PORT COMPETITION IN CHINA Prof. Kevin Cullinane Director, Transport Research Institute, Napier University

23 October 2007ITRR Seminar2 Presentation Outline Port Throughput China Trade Background: The Economy of China Port Competition by Region Complications & Conclusions Inland Mode Choice

23 October 2007ITRR Seminar3 CHINA ’ S GDP GROWTH

23 October 2007ITRR Seminar4 CHINA ’ S REAL GROWTH IN INDUSTRIAL OUTPUT

23 October 2007ITRR Seminar5 FDI INFLOWS

23 October 2007ITRR Seminar6 FDI INFLOWS IN ASIA

23 October 2007ITRR Seminar7 Presentation Outline Port Throughput China Trade Background: The Economy of China Port Competition by Region Complications & Conclusions Inland Mode Choice

23 October 2007ITRR Seminar8 CHINA ’ S INTERNATIONAL TRADE

23 October 2007ITRR Seminar9 Commodity DescriptionUS$ billion Electrical machinery & equipment Power generation equipment Apparel65.90 Iron & steel34.12 Optics & medical equipment25.48 Furniture & bedding22.36 Toys & games19.12 Inorganic & organic chemicals19.06 Footwear & parts thereof19.05 Plastics17.78 Commodity DescriptionUS$ billion Electrical machinery & equipment Power generation equipment96.37 Mineral fuel & oil64.10 Optical & medical equipment49.97 Plastics & articles thereof33.32 Inorganic & organic chemicals32.83 Iron & steel31.91 Ore, slag, & ash26.01 Copper & articles thereof12.90 Vehicles & parts other than rail12.31 CHINA’S TOP IMPORTSCHINA’S TOP EXPORTS 2005

23 October 2007ITRR Seminar10 CHINA’S TOP IMPORT ORIGINS CHINA’S TOP EXPORT DESTINATIONS Country/RegionUS$ billion Japan South Korea76.82 Taiwan74.68 United States48.73 Germany30.72 Malaysia20.10 Singapore16.52 Australia16.19 Russia15.89 Thailand13.99 Country/RegionUS$ billion United States Hong Kong Japan83.99 South Korea35.11 Germany32.53 Netherlands25.88 United Kingdom18.98 Singapore16.63 Taiwan16.55 Russia

23 October 2007ITRR Seminar11 Presentation Outline Port Throughput China Trade Background: The Economy of China Port Competition by Region Other Influential Factors & Conclusions Inland Mode Choice

23 October 2007ITRR Seminar12 GROWTH IN CHINA ’ S CONTAINER THROUGHPUT

23 October 2007ITRR Seminar13 Port Singapore (2)18.10 (2) Hong Kong (1)20.10 (1) Shanghai (3)11.28 (3) Shenzhen (4)10.60 (4) Busan (5)10.40 (5) Kaohsiung (6)8.84 (6) Rotterdam (7)7.10 (8) Hamburg (8)6.14 (9) Los Angeles (9)7.18 (7) Long Beach (10)4.69 (13) WORLD CONTAINER THROUGHPUT

23 October 2007ITRR Seminar14 Presentation Outline Port Throughput China Trade Background: The Economy of China Port Competition by Region Other Influential Factors & Conclusions Inland Mode Choice

23 October 2007ITRR Seminar15 Internal Distribution Characteristics Modes TruckRailBarge and coastal ship costhighlow market coveragepoint-to-pointterminal-to- terminal speedfastslow-moderateslow schedulecasualfixed damagelowmoderate-highlow-moderate

23 October 2007ITRR Seminar16 Disadvantages of Truck Haulage Poor quality highways Prevalence of non-ISO containers Shortages of dedicated container haulage companies Shortages of tractor and container units Many small operators

23 October 2007ITRR Seminar17 Disadvantages of Rail Haulage Old technology and poor train facilities Poor quality railway infrastructure Inadequate ICDs Network priority given to military, coal, passengers, rather than containers The prevalence of non-ISO containers The poor quality of the tracking system Inadequate software No effective competition

23 October 2007ITRR Seminar18 Modal Shares

23 October 2007ITRR Seminar19 Presentation Outline Port Throughput China Trade Background: The Economy of China Port Competition by Region Other Influential Factors & Conclusions Inland Mode Choice

23 October 2007ITRR Seminar20

23 October 2007ITRR Seminar21 Top Ten Container Ports in China in 1998 Top Eight Container Ports in China in 2005

NORTH - BOHAI BAY

23 October 2007ITRR Seminar23 Competition Factors Proximity to Beijing Access to traditional industry sector in Liaoning province Presence of major international container handling companies in competing ports Poor inland transport links except for Tianjin Sea distance and time to Tianjin Air freight potential at Tianjin Political preference for Tianjin

CENTRAL EASTERN SEABOARD

23 October 2007ITRR Seminar25

23 October 2007ITRR Seminar26

23 October 2007ITRR Seminar27

23 October 2007ITRR Seminar28 SCT WAIGAOQIAO PHASE 1~4 YANGSHAN TERMINAL NBCT & BL2CT BL3CT HANGZHOU BAY BRIDGE

23 October 2007ITRR Seminar29 YANGSHAN DEEPWATER PROJECT Total Investment = $US billion Duration = 20 years 27.5 kilometres from Shanghai 31 kilometre bridge Completed by berths Capacity = 25m TEU/Year Area = square km Maximum Draft = 14.5 – 15m Depth of Channel = 15.5m

23 October 2007ITRR Seminar30 YANGSHAN PHASE 1 (ARTIST’S IMPRESSION)

23 October 2007ITRR Seminar31 YANGSHAN PHASE 1 (OPEN FOR BUSINESS)

23 October 2007ITRR Seminar32 DONG HAI BRIDGE PROJECT Links Yangshan with mainland Cost estimated at US$ 11.5bn 4-5 years to complete – km long 31.5m wide with six lanes Shanghai Municipal Government responsible for all investment

23 October 2007ITRR Seminar33

23 October 2007ITRR Seminar34

23 October 2007ITRR Seminar35 HANGZHOU BAY BRIDGE PROJECT Construction started in 2003 In service in 2009 Total length = 36 kilometres 6 lanes Both sides of bridge connect directly with expressways – no congestion problems

23 October 2007ITRR Seminar36 JIAXIN Cargo through Ningbo Cargo through Shanghai.

23 October 2007ITRR Seminar37 SOUTHERN CHINA

Main Container Ports in the PRD

23 October 2007ITRR Seminar39

23 October 2007ITRR Seminar40 Modal Split in 2005 Seaborne: 85% Road: 14% Road has stabilised Water has grown tremendously Rail continues to decline Air continues to increase – now carries 4 times that of rail

23 October 2007ITRR Seminar41 FEU Transport Costs (Dongguan to Long Beach)

23 October 2007ITRR Seminar42

23 October 2007ITRR Seminar43 PORT CARGO FORECASTS Forecast average annual growth rate for PRD cargo base is 8.6% to 2020 Forecast average annual growth rate for Hong Kong port is 4.4% to 2020 This implies the market share of Shenzhen will grow from 16% as of 1999 to 55% by 2020

23 October 2007ITRR Seminar44 Presentation Outline Port Throughput China Trade Background: The Economy of China Port Competition by Region Complications & Conclusions Inland Mode Choice

23 October 2007ITRR Seminar45 What China Does (Policy Decisions) Infrastructure Improvements  The ‘Go West’ Policy  Yangszte River Improvements  Deregulation and privatisation New port clusters announced in Xiamen and Zhuhai If trade relations are restored between Taiwan and China  Taiwan will take all of the North China trade and 65% of the South China trade that moves through Hong Kong

23 October 2007ITRR Seminar46

23 October 2007ITRR Seminar47 Impact of China’s accession to the WTO  Changes to customs procedures etc  Impact on FDI and trade  Port Law 2004  Opening up of port and logistics market Price vs Efficiency – you get what you pay for! Larger Containerships  Maintain load factors  Load centring/ Hub and spoke systems Increased concentration in liner shipping Vertical integration by liner shipping  Dedicated terminals  Whole ports Role of 3PLs in port choice BUSINESS STRATEGY

23 October 2007ITRR Seminar48 Become more price competitive Improve service quality Expand service range (logistics parks etc) Reap economies of scale  Greater efficiency  Lower prices Globalisation and concentration of port operations Diversification into logistics PORT SECTOR RESPONSE

23 October 2007ITRR Seminar49 Presentation Outline Port Throughput China Trade Background: The Economy of China Port Competition by Region Complications & Conclusions Inland Mode Choice

23 October 2007ITRR Seminar50 China economy will continue to grow and trade expand – demand increasing Infrastructure investment and improvements in ports and inland logistics will continue – fuelled by WTO accession, FDI, technology & knowledge transfer Continued service rationalisation and the deployment of large containerships

23 October 2007ITRR Seminar51 Reinforcement of load centre concept and expansion of ports Hinterlands will increasingly overlap and ports compete for the same cargo base Greater industrial concentration in ports and in shipping sectors is a complication (economic vs commercial benefits, as is vertical integration into logistics (capturing the cargo)

Thank You