Nov 24, 2009 9:00 PM AWST

China's Ports and Global Integration - Where to Now?

In March 2009, the Central People's Government of the People's Republic of China, endorsed Shanghai's strategic goal to establish itself as a world-leading International Shipping Centre by 2020. This envisoins Shanghai not only as a leading port, but also a leading transportation and logistics hub, with the infrastructure and IT services to facilitate multi-modal trans-shipments and global supply chain integration. It also aims to be a major centre for shipbuilding and repair services, cargo and vessel insurance, and ship financing and brokering services. A groundbreaking initiative to establish the country's first arbitration court to decide international disputes is being planned, as well as infrastructure and enticements to lure Yangtze Delta cargo owners to use more waterways instead of expensive, congestion-causing road transportation.

According to the People's Daily, Shanghai cargo throughput rose 3.6 percent in 2008 to 582 million tons, making it already the world's busiest port for the fourth consecutive year. Shanghai overtook Hong Kong as the number two container port in the world with 28 million Twenty Foot Equivalent Unit containers (TEUs) in 2008, while Singapore as number one handled 29.9 million TEUs. While Singapore is primarily a trans-shipment port, Shanghai is primarily an import / export cargo port serving the Yangtze area and the hinterland beyond, with very clear potential to grow significantly as both a gateway port and a trans-shipment port. In total, according to Frost and Sullivan, China is projected to handle 107 million TEUs in 2009 with
average six percent annual growth up to 2015, with a projection then of over 200 million TEUs.

Economic uncertainty

However, all is not rosy. China's container traffic has plummeted; container volumes were down 15.5 percent year on year for the first half of 2009. While there is much talk of "green shoots," with unemployment rates still rising in the US and Europe, there is a groundswell of opinion suggesting a double dip recession—the next one in 2010, putting more pressure on ports and ocean carriers, already with excess capacity and more coming on stream.

Within this context, China ports face many of the challenges of their counterparts elsewhere in the world - how to most efficiently serve their primary customers, the ocean carriers; how to maximize the use of their terminal assets frequently; how to cost-effectively integrate with myriad global supply chains; how to protect trade chains against the threat of terrorism; and how to cooperate with the local Customs authorities in balancing the need for fast clearance of goods with the need to comply with trade and customs regulations.

China ports are also different in that they need to operate within the boundaries of more complex trade, customs and security regimes. As an example, in support of global measures to combat the threat of terrorist disruptions to integrated global supply chains, China Customs promulgated Decree 172, mandating that from January 1, 2009 24-hour advanced electronic manifests and related cross-check information be submitted to China Customs in the specified format. For ocean containers coming into China, carriers are required to submit the main data of the original manifest 24 hours prior to loading at the port of origin; consignees and/or customs brokers cannot declare the goods to Customs until the original manifest is accepted by Customs. Secondary data such as house bill information must be submitted by the carriers electronically prior to arrival, and electronic tally reports are required to be submitted by companies operating customs-controlled premises within six hours of arrival. There are similar complex requirements for exports.

That trading is complex in China, and yet, how does the country handle over 107 million containers every year and how did Shanghai become the number two container port in the world?

The shift to efficiency

Part of the answer is in China's use of technology to collaborate electronically with all the port community participants – ocean carriers, Customs, Quarantine, cargo owners and so on. Let's look more closely at Shanghai as an example – it has similarities with other ports on China's east coast, but also its own unique characteristics.

In 2001, Shanghai E&P International was established as a privately held, state-owned enterprise, a joint venture between Shanghai Information Investment Inc. and other governmentlinked organizations including the Shanghai Port Authority, the Shanghai Customs House and the Inspection and Quarantine Bureau. It was established to create a single window for Shanghai port, a "Three-in-One" service that integrated three disparate electronic services to provide a port and logistic information exchange platform (www.easipass.com).

Shanghai E&P's "Easipass" provides a business collaboration and information exchange platform used for carrier operations, port operations, port administration, customs clearance, quarantine inspection, duty payment, and shipment bookings. Companies have visibility into port operational data, document status and end-to-end logistics information. The platform also helps carriers, forwarders and brokers comply with the advanced electronic notification requirements of Customs Decree 172. The platform handles more than 50 different document types in many different formats and processes 100 million transactions each year and more than RMB300 million electronic payments per day. A key feature of the technology is the use of client
endpoints to speed the on-boarding of partners.

Shanghai is similar to many other ports in China in that its port electronic collaboration platform is operated in a public-private partnership model, originally from a state-owned enterprise.

Port community systems in China are evolving to provide more value-added information services, with platform governance and end-to-end visibility becoming critical tools to monitor, analyze, predict and prevent logistic chain problems before they become critical. Visibility also provides near real-time views into performance against service level agreements (SLAs), and allows for the tracking and optimization of key performance indicators (KPIs).

China ports, of course, seem well positioned to weather the economic downturn, and despite the current situation, there will inevitably be a recovery. Growth has been driven by globalization, and technological innovation has enhanced the competitiveness of China's port. It is inevitable that this momentum will continue.

Peter Stokes an industry veteran with more than twentyfive years of experience in trade facilitation, logistics and customs, is Regional Director (e-Trade) with Axway Ltd.

Ports and Terminals Update – Key Points

As the charts below suggest, recent statistics on throughput at China's major ports reflect the impact of the global financial crisis on the economy. While results are not out yet for 2009, most ports, while showing some improvements in recent quarters are expected to handle less capacity than last year. The big question: are recently improved GDP numbers, manufacturing capacity and exports a result of replenishment and Christmas orders or are they a false indicator, fueled by stimulus measures? The first quarter next year should paint a clearer picture.

Ports and Terminals - Fast Facts

- Shanghai and Shenzhen, showed the sharpest decline relative to other major ports, although it should be noted that port throughput statistics are not just for import and export and include domestic cargo. Throughput drop in some Northern Ports are offset by domestic cargo. 2009 China PMI (a monthly index measuring manufacturing) has climbed up from a historic low recorded in November, 2008 and give hope that the decline has stabilized.

- A number of large scale infrastructure projects geared at supporting logistics in the Shanghai Bay and Yangtze River region have completed and are nearing completion which gives hope for the Container Terminals, especially in Shanghai, which have suffered the most.

- Cosco Pacific, the world’s fifth-largest port operator, predicted container throughput at mainland ports would increase five to 10 percent next year thanks mostly to government stimulus packages.

- According to many sources, the government has shifted its attention from coastal ports and is focusing their attention on infrastructure in 15 key inland cities, especially those on the Yangtze River. Some port and terminal operators, eager to win inland cargo business are following with investments.

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