SHANGHAI (AFX) - The commissioning of Shanghai's new Yangshan Deepwater Port will likely lead to major changes to the port industry in Northeast Asia, especially for the port cities of Hong Kong and Busan, South Korea, analysts and industry observers said.
However, they added that the immediate impact will be most felt by Shanghai's own existing facilities, notably the Baoshan and Waigaoqiao terminals, and that for the Yangshan facility to be competitive it must invest in its management and processes as well as its infrastructure.
Phase I of Yangshan deep water port, which has five container berths with a designed annual capacity of 2.2 mln twenty-foot equivalent units (TEUs), officially started operations on Saturday.
The Shanghai municipal government plans to invest a total of 120 bln yuan to construct 33 deep-water berths on Yangshan Island, sitting 27.5 km off the south of the city.
With the addition of the Yangshan facility, the ports in Shanghai are expected to handle more than 20 mln TEUs (20-foot equivalent units) of cargo next year, narrowing the gap with world number one Hong Kong and number two Singapore, the Shanghai government said.
Shanghai came in third last year, shipping out 14.5 mln TEUs. Its ports are expected to top 18 mln TEUs this year, compared with Hong Kong's 21.9 mln in 2004 and Singapore's 21.3 mln, according to data from the Shanghai government.
'Shanghai will become the world's biggest container port. Yangshan will play an important role as an international transfer hub and help Shanghai secure its position as an international shipping center,' Chen Xuyuan, president of operator Shanghai International Port (Group) Co said at the facility's opening.
China's state council has approved Yangshan's status as a free-trade port, the first in China, meaning operators can offer companies total exemption from import tariffs and commodity and business taxes, as well as use simpler rules for the entry and employment of foreign personnel.
Although it still has a relatively limited capacity and it will take some time before its logistics ability can be judged, the new port as envisioned will shake up shipping in the region, analysts said.
'Shanghai is going to be a threat to Hong Kong as a port because there is much more capacity coming out and the tariffs and handling charges in Hong Kong are higher than those in (China's) domestic ports so we will see more boxes shipped and exported from China directly rather than Hong Kong,' said Alan Lam, analyst with Guotai Junan Securities in Hong Kong.
'Yangshan has a bright future, especially as a transshipment center. Many goods from China are shipped to Busan and moved to the US, but in the future the ships can use Yangshan port and directly export through the US. In the future Yangshan will be the centre for transshipment in Northeast Asia,' Lam added.
Lam noted that the Shanghai authorities are looking for a major shipping company to join in the second and third stages of investment, which would help them build the port into a transshipment center and provide a direct challenge to Busan.
Shippers Hutchison Whampoa, COSCO Pacific, the port unit of Danish AP Moeller-Maersk, APM Terminals and Oriental Overseas Container Line, have reportedly expressed interest in the second-phase operation.
Max Henry, founder of the China Supply Chain Council (CSCC), agreed that the port could significantly alter the face of the shipping industry in the future, although he said it will need to ensure it has adequate software, personnel and processes, as well as infrastructure hardware.
'If they are going to be positioning and doing a good job in running operations very smoothly and very professionally - and I think they have the ability to do so because they can learn from Baoshan and Waigaoqiao - and bring some real expertise into this, they definitely have a real advantage over Busan and over Hong Kong as well,' said Henry.
'(But) when it comes to Yangshan deep port it's really too early to say anything. Having a port and having the facilities is one thing, but getting the operations to run smoothly is another story. What Korea has built, and I have not been to the Busan facility, but they probably have an edge in operating that the Chinese don't have yet,' Henry said.
In the immediate term - and until the facilities and its management are tested and shown to be of the same standard as those in Hong Kong and Korea - he said the port will mostly be a challenge for existing Shanghai facilities, as authorities seek to redirect routes from existing Shanghai facilities to Yangshan.
'The big question, and one of the top questions that comes to mind for shippers and freight forwarders, is what is going to happen with the Baoshan and Waigaoqiao facilities,' he said.
'The government has been saying that there should be no competition between ports, but at the end of the day looking at what they are doing with Yangshan port it's obvious that the Baoshan and Waigaoqiao facilities are going to be in jeopardy over the next few years.'
Henry said that some routes, notably Europe-bound shipments, are likely going to be moved to Yangshan while other routes will have to stay in Baoshan and Waigaoqiao.
'That's an issue for most of the freight forwarders today because most of them had to already spend a lot of money and build their operations and now they are being told that they have to move.'
Part of the justification for the Yangshan port has been China's growing exports and the Yangtze River Delta's role as a global manufacturing centre.
'Next year I believe the growth in container throughput will be more than 15 or 20 pct, although the overall growing rate will be lower than this year given the high base that will still be an extraordinarily large number,' he added.
Niu Yuming, an analyst with Haitong Securities, said the cargo throughput demand in the affluent Yangtze River Delta justifies the port's construction, saying that there is unlikely to be an overcapacity problem at any time in the next five years.
Niu expects the first phase of the project to break even for the next year if it can run at full capacity and to become profitable after that.
CSCC's Henry, however, noted that there were no serious problems with bottlenecks at existing ports and while export growth may eventually necessitate such a major project as Yangshan, he did not feel it did so at present.
'I don't think there is any capacity issue in Shanghai at this point in time, things seem to be fine. That's why so many people are scratching their heads about Yangshan port because if you are a shipper or a freight forwarder you can get, most of the time, space on routes,' Henry said.
He added that he wasn't reassured by official statistics justifying the port.
'Some of those are here to support the new project and as you know there are no real statistics in China,' Henry said.
'Those guys who are investing money in Yangshan port have to somehow justify their investment.'
'There have been a lot of numbers and statistics about the growth of traffic and so on but our members are the shippers and they are the ones who actually send goods.... and you don't get your containers stuck in port, so it's working very smoothly for Baoshan and Waigaoqiao at this point,' Henry said.
He added that the determination that the Yangshan port will be the gateway to Europe has already caused concern among the CSCC's membership, which includes around 10,000 logistics managers and related professionals in industries such as electronics, automotive, consumer goods.
'Right now the new port is causing a lot of logistic problems, even for freight forwarders... if you are looking to ship a cargo from downtown or the western suburbs of Shanghai and you now have to use Yangshan port it is adding to the distance and adding to the time,' he said.
He said that there were additional transportation costs reported from some of the CSCC's membership, due to the distance of the port from urban Shanghai.
'From what we have heard there can be an addition transportation cost of up to 50 pct if you have to use Yangshan port,' he said.
'It's adding to local logistics costs to get a container out through Yangshan Port, it's not the most convenient or most cost-effective place to get a container out, and if you are shipping from Zhejiang province it is more cost-effective to use Ningbo rather than Shanghai.'
The Shanghai government said the new port's throughput as of 10:00 pm Sunday was 16,658 TEUs.
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