China: Fast Growing Inbound Trade
Chinese ports are currently encountering a nasty bout of congestion brought on by a number of coalescing factors. Bad weather, the restructuring of alliance networks, ever bigger ships and shippers’ eagerness to move cargo ahead of planned rate increases have all been mentioned in dispatches as the reasons why ships are being kept waiting outside ports and for slower than usual turnarounds.
Another, more mundane, factor is simply that they are struggling under the weight of extra business. China’s top 10 ports collectively experienced a six-percent year-on-year jump in throughput in the first quarter of 2017. (See chart.) It’s unlikely to be a coincidence that the ports facing the worst of the congestion registered the biggest gains: Qingdao (12 percent); Shanghai (10 percent) and Ningbo (nine percent).
Some of these issues, such as the fog and alliance teething pains, will pass over soon enough. But will that reduce the probability of future congestion in some of the world’s busiest container ports?
In this analysis we will examine each potential choking point. Firstly, let’s see what the alliance restructuring meant to the day-to-day operations at Shanghai, the first Chinese port to be flagged as under strain. On the surface, Shanghai’s workload looks to have been lightened as there are fewer deep-sea services calling at the port in April than in March, or indeed even April 2016. But the important fact is that even with fewer services the average size of ships the port has to turnaround has grown by six percent in the course of the year to 8,600 teu.
In general, the deployment of bigger ships results in lower frequency services and greater volume peaks – when traffic arrives in fewer, larger tranches – that stretch the manpower and yard capacities of ports and terminals. This is a universal trend and not specific to Shanghai, but it will not get any easier as the size of ships continues to grow. As fewer terminals are able to accommodate the bigger ships the operational difficulties faced by ports and terminals gets progressively more localized as more traffic heads to facilities that can do the job.
To some degree ports and terminals are the victims of the choices made by their carrier customers. Despite great efforts, and investment, to meet the new demands placed upon them, they are sometimes overwhelmed by problems not of their making.
Information provided by Shanghai International Port Group (SIPG) for the upcoming 2017 version of Drewry’s Global Container Terminal Operators Annual Review and Forecast indicates that average terminal utilization levels at Shanghai were very high in 2016, so it takes very little to push over the dominoes into full blown congestion. There is simply no wriggle room.
Statements from SIPG and carriers such as Maersk Line have all attributed some of the current situation to the alliance transitioning, but getting specific details has been harder to acquire. What we don’t know is how well orchestrated the alliance transition was and if ships arrived as planned, or whether schedules were adhered to but the sheer number of terminal switches overnight was too much for the system to handle?
Add in some heavy fog at just the wrong time and some degree of congestion in already under strain ports was inevitable. These are transitional problems and will pass, but the fact that congestion has spread to other ports along the Chinese coast suggests that something else is at play.
One theory is that Chinese ports are experiencing a sudden spike in traffic because shippers want to move cargoes ahead of expected spot rate hikes and higher annual contract terms to Europe and North America that will kick-in around May. There might be some validity to that theory, but an examination of recent trade statistics shows that China’s demand resurgence is not an overnight flash in the pan with a significant increase to both exports, and especially imports, seen since August of last year.
The long-discussed efforts of China’s government to rebalance the nation towards a more consumer-driven import economy until very recently haven’t borne much fruit when examining container flows with some of its biggest trading partners.
As per data from Container Trade Statistics, Greater China’s container imports from Europe, the US, Middle East and South Asia, grew by a barely visible 0.1 percent per annum between 2012 and 2016. Over the same period, exports to the same markets registered CAGR of 3.8 percent. Instead of rebalancing, the opposite was happening and container exports to these markets outnumbered imports by 3-to-1 in 2015.
However, we are finally starting to see a shift as for the first time in our data series imports to Greater China outpaced exports in 2016; the inbound trade from our sample of trades growing by 2.3 percent year-on-year versus 0.5 percent for the outbound market, in the process lowering the export-to-import ratio.
Closer inspection of the numbers shows that the transition really gathered pace in the second half of last year. As of February, Greater China’s 12-month moving average for imports has gained around five index points since August, more than twice as fast as seen into either North Asia or Southeast Asia. Greater China exports over the same period increased by around two index points.
Having been such an export driven economy for so long, China’s ports have tended not to be over-taxed by long dwell times in terminal yards as boxes tend to be swiftly loaded onto ships for export. However, the fast growing intake of imports could well be putting hitherto unseen pressure on yards in China that as yet they have not adapted to. This has the hallmarks of a longer-term trend that unless remedied by more capacity (to both terminals and yards) will continue to put pressure on ports that are already close, if not beyond, their realistic maximum utilization levels.