Monday, 24 June 2013
Shortage of Containers May Hinder China’s Future Economic Growth
• Growth in container demand will continue to be driven by growth in China’s GDP;
• The development of container ships has made it possible to have factories and distribution centers to
establish global supply-chains with China as its base;
• Yangshan Deep Water port is the largest container shipping port in the world and able to handle 20 million
containers a year;
• Five of the world’s ten busiest container ports are located in China;
• With an enormous injection of USD 200 billion to develop China’s hinterland transportation network, thus container
demand is expected to surge as more goods will be transported via road and rail.
Key Developments within China’s Container Shipping Industry (2008-12):
International container shipping is one of the most dynamic economic sectors of China over the last few years. Between 1990’s and 2012 the container trade at China’s ports expanded more than 10% p.a. on average (2011: +11%). The container shipping sector greatly surpassed seaborne trade overall and even the growth in international sea transport in China.
The major reasons for the growth in container shipping in China are on the demand side, the increasing international division of labour in the course of liberalization and the resulting trade movements; and also the rise in importance of goods eminently suited to transport by container. On the supply side, the considerable expansion of the container ship fleets and faster loading and unloading of container ships are playing an important part; they allow short turnaround times in port.
The growth in international container shipping will continue for the next 10 years in China, with an only slightly reduced impetus. The container shipping industry expects annual growth of about 9% in container demand up to 2020. The main routes that are likely to achieve the greatest expansion include intra-Asian transport as well as the routes from China to North America and intra- Asia. In contrast, transport between North America and Europe will reduce. Of the 25 largest container ports in the world, 16 are in Asia, and 4 of China’s major ports are listed among the Top 10 busiest in the world.
Despite the recovery in global demand for container transport, freight charges will gradually increase but forecasted to be below the level experienced before the Global Financial Crisis. The main reason is the anticipated massive expansion of global container ship capacity. Between 2008 and 2011 the available container capacity worldwide will expand by about 50%. The shipyards’ long order books for container ships argue against a rapid redress of the excess supply.
The rise of China is at its heart an economic phenomenon. Its story is the most astonishing example of economic growth in human history. China’s remarkable journey to become an economic superpower can only be explained by its fairly unique economic driver, trade. And the most important variable for China in this complex world of international trade was shipping containers.
The irony is that this “workhorse” played a pivotal role in China’s economic transformation from one of the poorest developing economies under communist rule to become the world’s second-largest economy in just 30-years, but has hardly been mentioned. We tend to forget that the humble shipping container was a powerful antidote to economic pessimism surrounding China in its initial intention to become a trading nation. This simple metal box has single-handedly transformed China into global trading powerhouse. In fact, new research suggests that the container has been more of a driver of globalization for China than all trade agreements in the past 50-years taken together.
In terms of trade, the total value of China’s exports and imports in 2011 was $3 trillion; with about 13 percent of that trade occurred between China and the US. China has already surpassed Germany as the world’s No. 2 trading nation. Total foreign trade in 2010 was $2.17 trillion, up from $1.4 trillion in 2005, $289 billion in 1995 and $21 billion in 1978. Trade has been growing at a rate of around 30 percent a year since 2001 (2011). The World Bank calculated that China contributed 31 percent to global trade growth in 2011.
Strategic Role of Containers
Containerization is a testament to the power of process innovation. In the 1950s the world’s ports still did business much as they had for centuries. Then containerization changed everything. It was the brainchild of Malcom McLean, an American trucking magnate.
Currently, the volume of total world seaborne trade – measured in tonne miles (the product of distance and the quantity transported) rose by an average of 3.6% between 1990 and 2012. Maritime transport therefore forms the basis of the high, and largely constant, growth in world trade (see Chart 1). This compounded with the dynamics of international container shipping, the recovery in total seaborne trade since financial crisis appear to be impressive.
Chart 1 also shows the surge in container demand from China has been far greater than total trade in both the US and the whole of Europe put together. Though the container’s transformative power seems obvious for China it is certainly “impossible to quantify”. Since the 1990’s the growth rate of container demand has averaged 10.6% per annum. Early evidence suggests that one plausible reason for the surge in container demand from China was due to an increasing proportion in the container handling business from transshipment traffic across all major ports in China.
China’s ‘live-wire’ remains the Port of Shanghai. It contains three major container areas: Wusongkou, Waigaoqia and Yangshan. In 2011 alone, all three container areas itself handled 368 million tons of cargo, including 28 million TEUs of containerized cargo, despite the worldwide financial crisis. Containers are the heart of the Port of Shanghai's business. Over the five-year period ending in 2012, container traffic through the Port of Shanghai increased from 6.43 million TEUs to 21.7 million TEUs (refer Appendix 1 for detail of individual port performance in China).
Each year goods moving through the Port of Shanghai represents one-fourth of the total value of China's foreign trade. Even more staggering facts to know that each month an average of over 2,000 container ships call at the port. Chart 2 below depicts an increasing proportion of transshipment traffic, i.e. container handling in China.
It’s clear that the proportion of transshipment traffic rose in China from 11% of total container handling in 1980 to over 37% last year. This literally means that an increasing number of shipping and charter companies in China and have succeeded in keeping the number of working containers at a relatively high level by efficient use of ships and by grouping transport at the large container ports throughout China.
Chart 2 depicts an increasing proportion of transshipment traffic in China. In absolute terms (measured in TEU), transshipment activities are considerably larger than container trade in China (2012: 400 million TEU compared with 114 million TEU in the 1990’s). A combination of direct deep-sea import/export, transhipment and short-sea container traffic in China has ensured attractive future prospects for container demand as ports are able to penetrate global markets.
Meanwhile Chart 3 below clearly indicates that trade between China-Rest of remains the most important for global container trade, with a share of over 38% in 2011 (refer Chart 3 below). The runners-up are trade on the Trans-Pacific route (just under 16%) as well as the routes between Europe and the Far East (over 12%). In comparison, intra-European trade (just over 7%) and the trans- Atlantic route (about 6%) are hardly more than niche markets.