China''s Ocean Boom

China''s Ocean Boom

Copyright 2004, Traffic World, Inc.

When transportation executives talk about China these days, the world''s most populous nation is described as either "the 800-pound gorilla" or the "black hole."

That''s because China''s voracious appetite for embracing capitalism and industrialization is making the Asian nation take over many superlative positions: world''s biggest importer of aluminum and steel, world''s No. 1 importer of rubber, world''s highest TEU volume at a port, and world''s largest producer and exporter of textiles and apparel, to name a few.

And all those superlatives are creating global shortages: ship shortages that have sent charter prices through the roof for almost every type of commercial cargo vessel; shortages in steel that have shipyards deferring new orders because they can''t get the raw materials; shortages in coke because so many mines have been exhausted in China.

A recent study by the International Trade Commission on the global textile market concludes that China seems "to have everything." That includes cheap, plentiful labor and until recently, a seemingly endless supply of raw materials.

Last year, President Bush imposed quotas on some textile imports from China but those are expected to end next year when China formally joins the World Trade Organization. At that time, the trade commission predicts China will become the "supplier of choice" for textile and apparel products bought in the United States.

China has been the top global producer and exporter of apparel for more than five years.

"U.S. apparel companies and retailers reportedly are finding China to be a much more business friendly place from which to source textiles and apparel as a result of changes China has made as part of joining the WTO," the report said. "U.S. firms increasingly work directly with manufacturers in China rather than through buying agents, as was the common practice."

What is true in China''s textile sector is true in other industries: China is gradually becoming more business friendly for U.S. companies.

Last year, China surpassed Mexico as the United States'' second-largest source of imports behind Canada. China sent $152.4 billion in goods to the United States, a $27.2 billion increase over 2002. "I can''t point to one thing and say that''s why our trade is increasing with China," said Howard Finkel of COSCO North America. "It''s everything - electronics, furniture, toys. More and more sourcing is going to China."

To stem unprecedented migration from China''s more rural interior to the crowded coastal cities, the central government is encouraging more investment and development of the inland provinces. More production is shifting inland as companies seek even cheaper labor rates and less expensive real estate.

Industrial investment is being complemented by government spending on infrastructure projects. Roads and railroads throughout the country are being built and improved. The biggest building project is the Three Gorges Dam on the Yangtze River. That will provide not only better transportation alternatives for manufacturers shipping containers to ocean ports, but will mean cheaper and more reliable electricity for factories.

Shipping along the Yangtze to the Port of Shanghai is increasing but it remains a small fraction of the coastal facility''s business, according to Sheung Pak Poon, senior vice president of logistics and strategic development at P&O Nedlloyd.

Poon said of the exports from China''s largest port, "44 percent originated from the local Shanghai area. Another 45 percent originate from the neighboring provinces of Jiangsu and Zhejiang. Only 8 percent originate from the Yangtze River basin area beyond Jiangsu."

He said that most exports from the Jiangsu and Zhejiang provinces are trucked directly to container terminals in Shanghai and cleared through customs there.

With the dramatic buildup in trade, there has been growing frustration with delays in the Chinese customs system. Customs officials at several ports in China are trying to streamline the process.

For example, Yantian, which is part of the Port of Shenzhen near Hong Kong, has unveiled measures designed to decrease the time it takes for goods to clear customs.

New procedures include the filing of advance manifests for imports of parts and materials needed in the manufacturing process.

Meanwhile, COSCO Pacific reports the eight mainland Chinese terminals in which it has an ownership interest increased their combined volume 51 percent last year to 15.2 million TEUs.

Shipping executives in the U.S. Gulf trades expect volumes in all types of cargoes - bulk, breakbulk and containers - to continue to rise. Growth of cargo between the Gulf and Asia has trailed the growth of cargo between Asia and the East Coast, where many large retailers have built distribution centers close to a port, avoiding the cost of a mini-landbridge operation from the West Coast.

With transit times from the last port in China to the first East Coast port ranging between 22 and 24 days and the West Coast mini-landbridge taking even longer, Gulf ports believe they are the next logical region for growth of distribution centers to receive Asian imports for large retailers.

Wal-Mart recently announced plans to build a 2 million-square-foot distribution center outside Houston.

"Everything is becoming more time sensitive," said John Horan, trade development director at the Port of Houston. "The Gulf is the logical alternative to congested West Coast ports because we still have the reach into the heartlands."

Rickmers Linie, Industrial Maritime Carriers and a joint venture between P&O Nedlloyd and CMA CGM offer the only all water direct service from Houston to Asia. Besides Rickmers'' Pearl String service, whose new multipurpose vessels sail the eastbound leg, the German carrier is starting a one-way westbound service using charter vessels.

Jerry Nagel, president of Rickmers America, said the carrier has been hauling project cargo to nations in Southeast Asia. The ships return from Asia with breakbulk pipe steel, plywood and other cargoes.

The shipping company last month took delivery of its ninth new vessel, Rickmers Genoa.

"The Pearl string is doing well from Asia to the U.S.," Nagel said. "The ninth vessel will take her position behind the Rickmers Tokyo heading east across the Atlantic this month."

CMA CGM and P&O Nedlloyd added trade Houston to the CMA CGM PEX-2 service last May.

Wallenius Wilhelmsen Lines, Mediterranean Shipping Co. and Zim Israel Navigation Co. offer all water service using transshipment hubs. The higher reliability and the lower price of all water service, compared to mini-landbridge operations through the West Coast, also are driving the increase in cargo volume. All-water services may take about five days longer, depending on the departure and destination ports, but rates are some $450 to $600 lower.

Another plus for Gulf and East Coast ports is last month''s signing of a master contract with the International Longshoremen''s Association, which will alleviate concerns about potential labor problems such as the 2002 West Coast port lockdown.

Growth could, however, be limited by several challenges, ranging from port congestion, truck delays and capacity limitations on vessels transiting the Panama Canal.

Shelli Ali, president of Sea Bridge Project, which is operating an inter-Asia tramp service and sailing special projects on inducement between the Gulf and Asia, also said the market''s high charter rates aren''t likely to lessen anytime soon.

"The market is going to be this way for awhile," Ali said. "Many multipurpose ships are old and being scrapped so there is less tonnage on the marketplace. But at some point it has to stabilize."

Ali said it has become very difficult to write project cargo contracts because the cost of shipping has become so volatile.

"It''s become very difficult to predict how to sell something," she said. "I know several shipping companies that gave back project contracts to clients claiming force majeur, claiming they can''t deliver at cost levels that were quoted three to six months ago."

Delivery of cargo that moves on the all water route is more reliable because it stays with a single carrier, carriers explain. One constraint is the ability of the Panama Canal to handle the ever-larger vessels that most carriers are adding to their fleets. The largest vessels able to transit the canal have a maximum capacity in the mid-4,000-TEU range. The Panama Canal Authority is studying a multibillion dollar expansion program that would add locks capable of handling vessels up to 12,500 TEUs, but that would be a long time off. The canal is also exploring building a railway to haul boxes across the short land expanse.