ChinaÆs third star rises
Bohai Bay ports were largely immune to container volume downturn. Are they primed to compete with the Yangtze and Pearl River deltas?
By Eric Johnson
For the past decade, a huge proportion of the world's container volume has been driven by volume through ports in the Pearl and Yangtze River deltas.
Those regions have been the twin shining stars in China's breathtaking, export-fueled economic growth. Nowhere has it been more apparent than in the container volumes surging through ports in Hong Kong, then Shenzhen and Shanghai.
Half of the world's 10 busiest ports are found in these two regions alone, their reputation built on the back of steady double-digit growth in container trade. But as powerful as those ports had become, even they weren't immune to the demand downturn that wracked the global container industry in 2009.
For the first time, annual volume at Shanghai, Hong Kong and Shenzhen (now the world's second-, third- and fourth-busiest container ports) receded, significantly.
Shanghai's volume fell 10.7 percent in 2009 to 25 million TEUs, while Hong Kong's fell 14.3 percent to 20.9 million TEUs, and Shenzhen's fell 14.8 percent to 18.3 million TEUs. Even Ningbo, long China's fastest-growing port, saw volume drop 6.4 percent to 10.5 million TEUs.
In fact, for ports throughout Asia, 2009 turned into a year of damage limitation. All except for a cluster of ports in another, less renowned region of China ' the Bohai Bay.
While container demand fell globally by more than 10 percent in 2009, the ports of Qingdao, Tianjin and Dalian collectively grew container volume roughly 200,000 TEUs to 23.6 million TEUs. In any other year, that growth would be unremarkable. But in a year when Asia's top five ports lost a collective 15 million TEUs, any gain is remarkable.
That's particularly the case because the three Bohai ports are not small ones growing only because they have low starting points. Qingdao is now the world's 10th-biggest port. Tianjin, also known as Xingang, is close behind at 12th. Dalian is 21st and could crack the top 20 this year.
Qingdao, with 10.5 million TEUs, has nearly as much volume as the ports of Los Angeles and Long Beach combined.
Indeed, analysts have presaged the arrival of the Bohai Bay ports as a container power for some time. Situated in northeastern China near a region noted more for its industrial output than export prowess, the Bohai Bay ports have traditionally been focused on bulk cargo, including steel, serving as an outlet for China's northeastern rust belt.
Though it lacks the cache of Shanghai or Hong Kong, the region is flush with power.
Perhaps most importantly, the Bohai Bay cluster of ports is the closest set of ocean gateways to Beijing, the capital of China. The effect of political power on the development of major infrastructure shouldn't be underestimated. Tianjin is also home to Wen Jiabao, current premier of the Chinese government.
Aside from the political aspect, the ports sit next to one of China's largest population bases, with Beijing at its heart. Tianjin, the closest port to Beijing, has particularly benefited from this development. Qingdao is a metropolis in its own right, perhaps most famous outside China for its brand of beer.
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The Bohai Bay region actually has nearly as many people (236 million in 2008) as the Pearl and Yangtze river regions combined (242 million). The Bohai region drives nearly a quarter of China's gross domestic product, more than the Yangtze River region (19 percent) or the Pearl River region (10 percent). Yet in terms of international trade, it is responsible for only 15 percent by dollar value, compared to 30 percent for the Yangtze and 22 percent for the Pearl River regions. Clearly, the potential for growth is great.
That volume for the region increased in 2009 (only Qingdao of the three ports saw a dip in volume, but only 0.6 percent) is somewhat a testament to the mathematical power of growth.
'It's quite simple,' said Jonathan Beard, managing director of Hong Kong-based port consultant GHK. 'It's the least developed cluster. It's on an earlier growth path, the path that the Pearl River Delta and Yangtze River Delta were on previously. Even if you overlay a downturn on a growth path of 20 percent, you're still going to get growth.'
The Bohai ports have seen growth of 20 percent in recent years, surpassing all but a handful of Chinese ports. And of those with comparable growth, it could be argued that growth was coming from a siphoning of volume from nearby ports, such as Guangzhou from Shenzhen and Hong Kong, or Ningbo from Shanghai.
The Bohai ports were largely growing complementarily, not in spite of one another.
Indeed, there's a big difference between sustaining 20 percent growth when volume is at 8 million TEUs and 25 million TEUs, but the strength the Bohai ports showed in 2009 shouldn't be diminished. Part of that strength comes from the geographical differences that affect the way cargo flows in northeastern China versus in the Yangtze and Pearl River deltas. While the Yellow River flows directly into the Bohai Sea, it's not even comparable as a cargo waterway to the Yangtze or Pearl rivers.
'So you have inland movements that are counted as cargo for the Bohai ports,' Beard said. Movements that might move by feeder ship or barge on the Yangtze, for example.
Another factor fueling the Bohai ports' success is there are fewer outlets for cargo than in China's more developed parts, particularly the Pearl River Delta region, where there is acute container terminal overcapacity.
'The hinterlands (in the Bohai Bay) aren't nearly as contested as they are in South China,' Beard said.
To underscore that point, Beard pointed to statistics that show there are 75 container berths in the Bohai Bay region. GHK projects the number of berths to swell to 118 by 2015, then to 133 by 2020. In South China, GHK is projecting 140 berths by 2020, but for a much smaller population. Thinking in terms of the way China's economy will develop over the next decade ' more imports, with exports still growing, albeit on a lower trajectory ' consumption clusters will matter nearly as much as low-cost labor. That places the Bohai ports in a good situation.
The Bohai region's dearth of container terminal development (relative to the rest of China, at least), suggests there may actually be a capacity shortage as soon as 2016 if cargo volumes keep increasing moderately, GHK said.
Yet the Bohai Bay ports have yet to emerge as major origin points for eastbound transpacific trade. That's not to say Qingdao, Tianjin and Dalian don't account for U.S. imports (roughly 10 percent of U.S. imports originate collectively in the three ports), but they still lie far behind Shenzhen and Shanghai in terms of importance to U.S. importers.
Europe appears to have a stronger connection with the three ports, with double the number of mainline services as on the transpacific. American Shipper ocean capacity research affiliate ComPair Data lists seven services directly connecting the ports to North America (mostly through Qingdao) and 14 to Europe. In short they've become core ports served on the major east/west lanes. Connections between the Bohai ports are plentiful and growing.
The ports also benefit from trade between China and Japan and Korea. In many ways, Busan, the fifth-busiest port in the world, is competing against the Bohai ports more than any others. The Bohai ports' ability to lure more direct services has hurt Busan's ability to lure transshipment destined for northeastern China.
Growth in the Bohai Bay container trade is primarily driven by intra-Asia and domestic trades. And though there's not massive momentum in terms of direct exports to North America, it's important to remember that roughly half of intra-Asia trade is still powered by exports to North America and Europe.
'There's been some decoupling (in terms of intra-Asia volume being driven by local demand), but it's theory being ahead of practice,' Beard said.
That means Qingdao, Tianjin and Dalian might be having a greater impact on transpacific and Asia/Europe trade than pure port-to-port numbers might