The Asian Powerhouses
By Michael King
Thirty years ago, when the Cold War was more than just a backdrop for movies, most of the world’s largest ports by tonnage could be found in The West.
Houston, Rotterdam, Antwerp, Hamburg, Los Angeles and New York led the way. All remain sizeable hubs for all types of cargoes including breakbulk and project shipments, but since the late 1980s the global port landscape has been transformed.
The unitization and commoditization of shipping has, of course, diminished the relative importance of project and general cargoes to most ports’ bottom lines. But of more significance has been the astonishing expansion of Asian economies that has seen the global economy pivot dramatically eastwards. With major initiatives such as China’s One Belt One Road, or OBOR, driving port development and project shipping demand in Asia, the trend is expected to continue.
Michael Andrews, vice president global projects oil and gas for Asia Pacific at DB Schenker, told Breakbulk the company’s customer base, which predominantly consists of major western international oil companies and engineering, procurement and construction, or EPC, companies, had over the last decade gravitated eastwards towards low-cost sourcing and module fabrication in Asia, a shift he said that’s “ongoing.” With most Asian economies in growth mode and trading activity, particularly on intra-Asia lanes continuing to intensify, the continent’s ports are expanding.
A key recent driver of breakbulk demand has been expansionist Chinese policies such as One Belt One Road and its related Maritime Silk Road. At its core, OBOR aims to establish new trading routes, links and business opportunities by further connecting China, Asia, Europe and Africa. Domestically, China hopes it will boost its own industries by delivering higher returns on capital and help absorb China’s excess labor and industrial capacity, particularly the cement needed for ports and roads and the steel required for new buildings and railways.
Overseas, the maritime component of OBOR focuses on linking China with Europe via the Indian Ocean. Many also see it as a means for China to further project its growing economic and military might.
Setting aside geopolitics, for the breakbulk industry OBOR is win-win. With support from Chinese state-owned enterprises, OBOR is boosting project forwarding and shipping demand around Asia via heavy investment in infrastructure projects. On the flipside, its requirement for strategic maritime staging posts is prompting the expansion of Asian ports with the help of Chinese finance and know-how, in the process generating both short-term EPC demand and long-term terminal capacity for heavy-lift carriers.
Some of the projects either underway or under discussion include a new deepwater port at Payra in Bangladesh and a new port in Kalimantan, Indonesia. Major investments have also been made in multipurpose port facilities in Sri Lanka, Vietnam and Pakistan by Chinese interests supportive of OBOR.
Importance of Malaysia
However, critical to OBOR in Asia is Malaysia, not least due to its strategic location on the Strait of Malacca, the key maritime artery linking the South China Sea and the Indian Ocean. The relationship between the two countries is already well established: China has been Malaysia’s largest trading partner since 2009, and is also its main construction contractor and the largest source of foreign investment in manufacturing. Agreements with China signed by the Malaysian government headed by Prime Minister Najib Razak include the US$13.1 billion East Coast Rail Link, or ECRL, and the Melaka Gateway Multipurpose Deep Sea Port.
The Melaka deal, part of the US$10.4 billion Melaka Gateway mega-development, was signed in 2016 and will see three Chinese state-owned companies build and manage a deep-sea port and Maritime Industrial Park on three reclaimed islands off the city of Melaka on the west coast. When completed, ECRL will run from Port Klang, Malaysia’s leading port located near the capital Kuala Lumpur, up to Tumpat on the border with Thailand via the strategic port of Kuantan.
China is also investing in the port of Kuantan and the nearby Malaysia-China Kuantan Industrial Park, or MCKIP, the first industrial park in Malaysia jointly developed by the two countries. The remit of the 3,000-acre park is to support heavy industry and manufacturing, and tenants will rely on Kuantan port for imports and exports. Already, 710 acres of the site is occupied by a new integrated plant operated by Alliance Steel, a joint stock Chinese and Malaysian company established in 2014. When completed, the plant will produce high-speed wire rod and bars and boast an annual production capacity of 3.5 million tons.
MCKIP is also expected to attract additional Chinese investment from companies seeking to expand into Southeast Asia and beyond using Kuantan Port as their ocean gateway. According to MCKIP, Guangxi Zhongli Enterprise Group and ZKenergy (Yiyang) New Resources Science and Technology Co will be two prime investors, while a new aluminum component manufacturing facility and a new concrete panel plant are also expected to be constructed at MCKIP.
Kuantan Port already handles breakbulk cargoes including steel pipes, sawn timber and plywood as well as various dry and wet bulks. However, the port can only receive ships of up to 40,000 deadweight tons. A port expansion project – NDWT Phase 1A – funded and managed by a joint venture Malaysian/Chinese consortium is scheduled for completion in the second quarter of 2018. It will add a basin depth of 16 meters, 400 meters berth and 20 hectares of cargo yard, enabling ships of up to 150,000 deadweight tons to be received. The development of Phase 1B will add a further 600 meters of berth and 22.5 hectares of yard and is due to open in the second quarter of 2019.
With ports on either side of Peninsular Malaysia linked by the ECRL, some see the developments as China’s means of reducing its reliance for imports on the Strait of Malacca by creating a landbridge.
The two countries have also formed the China-Malaysia Port Alliance, or CMPA. With the pending additions of the ports of Tianjing, Qingdao, Kuching and Sabah, CMPA will soon bring together 21 ports from both countries. The ultimate objective of the port alliance is to facilitate trade by using ports in Malaysia and China as gateways. CMPA initiatives will be aimed at improving information exchanges, establishing joint training programs to enhance operational skills and knowledge, the encouragement of joint ventures between port members, and the removal of customs bottlenecks.
Competing With Containers
Yet despite the heady number of port investments around Asia, at some key gateways pressure is growing on space, and this is creating problems for project supply chain stakeholders. As port managers seek out higher returns and less exposure to rising labor costs by automating operations, the pressure is on general cargo terminal operators to provide suitable facilities and to hold onto the skilled personnel required to stow and handle non-unitized cargoes safely and efficiently.
“We are seeing the same thing happening in Asia as has been happening for years in the U.S., Europe and Australia — the common theme is breakbulk taking more and more of a backseat,” said Shanghai-based Christophe Grammare, head of region in China at AAL. In short, ports are selling or developing prime real estate, or investing in new container terminals in place of general cargo facilities. “This is now happening even in Asia where we haven’t seen it much before,” he added. “Breakbulk facilities are becoming smaller and smaller.”
Grammare cited the part closure of Terminal 10 (Zhong Gong Lu) in Shanghai in 2017 as one example. This, combined with a summer heat wave, resulted in lengthy delays for ships at the port’s Luojing terminal. “If you can imagine, out of three main breakbulk terminals one was reallocated to container operations, so over July/August there were some vessels waiting 10 days or more for a berth,” he said. “With all the traffic being pushed through one terminal it created immediate congestion – Shanghai is one of the leading hubs for breakbulk and we went from three main terminals down to two.”
This is something that’s being seen throughout the region, he said, with the focus predominately on investment in containers, not so much on breakbulk. “Breakbulk is usually slow to handle compared with containers and it’s very difficult to automate, or it’s actually impossible to automate as it’s very labor intensive, and everywhere in Asia the labor cost is increasing as well,” Grammare said. “I think every port terminal is seeing that it’s very difficult to make money with breakbulk. So, everyone focuses on investing in container infrastructure, which you can automate and then secure a very predictable financial outcome.”
This results in a constant pressure between what the cargo can pay and what the stevedores get paid, which has led to a move by skilled staff towards better paying industries and a resultant loss of skills. “We see experienced people moving to different industries because the rates on the breakbulk side of things are not particularly great. Low-paying cargoes and low productivity generally result in low-paying jobs,” he said.
However, port charges in Asia had remained reasonably steady when compared with western countries where annual price hikes at specialist terminals were common. “I think it has become standard practice in western countries to hike up prices every year because of the lack of competition,” Grammare said. “If you look at certain developed countries, you don’t have many options for exporting your cargo. But in China, for example, technically Shanghai is competing with about 10 different terminals in the Yangtze River Delta. Most manufacturers in China also have their own berths for exports, although they are generally limited in size which does create issues for us.”
Capacity ‘Not a Concern’
DB Schenker’s Andrews, looking at project ports in Asia from a forwarding perspective, said he had, so far at least, encountered few capacity issues at ports. While in Europe and the U.S. multipurpose general cargo and project terminals were squeezed for space as ports built more container terminals or developed space for retail, so far at least the same trend was not immediately apparent in Asia, except for Hong Kong.
“In Hong Kong, midstream discharge and loading from lighters and barges for bulk cargo – either project, out-of-gauge and general cargoes – has been a long-established practice,” he said. “Moreover, as low-cost sourcing in the project world places more and more emphasis on Asian economies, we are not seeing a depreciation in skill sets from major ports.
“If/where that occurs, the workaround will be to use geared tonnage/vessels crews to handle the hook on/hook off and LSD procedures and from an on-carriage perspective – as distinct from a pre-carriage perspective – discharge to barge or temporary jetties, material or module offloading facilities, purpose built material/module offloading facilities, beach landings and the like.
“Indeed, this is the practice today in many locations throughout Asia, particularly the Indonesian archipelago where there is no suitable port infrastructure to handle the cargo.”
According to Andrews, customs in Asia is also not generally an obstacle when shipping major project cargoes. “It should also be borne in mind that many project sites are either located too far from a suitable terminal to make commercial sense out of utilizing the facility and/or the bottleneck isn’t the terminal and services/expertise per se but more the restrictions outside of the terminal on route to site.
“In these cases, either customs are cleared in a main port, cargoes discharged to barge or landing craft and taken round to site or, customs is performed at site.”
Michael King is a multi-award-winning journalist as well as a shipping and logistics consultant.
Photo credit: AAL
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