I have made several posts in the past on ports and port development, especially in regards to China. As a review, below is a list of these posts:
Recently, another article on ports has appeared from Reuters via The Edge Daily, discussing a wide range of port topics. The phenomenon that drives this article is that while efficiency gains continue to be sought in the larger coastal ports, supply chain management professionals will also look inland to reign in bottlenecks there. These bottlenecks involve road, rail, air and river transport, with river transport typcially being the cheapest and yet most inefficient. The Chinese government seeks to facilitate these efforts towards enhanced efficiency:
"China is developing a blueprint for its booming ports to try to free up persistent bottlenecks, while curbing over-zealous capacity expansion before it drives away much-needed foreign investment. Surging foreign trade has led to an explosion in Chinese port expansions. Shanghai is now the third-busiest container port city in the world, while cargo volume at Pearl River ports is growing at a rate that surpasses Hong Kong.
As mentioned above, and in my earlier posts such as with Jiangyin, where there are bottlenecks there are business opportunities:
"Planners are turning their attention to relieving bottlenecks with feeder ports, especially along the Yangtze, while making sure competing plans for new ports and expansions do not dilute returns on existing investments. As an example of both increased competition and continuing bottlenecks, Shanghai's newly opened Yangshan port -- which is connected to the mainland by a 32 km bridge -- recently cut shipment transfer fees to attract more ships from the older but more convenient Waigaoqiao port."
Cities like Jiangyin are very anxious to promote their ports for foreign investment and I believe the desire of planners to relieve bottlenecks strategically will bring the desired attention and investment consideration to a city like Jiangyin. At the same time, I am not sure whether allocating functional logistics responsibilities to designated feeder ports is a great idea--such plans, as described below, should not build-in too much rigidity:
"Plans under consideration would promote liquefied petroleum gas port facilities along the Yangtze and Pearl rivers, and set capacity targets for oil and iron ore terminals, said Wang Ming, deputy director general of the Institute of Comprehensive Transportation at the National Development and Reform Commission, China's top planning body.
The true crux of the matter is explained below, and was also my concern when first looking at the Jiangyin port infrastructure and development:
"A national blueprint would help rein in overly enthusiastic local governments, whose competing port plans risk cannibalising flagship projects, Wang said during a recent conference. "The problem now is that the scale of the national plans and that of local plans isn't always the same. Added together, the local plans exceed the national plan, and this is a paradox.""
How are the leading firms approaching this coastal port-feeder port dynamic?
"Multinational terminal operators like A P Moeller-Maersk's APM Terminals and Hutchison Whampoa have earmarked billions of dollars for Chinese port investments, to serve an economy growing at 10 percent a year. But they are getting more cautious. "We don't blindly go in and say we want to invest. The world is getting so much more competitive, and China is sometimes a bit too successful in creating capacity," said Peter Wong, Asia Pacific managing director for DP World. "That could create some problems down the road in terms of the return on projects, so we are watching it fairly closely. Some ports are much more diligent in terms of matching supply and demand than others.""
For a glimpse into its port-hedging strategy, DP World--now infamous for its foray into the US market--generally explains its approach and what it views as successful positioning:
"...DP World is still interested in additional investment in terminals along China's southern coast, Wang said. The state-owned Dubai firm recently bought the global assets of British ports group P&O. It has terminal investments in Hong Kong and in the mainland ports of Tianjin, Qingdao and Yantai. Longer term, the winning investment will be in the ports that capture the flow of goods as China's central and poorer western regions catch up with the wealthier coast, Wong said."
Basically, we can see that the top firms are carefully weighing the cost/benefit ratio of establishing inland investments in comparison to the more architecturally secure coastal areas. By architecture, I am referring to the five supply chain architectures I often refer to at this site--physical, financial, informational, relational and innovational. Although I don't expect even all of the top firms' analysis to be this sophisticated, the threshold for going forward with a supply chain investment such as a port facility would probably be limited to meeting some sort of physical, financial and informational architectural standards. Relational and innovational architectures are more like frosting on the cake, sort of second or third phase investments whose returns are more difficult to calculate.
"Rising labour costs along the prosperous coast and in the south are pushing multinationals to invest further and further inland, and development of Yangtze River ports would help move goods from the central provinces of Sichuan, Hunan and Hubei. The recently completed Three Gorges Dam could spur consolidation among barge operators along the Yangtze, since larger ships will be able to carry cargo from as far upstream as Chongqing once the Gorges' dangerous rapids are flooded."
For example, in regards to some of the physical limitations still in place:
"A sandbar at the mouth of the river and a low bridge at Nanjing will still prevent ocean-going container ships from entering the river. Port expansions at the industrial river cities of Chongqing and Wuhan are in the works, Wang said. But investors would have to be careful when evaluating container and bulk port projects along the river, since unapproved local projects could be blocked from getting loans, said Bo Frank Nielsen, managing director of Modern Terminal's Taicang port project, in eastern Jiangsu province. "A lot of multinationals are eager to come and invest, and now that we are open to the outside world you can't arbitrarily say they can't. But they need to fit into the plan," Wang said."
Really, as a potential investor in port facilities in China whether coastal or inland, a supply chain manager really needs to understand the entire network of ports for a particular river delta system, such as the Yangtze River Delta (YRD). For example, if your target hub for moving goods or providing services will be Shanghai, in the least a SWOT analysis should be done of all the ports up the river to Nanjing. Better yet, combine this with using the FAR matrix I created some time ago for really analyzing the meat of each port's supply chain architectures in the context of economics, politics, security and people. In some cases, such analyses may lead to 100% investment in one location. Other analyses may lead to a split investment where 80% is coastal, and 20% is inland as a precursor to potentially larger future investment and development plans.
Simply put, understanding an entire economic zone even if your firms operates within one particular area will be necessary to remain resilient and aware of the right opportunities at the right times in the right places around China.