Shock and ore

Less lift off: ports see slowdown

There have been boom times before. Quanzhou, a Song dynasty port on the Yellow Sea that first began to flourish a thousand years ago, attracted traders from great distances, writes James Delgado in Khubilai Khan’s Lost Fleet. “Nowhere in the world”, recorded a 14th century Arab visitor, “are there to be found people richer than the Chinese.”

But there has also been decline too – in Quanzhou’s case at the hands of Mongol raiders. And China’s ports today are experiencing tougher times again, albeit less terrifying ones than a visit from the northern barbarians would have entailed.

This time the battle is with plummeting exports and falling industrial production. By early 2009, the industry was facing an “unprecedented collapse” in demand, says HSBC, with the January and February figures for national throughput showing declines of 20% on an annualised basis.

The rate of decline slowed in March but analysts are not optimistic about the remainder of the year. After years of rapid growth, the foreseeable future is a bleak one.

There are some regional differences. The southern entrepots around the Pearl River Delta, which serve the manufacturing heartlands of Guangdong, are faring the worst. Ports on China’s eastern seaboard around Shanghai (and serving the Yangtze River Delta) are not doing quite as badly, even if 2009 promises to be the worst year on recent record. The ports furthest to the north, in the Bohai Bay Rim, are having the least miserable time of it, as the region has the least exposure to the export trade.

Then there are the individual cases. Places like Dalian, in northerly Liaoning province, which benefits as the only approved crude-transhipment point in China’s northeast – an especially useful approval to have when Beijing is keen to build up its strategic oil reserve.

In fact, the overall figures could have been worse – especially for dry bulk cargo – without some fairly frantic recent stockpiling of iron ore. Despite the general slowdown, imports hit a record high in April, as dealers built up reserves in anticipation of future price hikes.

At least operators can charge quayside storage fees for the ore stockpiles, and they are doing something similar for the mountains of containers now clogging up many of their storage yards. By the end of the first quarter this year, as many as 400,000 units were sitting idle in Hong Kong and Shenzhen alone.

The revenues for container storage are small fry ($1 per container per day, versus $100 to handle one) but port owners will take what they can get in the current circumstances. They’ll be hoping too that when conditions finally improve, shipping lines will want to come back for their empties.

Other ports are fighting for local trade to replace lost international business, and intra-Chinese traffic actually managed a small increase in April, compared to another drop in overseas business.

But the major tactic is consolidation, either amongst terminal operators (Shenzhen has five, for instance) or across neighbouring locations. Ports on the Bohai coast are the most active, with the provinces of Liaoning, Hebei and Shandong, as well as the city of Tianjin, all competing to become the leading shipping hub for the northeast. Each has a lead candidate, which is trying to absorb weaker neighbours.

Port owners are talking of a recovery beginning by year-end, and point to a recent stabilisation in the Baltic Dry Index (a composite of bulk cargo shipping rates). But it looks too early to sound particularly confident, and the industry in general is facing a significant increase in supply in the immediate future.

Port capacity in China will be up by more than a third by the end of 2011 and utilization rates are expected to fall as a result.

The expanding Bohai ports are the most at risk, with utilization expected to fall below the 70% threshold that HSBC identifies as a key level in maintaining pricing discipline.

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