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back to index backASIAtalk July,  2005

A foreign perspective on China's ports and shipping

Interview with Robert Kledal by The China Business Review

Robert Kledal is senior vice president and Regional Line manager for Maersk Sealand in the United States. Kledal moved to the United States last fall after serving in various locations in China for 13 years, the last three years in Beijing as vice president and Area Line and Operations manager for the Greater China Area. He recently spoke with CBR Editor Catherine Gelb.


CBR: What are the top issues for China regarding US-China port and shipping developments?

Kledal: China has done an incredible job of planning for port infrastructure. The central government prioritized port infrastructure construction, and thus avoided the problem of wasteful, overlapping investments. China has also done a great job building ports ahead of time—growth has been 20-25 percent per year for the past 10 years. The Ministry of Communications also established a good dialogue with foreign companies that cleared many regulatory issues for foreign companies.

Despite these achievements, there are still challenges related to the "soft" environment—red tape related to documentation processes could improve. Customs still could improve relative to European Union countries. For example, PRC Customs houses may still compete for revenue. If goods are passing through Nanjing [Jiangsu] and Shanghai, which house gets the revenue? The rules are unclear, and thus it is possible that goods have to go through two clearances. China is aware of the problem, which is good.

One key challenge is in inland infrastructure. China has established its "Go West" policy but in terms of port infrastructure, the inland is behind. The time it takes goods to travel from Chongqing to Shanghai (about 900 miles) can equal the length of time these goods take to travel the 7,400 miles from Shanghai to Los Angeles by sea. It also takes longer for this shipment to travel from Chongqing to Shanghai than to travel from Los Angeles to New York (2,500 miles). Part of the problem is the country's overused and fragmented rail system. When a container train passes through the regional rail bureaus, each bureau decides whether the train has priority over a coal train, for instance.

CBR: What solutions do you see for these problems?

Kledal: The first solution is improvement in import-export documentation. This includes Customs processing, as well as licensing. It also involves trade barriers, such as the recent problems with China requiring extra documentation because of beetles in packaging materials, and the issue of dumping. These are, of course, issues that are covered by the World Trade Organization and bilateral trade agreements.

Second is improvement in inland infrastructure, mainly rail. Third, is to make sure that road access to the port matches the road infrastructure inside the port. In the immediate vicinity of China's major ports (that is, within the first 50-100 km) the road access is OK, but the momentum must continue. Actually, in this case, ports in the developing world in general are better off than ports in the developed world. It is easier to build new than to expand existing facilities.

CBR: We have been hearing about the large imbalance in cross-Pacific trade—that ships are going back to China with a high percentage of empty containers. What effect does this have on your company's operations?

Kledal: Forecasting is important for the industry, as it is for any asset-heavy industry. We need to know: Can China keep up its export boom? Are they in for the long haul, will the boom be sustainable for 10 years? If you overforecast, your capacity is underutilized. Underforecasting was the recent problem. Economic strategists insisted that it would be impossible for China to sustain its rapid pace of development for five years. In January 2004, the forecast was for 2 percent growth in the China-to-USA market—the reality was about 14 percent.

Forecasting is better now. This year the forecast is for 12 percent growth. So far, China does not appear to be overshooting.

CBR: Regarding China's inland shipping capacity: Do you operate inland? What steps do you think China needs to take to improve inland efficiency/capacity?

Kledal: We provide through services to our customers, but we do not own any ships that operate on inland waterways. China's inland shipping is fragmented, conducted by "Mom and Pop" local Chinese operators. These local operators have good safety records and are the most cost efficient right now for us to use. We are frequently looking at whether we should become operators.

In Chongqing, upgrades will happen. It is already a model for the Go West policy. Overall, for China, rail is the biggest challenge. It is underdeveloped relative to the United States and European Union. Part of the reason is that China's economic boom has, until recently, been entirely along the coast. The country hasn't needed rail. If goods only need to travel 300-400 kilometers, rail may still not be the best. But the country needs to look at double-stack trains and electrification.

CBR: What role do you see for Hong Kong in the future, as Chinese ports expand?

Kledal: This is the million-dollar question that Hong Kong people ask every day. If we back off a bit, we can see that Hong Kong has moved from being a port of entry for goods destined for all of China to the entry point for goods headed into and out of South China. But Hong Kong is still No. 1 or 2 in the world because China has grown so dramatically. It will be in the top four for the next many years. Hong Kong realizes that it can't be the entry port to all of China; getting out of the dream is a good start because it enables you to focus. And Hong Kong still offers advantages [compared to mainland China]—for instance, ease of documentation and more weekly departures. This benefits carriers who must be concerned with yield management (the ability to switch cargo from ship to ship in case of overflow). Hong Kong is also still the biggest gateway for the Pearl River, which is made up of 20 small ports such as Zhuhai, Zhongshan, and Shunde—though few are deepwater ports.

In the last half year or so, Hong Kong has also worked on trucking improvements, particularly to Dongguan and Guangzhou. Hong Kong lost out to Shenzhen and Yantian ports because of cumbersome licensing requirements and rules that added $200 per trip to truck costs. For instance, Hong Kong only recently eliminated its "four up, four down" rule. This required the driver, engine, chassis, and container to go up [from Hong Kong to mainland locations] and back down on the same unit—the same container had to remain throughout the trip. Triangulation, the ability to drop one container and pick up another, was impossible. Though this rule no longer exists, savings have yet to materialize.

CBR: How does Hong Kong compare with the other major PRC gateways?

Kledal: There are two other major Chinese regions: the Bohai region in North China—Dalian [Liaoning], Qingdao [Shandong], and Tianjin; and the East—Shanghai, which is the natural gateway for the Yangzi River, and Ningbo [Zhejiang]. The rivalry between the ports of Shanghai and Ningbo is the fiercest in China. Ningbo, though smaller than Shanghai, has carved out a niche and serves Zhejiang well.

In the south, the big game now is among Hong Kong, Yantian and rival Shekou, Qiwan [Chiwan], and most recently Nansha, near Guangzhou. I realize that Hong Kong is in it for growth; but if it looks in terms of volume, that may be good enough. It is quite a big pie.

Overall, what sets China apart is not only that it is the fastest growing [economy in the world] but that it is already the biggest market, and growing on top of that. It is also not a one-stage rocket. Its dominance is likely to continue.

Source: The China Business Review - GAI

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