"Port Competition in China" by Professor Kevin Cullinane, Transport Research Institute, Napier University. - Edinburgh Meeting of 12 November 2008

Professor Cullinane began his presentation by taking a look at the background to the growth of the Chinese economy which has been booming over the last 15 - 20 years. The average growth in GDP has been around 10% per annum and much of this growth has been fuelled by Foreign Direct Investment, mainly due to Asian and western companies outsourcing production. In terms of industrial output there was a massive increase in the 1980's and although there was a slight decline in the year on year average percentage growth rate, since the 1990's there has been a steady increase.

The value of international trade has grown significantly since 1990 and the top imports are electrical machinery and equipment. Interestingly, the top exports are also electrical machinery and equipment. China imports mainly from Japan, Korea, Taiwan, the United States, Germany, Malaysia, Singapore, Australia, Russia and Thailand. Exports are shipped around the world, the main destinations being the United States, Hong Kong, Japan, South Korea, Germany, the Netherlands, the UK, Singapore, Russia and Taiwan. Most of these exports are in containers.

In addition to these exports there is also a large amount of "invisibles" that has an effect on the Chinese economy, but these were not the subject of the evening's presentation, Professor Cullinane concentrating on the trade passing through the ports. Looking at port throughput, in 1997 there were just over 10 million TEU's handled, but by 2005 this had increased to 75 million TEU's.

The latest figures show that 5 out of the top 10 ports in the world in terms of container movements are in China. In terms of volume, Shanghai has the largest throughput will 26.15 million TEU, followed by Hong Kong (23.88 million TEU) and Shenzhen (21.10 million TEU). Overall, by 2015, ports in mainland China, will account for just over 100 TEU annually, according to the ESCAP forecast.

However, it is not just port throughput that is important, but the transport of the goods to and from the ports from the production centres within China and Professor Cullinane looked at the internal distribution of goods. In China, there are three main modes used, being road haulage, rail and barge and coastal shipping. Each has its advantages and disadvantages and these were looked at in turn.

Road haulage is hampered by poor quality highways and the prevalence of non ISO containers. There are also shortages of dedicated container haulage companies and of suitable vehicles. The Chinese haulage industry is operated mainly by small operators. Despite these problems, road haulage accounts for about 85% of container movements within China.

Rail transport suffers from old technology and poor train facilities compounded by poor quality infrastructure and the fact that priority is given to military trains, followed by coal and passenger trains rather than containers. Again non ISO containers cause problems. Rail accounts for about 2% of the movement of containers.

Coastal shipping and movements by inland waterway accounts for about 13% of container movements within China and much of these movements are along the Yangtze River or from small coastal ports to the large container terminals. Over the last 10 years, there had been phenomenal growth in the major container ports, for example, Shanghai has grown from handling 3 million TEU per year to 26.15 million TEU annually.

China can be split into three major regions for it's ports and these regions all compete against one another, as do ports within each region. In the north is the Bohai Bay region, with the ports of Dalian, exculdsively a pulk cargo port, Tianjin and Qingdao. These all have an advantage in their proximity to Beijing, but of these Tianjin has the advantage in being closest and having good potential for the development of air freight. The other ports have poor inland transport links to the rest of the region, whereas Tianjin has a better road link to the capital, but this is offset by the greater sea distance and time to the port.

Moving southwards, to the central eastern seaboard region, are the ports of Nantong, Shanghai and Ningbo. Of these ports Shanghai and Ningbo are the largest, with Shanghai being the dominant port. Shanghai benefits from it location at the mouth of the Yangtze River and is fed by a number of feeder ports in the Yangtze Delta area. Demand for container facilities has reached the point where a new container terminal has been built on Yanshan Island which is a deepwater facility, able to accommodate the larger container ships currently in service.

This development has seen an investment of some $50 billion and covers 22 square kilometres. The terminal is situated 27.5 kilometres from Shanghai and is connected to the mainland by the 31 kilometre long Dong Hai bridge. This 6 lane road bridge is 31.5 metres wide and was completed in 2005 at an estimated cost of $11.5 billion. When completed in 2020 the terminal will have 52 berths and a capacity of 25 million TEU per annum. However, its position is not sheltered and adverse weather could cause the port to be closed from time to time.

Another major project in this region is the Hangzhou Bay Bridge. This bridge is 36 kilometres in length and is another 6 lane highway. Opened in 2008, it connects with express roads at each end so will not suffer from congestion problems. This will provide better access to the port of Ningbo from the Anhui and Jiangsu provinces and will provide more competition to Shanghai.

Professor Cullinane then looked at the ports in southern China, these being located in the area around Hong Kong, mainly at the Pearl River estuary, but also including Macau. There are a number of separate ports in this region, but Hong Kong is no longer the dominant port, even though it currently handles 24.9 million TEU in 2005, a figure that had been projected to rise to 40.1 million TEU by 2020, but which now is unlikely to do so, given a current annual growth rate of just 1.5% due to the intense competition from Shenzhen just across the border.

However, there are a number of complications that Professor Cullinane looked at in relation to China's ports. These include the infrastructure improvements in the Yangtze River area and the new port clusters in Xiamen and Zhuhai. There are also attempts being made to introduce direct shipping links with Taiwan and these will mean that Hong Kong will lose all of the North China - Taiwan direct trade and around 65% of the south China - Taiwan trade that the port currently handles. Another complicating factor for China's ports is the impact of China's accession to the World Trade Organization and changes to customs procedures that this has and will bring about.

Shipping companies are introducing larger container ships and these will lead to more load centering and hub and spoke systems. Changes in liner shipping will lead to vertical integration by the shipping lines and increased concentration. Shipping companies will have dedicated terminals and some will run complete ports.

Rounding off his presentation, Professor Cullinane said that he thought that in the long term the Chinese economy will continue to grow and trade will expand, with a consequential increase in demand for container ports. This will lead to more investment in ports and inland facilities. Deregulation and privatisation will play a major role in this and there will also be service rationalisation and increased use of large container ships. As ports compete for traffic there will need to be improvements for the inland transport infrastructure and inland transport will have a critical role to play.

Professor Cullinane answered many questions from the audience and a lively discussion period was rounded off by the presentation to Professor Cullinane of an engraved Scottish Region quaich by the Chairman.

Report by John Fender.