South China terminals face capacity overhang as demand falters
The Factory of the World is on a go slow, and the thick cluster of container terminals in South China are nervously contemplating a steady fall in traffic.
The rise of manufacturing has made the province one of the wealthiest in China. Guangdong's per capita GDP was US$7,819 last year, according to the provincial statistics bureau, and news released yesterday announced that per capita GDP will more than double to $16,887 by 2020.
In a province currently populated by 90 million people, that is a lot of spending power. It is also great news for the South China container terminal business.
So why the long faces? In a word: Capacity. Too much of it.
With demand for China’s exports slowing, and sluggish trade affecting Asia cargo flows in general, the terminal operators in the Pearl River Delta are standing on the wrong side of the supply-demand curve. Where once annual container throughput was well into double figures, low single digit growth has replaced the headline numbers.
South China is a crowded place when it comes to container ports. Within a small radius are the terminals of Hong Kong, the Shenzhen ports of Yantian, Chiwan and Shekou, Dachan Bay, Nansha and Guangzhou. All compete for China’s exports, but the factory of the world is struggling against falling orders and rapidly rising costs, chief among them labour and raw materials.
The slowdown is having a far-reaching impact on PRD manufacturers. As Li & Fung exec Tommy Lui said in Hong Kong this week, 25 percent of factories are moving out, 25 percent are moving inland and 50 percent are staying put.
Hong Kong’s key rival is Shenzhen, despite the common shareholding structure among terminal operators on both sides of the fence. Shenzhen posted marginal growth in 2011 of 0.3 percent. Hong Kong, which depends on South China factories for 60 percent of its container traffic, managed to show a modest 6.1 percent rise in throughput.
If the terminals can grow container throughput by even five percent this year, they will be happy, but the growth in terminal capacity will be anything but modest. In the South China port cluster, there will be 48 new berths online by 2030, a 56 percent increase, according to consultants GHK. From 85 in 2010 there will be 133 berths in 18 years.
Will all that capacity be needed by 2030? Who knows. But terminal operators are a canny bunch, and inclined to keep capacity tight rather than use the carrier approach of “build as much as you can as fast as possible, and then build even more because that’s what Maersk is doing”.
The terminal operating companies know that even if the manufacturers all move inland, the containers will have to find their way back to the coast for export. Much of the manufacturing is relocating to cities along the Yangtze River, such as Chongqing. The easiest way to export containers from there is to send them down the river and out via Shanghai or Ningbo.
To counter this, the South China terminal operators are working on extending their reach into the mainland, improving road corridors and pushing for dedicated rail connections between Chongqing and Shenzhen. The migration of manufacturing is gradual for now, but by 2030, the terminals are confident the road-rail flow of boxes between the two cities will be a torrent.
For the meantime, the question being asked is whether rising imports will offset falling export volumes. The answer to that lies partly in the hands of the 90 million Guangdongers. Or rather, in the hip pocket of their designer jeans.