The port integration period

By Zhang Hongpei Source:Global Times Published: 2017/10/22 18:58:40

Trans-regional and provincial-level efforts strengthen China’s shipping


A cargo ship is departing from the Dapukou container terminal on October 4, 2017 at Ningbo Zhoushan Port, East China's Zhejiang Province after completing the loading and unloading operation of 1066 TEU.Photo: VCG

Port integration has become a key phrase within China's port industry over recent years. Trans-regional integration and integration on the provincial level aim to achieve the overall improved management of ports and optimization of port resources, thus solving the problems of port overcapacity and homogeneous competition. Experts suggest that ports should try making a logistics pivot or seeking a financial services provider to expand their high value-added industries so as to realize transformation and upgrading.


China has been steadily promoting port integration over recent years by bringing the country's main ports into the arms of one provincial-level platform as a way to demonstrate the effectiveness of combining port resources.

In response to the national port integration initiative, East China's Zhejiang Province took the lead by establishing in 2015 a provincial-level platform - Zhejiang Port Investment Operation Group (ZPIO) - to optimize port assets in the region, including its five major ports, Ningbo Port, Zhoushan Port, Jiaxing Port, Taizhou Port and Wenzhou Port.

At the first stage, ZPIO brought together the ports of Ningbo and Zhoushan to establish Ningbo Zhoushan Port Co, the world's busiest port in terms of cargo tonnage, recording 889 million tons in throughput in 2015 alone.

With this world-class port acting as the country's major pivot in port development, Zhejiang's other ports followed suit, and were gradually unified under ZPIO.

Following Zhejiang's pioneering move, so far, East China's Jiangsu Province, Northeast China's Liaoning Province, South China's Guangxi Zhuang Autonomous Region and Hainan Province have all established port groups at the provincial level, according to a report published by Caixin Weekly on October 9.

Driven by the central and local governments as well as the market, more and more provincial port groups with assets scales of 100 billion are shaping up, domestic news site cneo.com.cn reported on October 16.

"We can see that China's port integration efforts have taken a big step forward over the past few years, as Ningbo Zhoushan Port in its initial phase has exemplified strong efficiency," Wu Minghua, a Shanghai-based independent shipping industry analyst, told the Global Times on Thursday.

Protruding problems

However, China's port industry is confronted with challenges such as overcapacity of port construction compared with the sliding growth of throughput, resulting in layout disorder, decreasing efficiency and homogeneous competition between ports, experts noted.

Zhao Nan, an expert in global port development at the Shanghai International Shipping Institute, told the Global Times on Thursday that repeated port construction - which echoed the then national strategy to make cities prosper via port development - has brought unsound and ever fierce competition since the global financial crisis of 2008, which directly affected the shipping market as there were less commodities being transported.

For example, along the Yangtze River Delta, including the riverbank line and its coastal area, one port exists almost every kilometer, which has resulted in serious homogenous competition, reducing the utilization of port resources in coastal units.

"If one port begins to handle commodity containers, the ports nearby will quickly follow it," Wu noted.

"With having similar infrastructure and operational methods, different ports within an area will resort to a price war in order to scramble for the same commodities," he added.

Taking the coast of the Bohai Sea as an example, its Huanghua, Qinhuangdao, Jingtang and Caofeidian ports, all of which are located in North China's Hebei Province, forced down their port operation fees during the second half of 2015 until the first half of 2016, an anonymous source from Hebei Port Group Co told Caixin Weekly.

The operation fees for coal were at least 17 yuan per ton in Hebei in 2016, yet the price was brought down to 13.5 yuan by Caofeidian Port alone in 2016, the lowest that year, so other ports had no choice but to follow the price cut, according to the source.

Under such conditions, it is quite necessary to drive promotion of port integration in order to gain sound and sustainable development. But attempts to do so have certainly been met with some challenges.

As China's ports have been highly integrated into the development of cities over the past decade, local governments have also been contributing. But this might contradict with the overall integration at the provincial level, a person working for a Tianjin-based shipping agency, who declined to be identified, told the Global Times on Friday.

In addition, some ports have made use of private capital. Some cargo owner's wharfs, which are utilized in port integration, are invested in and constructed by the private capital of enterprises or individuals instead of local governments, adding to the cost of port integration. "Different parties' interests will be involved and the game becomes complex," the person said.

To tackle the above difficulties, port reform should make capital play a bonding role within dominant markets, but the port will still need the government's guidance from a macro perspective, experts suggested.

"Many cargo owner's wharfs are integrated. But this move should involve the adoption of market means, such as share purchases. At the same time, the key is to achieve interest balances and realize a win-win," Zhao noted.

Trends and transformations

Port integration also covers trans-regional ranges, which can involve the integration of ports in a number of close-by provinces or municipals, in order to drive the shipping and trade development of the wider geographical area.

For example, in July, China's Ministry of Transport, the municipal government of Tianjin and the provincial government of Hebei jointly released the work plan on promoting port integration in the Tianjin-Hebei region, aiming to transform Tianjin into a comprehensive port pioneer mainly focused on commodity containers, roll-on and roll-off commercial autos as well as cruise ships. Meanwhile, Hebei will concentrate more on the shipping of bulky cargoes.

On top of enabling and optimizing resources along coastlines, port integration also enhances operational efficiency and further drives the wider area's development, experts said.

"The [new port] era is no longer a throughput victory, but instead a quality and efficiency victory," Wu stressed.

China's ports are gradually transforming from traditional operators engaged in loading and unloading to logistics services providers linking upstream and downstream industrial chains, according to Wu.

Furthermore, many ports have considered providing financial services to their customers, Zhao noted. For example, for some small cargo owners, they might have difficulty in retrieving financing from banks, but if ports can help them in microfinance terms, that can alleviate their strained cash flows, she explained.

"Extended services, including logistics and finance within industrial chains, are high-value added. Plus, some ports are also preparing to build their own fleets," Zhao noted.

Amid an array of integration movements, China's centrally administered State-run conglomerates in the shipping and port industry, namely COSCO Shipping Corp and China Merchants Group, are also playing active roles.

As China's largest port operator, China Merchants Group signed a cooperation framework with the government of Liaoning Province on June 10 in order to co-build a provincial-level port operation platform to facilitate the entire port integration movement in Northeast China.

Participating in the country's overall integration process, China Merchants Group hopes to share its experiences in port management and operation to help ease the harsh competition at some of China's ports, the company said in a note sent to the Global Times on Saturday. Besides, it is also in discussion with Ningbo Zhoushan Port to expand in-depth cooperation to build the port as a boutique one by utilizing its own advantages.



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