Factors that determine the wisdom of building berths are mostly out of a port’s control.
The most difficult part of running a port or shipping line in an economic downturn is the unpredictability of demand. Throw in oil price and currency volatility and any market forecasting may as well be left to Madame Zedora and her crystal ball.
The difference between ports and shipping lines – apart from the obvious fact that one travels and the other remains in the same place – is that when overcapacity rolls around, carriers can park their ships. For a port, miscalculations in future demand can have an ugly effect on the balance sheet.
The capital cost of building port capacity to handle large container ships is immense. A hundred million dollars can easily be spent per berth, with the heavy reinforcing of the seawall needed for increasingly bigger gantries, yard space, road and rail connectivity and IT systems.
When times are bad and managing costs is critical – like the present – having stacked up loads of debt to expand port capacity is not such a good position to be in.
Take the Guangzhou port of Nansha up the Pearl River in south China. The port built 10 berths for US$1 billion and trumpets the fact that it can accommodate ships carrying more than 10,000 TEUs. But to do so it must continuously dredge the hell out of the Pearl River, and even then the channel for container ships is just 35m wide.
More berths are planned and the channel will be deepened from its current 15.5m to 17m.
With a bit of luck, Guangdong’s provincial planners are not so divorced from reality that they allow Nansha to actually build more berths. In the next couple of years the Pearl River operators will not be able to escape overcapacity, with a report by consultants GHK predicting berth utilization will fall to 75 percent by the end of the year.
There is not much encouraging news to offset this bleak prediction. In Hong Kong, container throughput is down 17 percent compared to last year, and over the fence in Shenzhen, Yantian is down 13 percent year on year and Shekou is down 24 percent.
Business may pick up slowly, but planning for the future in the container shipping business is dependent on so many things that it is way out there in thumb sucking territory. Building port infrastructure takes time and a lot can happen in the years between signing a deal with investors and tying up a ship.