New port projects in northeast and south Asia are expected to help the regions boost trades with China, but establishing these commercial links may be hampered by concerns over supply chain management and efficiency, sources from the shipping and petrochemicals industries said on Wednesday.
Higher volumes of intra-regional trade underscoring China’s greater role in the commodities market necessitate the development of new ports in Asia, according to charterers and shipbrokers.
“Asian countries buy more from each other than from Europe and the US. Trade routes are changing because of this. Technology is also evolving. So, governments and port operators need to seize opportunities to create better shipping facilities,” a shipping source said.
Older ports in many parts of Asia are increasingly unable to cope with higher volumes of petrochemical cargoes, industry sources said.
“There is inadequate technology in older ports and they do not have enough berths. There is real frustration about the lack of space,” according to a Singapore-based shipbroker.
Consequently, congestions become frequent at old ports, delaying the loading and discharging of cargoes, and tend to get worse in the holidays, and during periods of inclement weather.
These delays translate to spikes in cost being shouldered by shipbrokers, charterers and end-users, industry sources said.
“If a port is congested or [the] weather is bad, shipowners fear their vessels will be stuck in the open sea [and get] delayed. So, they increase freight costs to increase their margins,” said a source close to a major Asian petrochemical producer.
In the first quarter of 2013, poor weather, accompanied by strong demand during the Lunar New Year demand led to port congestions in South Korea, China and Taiwan, pushed up freight rates. The affected ports included Daesan, Yeosu and Ulsan in South Korea, and Tianjin and Ningbo in China, and Taipei in Taiwan.
“People end up paying more for freight during such periods. This pushes up operational costs and reduces margin,” a South Asian petrochemical end-user said.
In early March, freight rates from South Korea to Tianjin, Ningbo and Taipei were heard at $30-32/tonne (€22-24/tonne) for 5,000 tonne vessels, according to ICIS. These freight rates were at least 20% higher than normal at that time, market players said.
“Authorities need to do more to address [the] congestion. China is emerging as a major player in the global shipping market, but port facilities in northeast Asia, in general, remain so poor. This cannot go on,” said a shipbroker based on Indonesia.
In the coming years, charterers and shipowners expect increased trade involving China, which is one of the world’s largest producers and consumers of petrochemicals.
“Double-digit [economic] growth will not be as frequent as before as China [transits] from a developed to a mature economy, but a lot of the buying and selling of petrochemicals will still be driven by the country,” a South Korean charterer said.
China, the world’s second largest economy after the US, registered a 7.8% GDP growth in 2012.
Japan and South Korea are undertaking projects to improve their port infrastructure, anticipating increased volumes of petrochemical trades with China.
Seoul is pursuing two new port projects: the Ulsan New Port and the Busan North Port Redevelopment Project.
The Ulsan New Port, a separate shipping facility from the existing Ulsan Port, will be designed to handle 32m tonnes of cargoes, with 33 ship berths by 2020, according to Invest Korea, a government body promoting investment in the country.
South Korea’s existing port in Ulsan has more than 90 ship berths.
The Busan North Port Redevelopment Project, on the other hand, involves building of 45 ship berths by 2020. The project is located near the commercial zones of Nampo-dong, Gwangbok-dong and Jagalchi, according to the city government.
Japan is also keen on improving its current ports to meet future operational needs, industry sources said.
“With the emergence of neighbouring ports in South Korea and China, there are genuine concerns about the international standing of the Port of Tokyo. So the government is looking at improving its port processes,” a Japan-based shipbroker said.
The Port of Tokyo is looking at constructing new berths outside its central breakwaters and to re-develop its existing wharves.
The ports of Tokyo, Kawasaki and Yokohama, known as the Keihin Ports, will also come under a unified management in the coming years.
By 2030, the Keihin ports are projected to handle 12.5m twenty-foot equivalent units (TEUs), representing an increase of about a third from current handling capacity, according to shipping sources.
In south Asia, China is actively helping to finance port developments, taking into account the sharp increase in volumes of trade with the region.
China’s overall trade with south Asia grew exponentially to $93bn in 2012 from $5.7bn in 2000, with imports rising at an average annual rate of 23% to $22.6bn over the same period, official data showed.
In February 2013, China took over the management of Pakistan's Gwadar Port, having financed most of the port’s development costs.
In August this year, Sri Lanka opened a $500m container terminal at Colombo Port with China’s financial assistance. The terminal will handle 2.4m containers a year and boost Colombo’s capacity by almost 50%, according to the Sri Lanka Ports Authority.
The northeast Asian country is also assisting in the finance of a railway near the port of Hambantota in Sri Lanka and helping to build a $14m dry port in Nepal.
With these projects, China is able to gain a vital foothold in busy shipping lanes for crude and other downstream products, shipping sources said.
“The projects will help China open an energy trade corridor from South Asia to the Middle East,” said a South Asia-based petrochemical trader.
China is also able to use more of its own vessels to move oil imports by the end of the decade. Last year, Beijing purchased new supertankers to give it more control over its energy supply chain.
Despite the expected benefits, challenges remain for new port operators in northeast Asia and south Asia, weighing down on hopes of immediate trade boosts between China and the two regions.
“Lack of integration between sea and land supply chains [is a major issue] to consider for port operators,” said an Asian based-shipowner.
Charterers and shipbrokers said the new port facilities should provide same level of efficiency and customer-focus offered by more established ports.
“The Mesaieed Port [in Qatar] and Singapore Port are good examples of transhipment hubs. Despite their small size, they are very efficient. They focus on a ‘customer-first’ approach,” according to a source close to a Singapore-based charterer.
Charterers and shipowners may try to avoid newer port facilities and stick to several ports of choice because of the location of key plants, distriparks or economic zones.
Still, charterers and shipbrokers welcome the new projects saying they provide more contingency options to prevent shipment delays.
“The increased number of ports will offer better choices for transit operations especially during holiday seasons or bad weather,” said a northeast Asian based charterer.
In the long run, charterers also said an oversupply of ports may lead to increased competition and lower port costs.
“At the end of the day, we look at our bottomline. If the ports help to [improve] our margins, we are all for it. If not, we will just stick to our [preferred] ports. It is hard to change old habits,” said a separate northeast Asian based charterer.