and Latin America, rather than exports to Europe and the US.
DP World operates a range of terminals in Hong Kong and in northern China at Yantai, Tianjin and Qingdao, with a second terminal under development at the latter. Moving forward, the company will continue to focus on Northern China.
“We are expanding our terminal capability at a faster rate in our Northern China terminals to accommodate the continued strong economic growth in Central and North China, thereby meeting our customers’ growing demands.”
But the port giants in the south such as Guangzhou and Shenzhen are also attempting to plug into interior cargo flows via China’s rail network. “China’s industry is changing and factories are shifting inland,” explains Ma Yongzhi, deputy director-general of the Shenzhen Port Administration. “Our port must cater to this.”
But better rail links to the interior work both ways. While for ports in the south they offer access to China’s fastest growing markets, some shippers and 3PLs are now looking westwards away from China’s ports at rail services direct to central Asia and Europe via Russia and Kazakhstan.
With lines utilising slow steaming strategies on Asia-Europe services, this can save weeks in shipping time and offers significant inventory reductions. Hupac, Russkaya Troyka, Eurasia Good Transport, DHL and Weiss Röhlig all launched rail services from China via Russia to central or Western Europe last year. Volumes, although only representing a small proportion of the overall market at present, are forecast to see substantial growth in 2012.
One major shipper says the route is an “obvious solution”. “The box can be half-way to Russia in the same time it gets to a Chinese port to load on a ship,” he adds.
With China spending huge amounts on upgrading its rail network to further speed connectivity, and Russia and Kazakhstan planning to further open up access to their networks for transit traffic and improve customs clearance speed and rail gauge changes, overland options will become ever more viable in the future.
While shippers and forwarders welcome the new import and export options, competition for cargo among China’s ports is certain to become even fiercer in the years ahead.