Report No. 11771 -CHA China Southeast Coastal Region Strategic Issues in Ports and Shipping Development December 10, 1993 Transport Operations Division China and Mongolia Department East Asia and Pacific Regional Office FOR OFFICIAL USE ONLY Dsame,t.fl Wodd Bank 4 ~ Thisdoci4ntIm'a restricted distribution and may be used by recipients only -in hie 44mia~ o hir official duties. Its contents may not otherwise be 4 dislosecwithotWoddBank authorization CURRENCY EQUIVALENTS (As of June 1992) Currency Name = Renminbi (RMB) Currency Unit = Yuan (Y) $1.00 = Y 5.45 Y 1.00 = $0.183 Note: The national statstics used In tis report exclude Taiwan, Hong Kong and Macao FISCAL YEAR January 1 - December 31 WEIGHTS AND MEASURES Metric System ACRONYMS AND ABBREVIATIONS COSCO - China Ocean Shipping Company dwt - Deadweight tons GNP - Gross National Product iMO - International Maritime Organization kt - Knots MOC - Ministry of Communications MOFTEC - Ministry of Foreign Trade and Economic Cooperation MOR - Ministry of Railways SCR - Southeat Coastal Region SEZ - Special Economic Zone TEU - Twenty-foot equivalent unit FOR OMCIAL USE ONLY CONTENTS Preface ......................................... vi Acknowledgments ........................................ vii Executive Summary ....................................... viii I Economic Growth and Transport Development ................. 1 Introduction .................................. 1 Characteristics of Economic Growth ................... 2 Transportation Growth Trends ...................... 4 Water Transport Development ....................... 5 Port Facilities and Current Development Plans .... ........ 6 Container Traffic ............................... 6 Trade with Hong Kong and Taiwan ................... 8 2 TraffIc Forecasts ..................................... 10 Principal Development Trends Affecting the SCR .... ....... 10 Maritime Transport Development in the SCR .... ......... 11 Traffic Forecast for the Year 2000 .................... 11 Hong Kong Container Traffic ........................ 16 Taiwan Container Traffic .......................... 19 3 Key lsues ......................................... 22 A. Introduction ..................................... 22 B. Configurations of Port Capacity ......................... 23 Load Centers and Their Role ....................... 23 Potential Load Center Locations and Capacity ............. 24. Feeder Services ................................ 26 C. Intermodal System Constraints .......................... 28 Road Systems ................................. 28 Rail Systems ................................. 29 Waterways ................................... 30 Intermodal Transfer and Storage ..................... 30 Commercial Systems ............................ 31 Flow of Information ............................. 31 Liability Network .............................. 32 The Logistical Approach .......................... 32 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. - ii - D. Institutional and Regulatory Concerns 32 Introduction .................................. 32 Financial Resources ............................. 32 Management and Operation ........................ 33 Planning Major Transport Corridors ................... 34 External Relations Impact ......................... 35 E. Technological Trends in Container Transport ................. 35 Introduction .................................. 35 Vessels ..................................... 35 Management Systems ............................ 36 4 Goals and Recommendations ............................. 37 A. Planning ....................................... 37 MOC/MOFTEC ............................... 37 MOR/MOC .................................. 37 Port Users/Port Operators Interface ................... 38 Hong Kong/Shenzhen Interface ...................... 38 SCR's Relationship with Taiwan ..................... 39 Regional Planning .............................. 39 B. Forecasting ...................................... 39 C. Port Operations and Human Resource Development ............. 40 Port Operations ................................ 40 Management Skills .............................. 41 Training . .................................... 41 D. Funding ........................................ 41 Sources ..................................... 41 SCR Port Investment Needs to the Year 2000 ............. 42 E. Information Systems ................................ 43 F. Intermodal Infrastructure ............................. 43 5 Role of the Bank ..................................... 45 Bank Involvement in Ports and Shipping Development in the SCR 45 Recommendations for Future Bank Action. 45 ANNES Annex 1: Background Information on SCR Economy, Ports and Shipping ... 47 Geography and Population .47 Ports and Economic Activity .47 Basic Transport Network and Traffic .48 Ports and Shipping Administration .50 Port Sector Reform .51 Shipping Enterprises .52 Annex 2: Regional Developments .54 - iii - Annex 3: Constraints and Options In Hong Kong ................... 58 Alternative Modal Links .58 Surge Traffic .59 Barge Options .59 Rail Option .59 Terminal 8 .61 Terminal 9 .61 Productivity of Hong Kong Container Port .62 Annex 4: Technological Trends in Container Transport .63 Introduction .63 International Container Transport Trends .63 Vessel Design .64 Roll-On/Roll-Off Vessels .67 The Sealift System .69 Container Sizes .69 Information Management .70 TABLEs InText 1.1 Gross Output Value. 2 1.2 Industrial Structure in the SCR Provinces. 3 1.3 Principal Facilities of Major SCR Ports in 1990. 6 1.4 Container Traffic via SCR Sea Ports in 1990. 8 2.1 Cargo Traffic Forecast for the SCR Provinces (Scenario #1) 12 2.2 Cargo Traffic Forecast for the SCR Provinces (Scenario #2) 13 2.3 Waterborne Cargo Traffic Forecast for the SCR Provinces (Scenario #1) .13 2.4 Waterborne Cargo Traffic Forecast for the SCR Provinces (Scenario #2) .13 2.5 SCR Seaport Forecast for the Year 2000 by Principal Commodity (Scenario #1) .14 2.6 SCR Seaport Forecast for the Year 2000 by Principal Commodity (Scenario #2) .14 2.7 Forecasts of SCR-Generated Container Throughput for the Year 2000 16 2.8 Container Throughput Forecast for Major Ports in the SCR for the Year 2000, Scenario #1 .17 2.9 Container Throughput Forecast for Major Ports in the SCR for the Year 2000, Scenario #2 .18 2.10 Table of Estimated Demand at Kwai Chung and Lantau, Using Sliding Growth Scales 5-17 Percent/Year .19 2.11 Volume of Seaborne Containerized Cargo, 1990 .21 - iv - In Annexes Annex 1 1 Mainland and Island Coastlines ......................... 47 2 Population Distribution of the Three SCR Provinces in 1990 48 3 SCR Industrial and Agricultural Production in 1990 . .48 4 SCR per Capita Gross Output Value and National Income . .49 5 Highway Density in SCR Provinces ..49 6 Modal Distribution of SCR Traffic ..50 7 SCR Vessel Fleet in 1990 ............... .............. 52 8 SCR Distribution of Berthing Length and Deep-Water Berths ....... 53 Annex 2 1 Growth Rates - GDP, Manufacturing and Port Throughput (TEU) in East Asian Economies and China ..55 2 Percentage of Containerization for Direct Ocean Cargo by Geographical Zone ..56 3 Percentage of Containerization for Transshipment Ocean Cargo by by Geographical Zone ................ ............... 57 Annex 3 1 Hong Kong Container Throughput, 1988-91 ......... ........ 58 Annex 4 1 World Container Port Traffic Top 20 (1988-90) ............... 64 2 World Container Port Traffic by Country/Region-Top 20 (1988-90) .. 65 3 Worldwide Container Ships in Operation and On Order in 1990 ..... 66 4 Main Characteristics of Container Ships .66 5 Contracted New Buildings Tonnage (TEU) Capacity as of July 1, 1992 for Far East and Round the World Routes .67 FIGURES In Text 1.1 SCR Foreign Trade Container Port Throughput by Province 7 In Annex Annex 1 1 Organization Chart of Waterway and Highway Transport Administration 51 - v - MArS M. 1 Southeast Coastal Region M.2 Guangdong Province M.3 Hong Kong Port and Airport Development Strategy - vi - PREFACE This is the report of a study undertaken jointly by the World Bank and the Planning Department of the Ministry of Communications, Government of China. It deals with: (a) the identification of strategic issues in the development of ports and shipping in the coastal area of the East and South China Seas, from the Port of Ningbo in Zhejiang Province to the Port of Zhanjiang in Guangdong Province and including Hong Kong and Taiwan; and (b) the formulation of goals and recommendations to deal with these issues. The Planning Department of the Ministry of Communications and the World Bank each formed a team of experts to conduct the study. The World Bank team was headed by Suitbertus van der Meer. Harold Kurzman, Gunnar Sletmo, C. Stigter, Huikang Xu and Zhengyu Zhu were members of the team. On the Chinese side, Yan Qingbin was the leader of the Chinese team, formed by Shen Xueguang, Zhang Zhenying, Zhang Weirong, Lin Bingqing, Jiang Zongfu, Yang Shuilai, Zeng Fuyou, Song Xu and Zeng Yan as interpreter. The teams jointly visited the Southeast Coastal Region in April/May 1991 and again in March/April 1992. In September 1991, a joint study visit was made to the ports of Le Havre, Rotterdam and Hamburg. In addition, Bank team members visited Hong Kong and Taiwan in April 1992. The teams met during August 1992 in Washington and in December 1992 in Beijing for extensive discussions of earlier drafts of the study report, primarily drafted by Yan Qingbin, Zhang Zhenying, Shen Xueguang and other members of the Chinese team. It was subsequently decided that the study's findings should be presented in a format suitable for Bank management review. They are presented in this version, written by Suitbertus van der Meer (Bank team leader) and Harold Kurzman (transport economist). The study was financed by a Japanese Grant and managed for the World Bank by the Transport Operations Division of the China and Mongolia Department. The Task Manager is Jose M. Veniard; the Division Chief, Paul Stott; the Lead Economist, Shahid Yusuf; and the Department Director, Shahid Javed Burki. - vii - AcKNowLEDGMEN Deep appreciation is expressed to the Bureaus of Transport of Guangdong, Fujian and Zhejiang Provinces, the Planning and Design Institute for Water Transportation under the Ministry of Communications, the World Bank Mission in Beijing, as well as the many individuals in private and public organizations who have assisted the study teams with their willingness to supply information, give advice and express views. Special thanks are due to Mr. G. de Monie for his extensive comments on an earlier draft of the report. - viii - ExEcuTivE SuMMARY 1. Since the 'open-door' policy was initiated in 1979, the Southeast Coastal Region has experienced phenomenal rates of growth in foreign trade, averaging over 20 percent per year. The region was considerably aided by the creation of Special Economic Zones along its coast in Xiamen, Shantou, Shenzhen and Zhuhai and the designation of a number of its other ports as 'open cities." The region's unique and principal advantage, however, is the proximity of the major international port, commercial and trade facilities of Hong Kong and Taiwan. With the scheduled return of Hong Kong to China by 1997 and the expectation of the resumption of direct trade between Taiwan and the mainland, this study examines some of the strategic issues in ports and shipping that these developments raise. 2. The focus of the study is on the movement of containers in and out of the region through its ports and through the port of Hong Kong, the principal gateway to the region. In spite of a rate of growth in effective container handling capacity of the region's own ports of 40 percent per annum since 1985, some 2 million TEU of the region's container traffic passed through Hong Kong in 1991, three times the volume handled by all the region's own ports combined. 3. The efficient movement of containers is essential to the export-driven economic growth of the region and container traffic is expected to continue to increase at a high rate. How to cope with this growth and make full use of the potential of the container for efficient door-to- door service is at the center of the strategic issues in ports and shipping addressed in this report. Key Issues 4. The explosive growth of container traffic, both past and anticipated, stands out as the most notable phenomenon as well as the principal area of concern for the region. Container traffic through the ports of the South China Region started in 1982, grew to 400,000 TEU in 1990, and is anticipated to reach levels of between 2,500,000 and 6,500,000 TEU by the year 2000. To cope with such flows, questions of the most efficient configuration of port capacity and the role of load centers and feeder services have to be addressed. These questions are complicated by the constraints imposed on the intermodal system by a set of interrelated issues concerning the deficiencies of road and rail systems and the role of waterways. The provision and management of intermodal transfer and storage facilities, the role of freight forwarders and the need for a sophisticated data collection, retrieval and transmission system raise another set of issues. 5. The principal issue to be resolved is how and where to strike the balance between centralized, national planning and regulation of ports and autonomy for the local operating authorities who are increasingly financially independent and whose actions are largely motivated by local (provincial or municipal) interests and resources. - 1x - 6. Provincial and local governments, especially those with seaports, have very substantial access to finance. This has occurred as their tax base has increased as a result of rapid industrialization and a reduction in the proportion of taxes that have to be remitted to the national government. The funds available for public investment have thus swelled and greater disparities in modernization between different political jurisdictions are bound to occur. It implies that the lesser-endowed areas will be more linked to central decision-making with respect to public investment policy, because of a greater reliance on national funding. The greater financial autonomy of the better-endowed may also lead to competition between ports for service to the same or overlapping hinterlands. While this competition can be healthy to the extent that it offers shippers choices and probably provides incentives to innovation and efficiency, it may also lead to overinvestment in infrastructure and poor allocation of scarce resources from the national perspective, unless infrastructure investment takes place in a broader, regional and/or national planning framework. 7. To date, the undercapacity of port infrastructure, coupled with the rapid rate of China's foreign trade growth, has made almost any investment fail-safe. For 1995 and beyond, major port investment should fit a national strategy. Among the major trade-offs to be considered are: (a) Whether or not to try to coordinate further port capacity development in Hong Kong with mainland port growth in the Guangdong/Pearl River area. (b) Whether or not to differentiate between the role of the Fuzhou and Xiamen ports. Is there a need for a third deep-water port in this province? (c) Whether or not Ningbo port can fulfill a complementary role as a deep-water port for Shanghai. 8. In the SCR, as in China as a whole, ports are moving toward operating more as commercial enterprises as a result of the progressive decentralization of the decision-making process. The notion of competing for cargo has entered the strategy deliberations of the managements of ports that potentially serve overlapping hinterlands. In some instances, in Special Economic Zones such as Shenzhen, private enterprise, in the form of Joint Venture companies, is providing port services in competition with the public ports. This commercialization and liberalization of the port sector may be the best way to ensure efficient, customer-oriented services, at least cost to the public sector. 9. The decentralization and commercialization of the ports in China has only recently begun. The strategic question is how far it should proceed. At this stage in China's development, and given the scarcity of investment resources, unconstrained competition between ports is likely to lead to wasted resources. The Government has to continue to allocate resources and set priorities between modes at the national and regional levels, given the resource constraints. Goals and Recommendations Planning 10. Planning in China has historically been very centralized and compartmentalized. The goal should now be to have a planning framework which encourages and rewards dialogue between facility designers, operators and users, and which will break down the institutional barriers between different modes and political jurisdictions. It should furthermore recognize that the future demand for services can not be estimated with precision and is no longer determined by a set of centrally politically prescribed production targets to be met largely by state-owned industries. 11. The Ministry of Foreign Trade and Economic Cooperation (MOFTEC) and the Ministry of Communications (MOC) should institutionalize a system of joint planning to ensure that the bottlenecks to foreign trade logistics are removed as rapidly and efficiently as resources permit. Foreign investors would be greatly encouraged to see the interests of these two ministries dovetail, particularly where the management of containerized freight is involved. 12. As the deep hinterland of Southern China begins to participate in the export industries' foreign trade boom, only the railways and inland waterways can provide economical transport access to coastal ports to make industries located at more than 400 km from the coast competitive with those in coastal provinces. There is an opportunity now to form new planning structures between the Ministry of Railways (MOR) and MOC in anticipation of this traffic. 13. MOR has the intention of establishing and training a new organizational unit specifically to serve container traffic. This unit should be formally linked to planning counterparts in the ports and waterways subsector. In the planning process, significant potential customers of intermodal services should be consulted. This should include industrial enterprises and the freight-forwarding services. 14. Port users should be formally drawn into the port planning and management system. As ports open to foreign flag vessels become more numerous, the participation of foreign liner owners becomes more necessary. Furthermore, they can bring to the process their worldwide experience and perspective on future developments in trading patterns and technology. As Hong Kong and Taiwan are closely related parts of the regional ports and shipping system, their input should be sought informally, if formal channels are not open yet. The new policy of permitting private companies to own or operate container facilities in selected Chinese ports will facilitate the recommended planning process. Hong Kong and Shenzhen 15. To arrive at realistic plans and least-cost solutions, the Central Government or the Shenzhen local Government should be working with Hong Kong authorities and commercial interests to jointly plan their future. This should have as its principal goals the early creation of a metropolitan port authority that would begin to operate in 1997 and the formulation of an investment program which would meet the throughput requirements for at least the next 10 years. The management structure should reflect a partnership of private and public interests and investors. The ways in which the facilities in Hong Kong and Shenzhen can complement each other in order to avoid waste of resources should be the spirit motivating joint planning. - xi - Trade with Taiwan 16. When direct trade will be permitted, one can expect a further surge in trade between Taiwan and the mainland. Both parties must continue to prepare for this eventuality. There will be a need for a large fleet of small vessel to engage in this coastal type trade and a need for port facilities, especially in Fujian, to cater to them. In order to take advantage of ro-ro systems, arrangements will have to be made to allow vehicles registered in either China or Taiwan to operate on each other's roads. China's deep-sea container vessels will want docking and terminal rights in Taiwan and the Taiwanese will want reciprocal privileges. With these in place, one is likely to see Taiwan's role as a transshipment hub for SCR trade grow, attracting cargo that would otherwise have been handled at Hong Kong or in Japan. Regional Planning 17. For the Pearl River Delta, Guangdong Province should have a strategy for servicing the container transport needs of both the West and East delta subregions. Fujian province should have a strategy for joint planning of Xiamen and Fuzhou. To serve the Yangtze delta region, a strategy will be needed that identifies and provides a foundation for consensus as to the comparative advantages of Shanghai and Ningbo in serving this market. To formulate an effective strategy in this case requires a willingness on the part of the several political jurisdictions involved to recognize common interests. Forecasting 18. Forecasting should not be limited to the five-year planning framework. Changes in the economy of the SCR are coming too quickly, with too many parties involved, to make single point forecasts valid. Multiscenario estimates, updated yearly, will be more useful. This requires systematic updating of a data base and continuous correlation of models to ensure that they are a reasonably accurate reflection of the economic dynamics. Moreover, since container traffic demand depends on many externalities, MOFIEC should have a responsibility for supplying regional planners with statistics and forecasts related to foreign trade and world economic trends. Port Operations and Human Resource Development 19. Efficient, large-scale port operations are possible under either public or private ownership and/or management, as shown by the performance of the ports of Singapore, Kaohsiung and Hong Kong, which operate under different combinations of public and private ownership and management. The SCR ports should: (a) learn from the management structure and experiences in ports of other countries, irrespective of their social system or the form of ownership, as long as the management is effective; (b) gradually introduce container traffic management to the SCR ports; and (c) acquaint port management with advanced management tools and the application of computer-based technology to modernize port operations. The introduction of management systems is unlikely to be effective unless management and staff are motivated to improve the operational performance of the port. It is generally recognized that this type of motivation is typically harder to achieve in governmental organizations than in privately owned companies where the company's fortunes depend on its efficiency. - xli - 20. China's ports are gradually moving toward a recognition that operational autonomy and the contracting out of services to other entities (cooperative ventures or private companies) can enhance their efficiency. The Shanghai Port Authority, for example, recently signed an agreement with HutchinsonWhampoa Ltd., to form a joint-venture company, Shanghai Container Terminals, to take over the operation of the port's container terminals. In the SCR, there are many opportunities for the ports, especially the principal container ports, to take similar initiatives. Such initiatives will be a key element in bringing these ports up to international standards of operational efficiency. 21. Modernizing port management and raising port productivity in the SCR requires a major effort in human resource development. Beyond the necessary technical skills, managers as well as technicians need to develop new attitudes and learn new methods for such things as: * objectively measuring performance; * managing human and physical assets; and * practicing strategic planning on an ongoing basis. Training should be "institutionalized" in the sense that: (a) the organization maintains up-to-date training programs for staff at all levels, and (b) successful participation in the training program is a principal consideration for professional advancement/promotion. Funding 22. In addition to securing and expanding existing financing channels, it is now necessary to explore further possibilities such as: (a) foreign investment for port development in any of these forms: joint ventures, cooperative enterprises or entirely foreign enterprises; (b) drawing on the experience of the ports of Singapore, Hong Kong, Kaohsiung and others, allow large domestic and foreign shipping lines to lease or establish joint ventures for terminal operation; (c) set up joint public/private stock companies to engage in stevedoring and transportation operations. Port Investment Needs 23. Port development funding required in SCR ports, based on the container cargo forecasts, in addition to construction already programmed for completion on the mainland and Hong Kong by 1995/96, is of the order of $700 million. Perhaps an additional budget of 20 percent should be allowed for channel works and navigational aids. These investments are needed, primarily in Guangdong Province, in the case of the higher-growth scenario (Scenario #2). If a lower-growth scenario (Scenario #1) prevails, construction already programmed for the mainland and Hong Kong for completion by 1995/96 would seem to be adequate to meet the - xiii - year 2000 forecast requirements. The use of ro-ro vessels to move cargo between the mainland and offshore islands would reduce the port investment costs somewhat. Construction of feeder barge berths would be another way to reduce investment costs in some cases. Both of these means for economizing on capital expenditure programs need to be thoroughly investigated. Information Systens 24. The Hong Kong Govermment, after four years of study, has elected to become a shareholder in the Tradelink Community Electronic Trading Service (CETS). Other shareholders include the two major container service companies, Hong Kong International and Modern Terminals, Maersk Line, Hong Kong Telecommunications, banks and commercial firms. Under the agreement with the Hong Kong Government, Tradelink is given exclusive rights to handle government electronic trade transactions for a period of seven years from the introduction of the service, expected to start in 1994. Hong Kong's Secretary for Trade and Industry has estimated dhe present documentation cost of trade at a staggering HK$9.8 billion. It views the establishment of Tradelink as essential to maintaining Hong Kong's future competitiveness. CETS will be one of the first major EDI services in the world to be designed around EDIFACT, the international standard adopted by UNCTAD. It will therefore be compatible with trading partners worldwide. 25. In China there should be a collaborative initiative of several government agencies such as SINOTRANS, MOC, MOR, and Provincial transport departments, perhaps led by MOFTEC, to review the product and services offered by Tradelink with a view to their suitability for adoption in China. If this were to result in a positive determination, it would be logical for Chinese organizations to seek to become shareholders. Implementation of the system would require firther measures involving legislation, government regulations, coordination, and perhaps financial incentives to accelerate entry into the system. Intermodal Infrastructure 26. Continmed use, upgrading, and expansion of vessels as a part of the coastal container delivery system is recommended. The objective should be to make this mode more cost-effective. Coastal container vessels are normally serviced by cranes, either onshore or onboard, which have much slower rates of handling than container gantries and often lack the lifting capacity to handle loaded 40 ft boxes. In order to maximize the role that small feeder vessels can play, there is probably a need to add new equipment to smaller ports specifically adapted to servicing these vessels more efficiently. In some cases, ro-ro type vessels may provide a more efficient solution than lift-on, lift-off systems. 27. Better port facilities for integrating feeder vessels with large deep-sea vessels are needed. Berths built and equipped for one type of vessel are inappropriate for the other. Therefore, a terminal has to have separate berths for each or different terminals need to be buDlt in the hub port to service each, joined by an efficient system for transfer between terminals. The latter solution has been put forward by Hong Kong, which is seeking private investor interest. The proposed site, however, would require that containers be transported by road between the barge terminal and existing terminals, thereby contributing to the road access congestion problem. - xlv - 28. The rail container pilot project, which is a component of the Bank's sixth railway loan, is intended to demonstrate that this mode can be a major component in a strategy to make international container transport more accessible to noncoastal regions. The southern terminus is Guangzhou. Its linkage to container ports is not specified. It is recommended that the pilot project be expanded to include service directly to ports in Shenzhen. 29. Road transport of containers is most constrained by the absence of high-quality roads over which semitrailers can operate efficiently. Here, it seems that plans for major improvements in the SCR are well under way or in advanced stages of planning. One can expect a surge in demand for container trucking services, as a consequence. The practice of stuffing and unstuffing containers in or near ports will decrease as the full benefits of door-to-door services become attainable by using road transport. This structural shift, together with the high growth rates forecast in port throughput, will generate a high demand for services requiring substantial investments in trucks, vehicle maintenance and terminals. Foreign investment partners who can also contribute management and operating skills from abroad should be sought. Role of the Bank 30. The Bank, with its broad involvement in the transport sector, including extensive lending for ports, roads and railways and support for transport sector studies, is in a unique position to assist in defining an intermodal action plan to meet the transport needs of the SCR and, in particular, the Pearl River Delta where the needs are most pressing. The Bank could also be helpful in supporting a joint approach by China and Hong Kong to transport planning, which is essential to the success of an intermodal system for the area. Hong Kong and China are planning large investments in infrastructure to support such an intermodal system. Lack of coordination would entail the risk of very costly misinvestments and operational inefficiencies. Joint planning will make it possible to take maximum advantage of comparative strengths, e.g., the advanced technology, modern management experience and sophisticated commercial network of Hong Kong and the space and low cost of land and labor of the mainland. Private enterprise is doing exactly that and infrastructure and institutional developments should follow this lead. 31. A possible intermodal project for the Pearl River Delta might include: (a) the financing of transport infrastructure and equipment investments; (b) support for institutional and regulatory changes needed to allow the intermodal system to function; (c) support for actions to facilitate the participation of private investors and operators in intermodal transport; and (d) support of Chinese institutions, which may engage in the major human resource development effort needed to address deficiencies identified earlier, particularly in distribution logistics and related EDI control systems. 32. Other areas recommended for continued Bank involvement in the SCR would be assistance in defining and developing: - xv - (a) the relative roles of the ports of Xiamen, Fuzhou and Meizhou Bay, particularly in view of the anticipated direct trade with Taiwan; and (b) the role of Ningbo as a load center port serving the Yangtze Economic Zone. 1 ECONOMIC GROWTH AND TRANSPORT DEVELOPMENT Introduction 1.1 The Southeast Coastal Region (SCR) [/ has been at the forefront of China's extraordinary foreign trade growth since the "open-door" policy was initiated in 1979. China's foreign trade increased at an average yearly rate of 15 percent from $36 billion in 1980 to $105 billion in 1990. The rate of growth of SCR's share of the foreign trade was even more spectacular. In the same period, it grew from an estimated $3.3 billion to $22 billion, an annual rate of growth of over 20 percent. The success of the region in taking advantage of the opening up of the economy was considerably aided by the establishment of Special Economic Zones (SEZs) in Xiamen, Shantou, Shenzhen and Zhuhai and the designation of its principal ports Ningbo, Wenzhou, Fuzhou, Guangzhou and Zhanjiang as "open cities." The region's unique and principal advantage, however, is the proximity of the major international port, commercial and trade facilities of Hong Kong and Taiwan. With the scheduled return of Hong Kong to China by 1997 and the expectation of the resumption of direct trade between Taiwan and the mainland, this study examines some of the strategic issues in ports and shipping that these developments raise. 1.2 The phenomenal growth of foreign trade has put great pressure on the region's transportation system, in particular the ports. At first glance, port throughput statistics do not appear to corroborate this. Foreign trade volume passing through the ports increased from 11.3 million tons in 1980 to 37.3 million tons in 1990, maintaining a one-third share of the ports' total traffic and growing at a average rate of 13 percent, well below the 20 percent yearly increase in the value of regional foreign trade. In terms of tonnage handled by the ports, foreign trade cargo was thus not growing any faster than domestic cargo, dominated by coal, petroleum and other bulk commodities. The increase in volume of foreign trade was lagging significantly behind the increase in its value because of a shift toward higher-value manufactured goods in foreign trade. 1.3 The pressure on the ports from the growth in foreign trade was nevertheless very real. The introduction to China of the container as the universal means of moving manufactured and other high-value goods in international trade made it imperative for the ports to equip themselves to handle them. The Government responded, with the support of the Bank, by investing in container berths and equipment in the ports of Guangzhou (Huangpu), Ningbo and Xiamen. Other ports such as Fuzhou, Shenzhen and Zhuhai were also being equipped to handle containers. Container traffic through SCR ports started in 1982, reached a volume of 1/ The Southeast Coastal Region includes the provinces of Zhejiang, Fujian and Guangdong (see Map 1). -2- 89,000 TEU 2,_ in 1985 and increased rapidly to 702,000 TEU in 1991, an annual rate of increase of 40 percent. Even this very high rate of growth in effective capacity would have fallen far short of demand if it were not for the relief valve provided by the port of Hong Kong, through which some 2 million TEU, three times the total regional port volume, entered and left the region in 1991. 1.4 The efficient movement of containers is essential to the export-driven economic growth of the region and container traffic is expected to continue to increase at a high rate. How to cope with this growth and make full use of the potential of the container for efficient door-to- door service is at the center of the strategic issues in ports and shipping addressed in this report. 1.5 This is in line with a determination made at the time the study was initiated, that limiting its scope and sharpening its focus would enhance its usefulness. The key issues on which the report focuses thus pertain to port capacity configuration, intermodal system constraints, relevant institutional and regulatory concerns and technological trends in container transport. Characteristics of Econoniic Growth 1.6 The Southeast Coastal Region (SCR) l/ has benefited greatly from the new economic policies introduced in 1979. In 1978, with 4 percent of the nation's territory and 12 percent of its population, the region had a gross industrial and agricultural output of Y 57 billion, 10 percent of the nation's total (Table 1.1). The economic reforms led to rapid economic growth. During the 1980s, the annual growth rate in the SCR was of the order of 15 percent, while the national economy grew at a rate of 11 percent. This pushed the SCR's share of the nation's total from 10 to 16 percent. The rapid growth is also reflected in the national ranking of the three provinces in gross industrial and agricultural product. Guangdong's ranking rose from sixth to third, Zhejiang's from eleventh to sixth and Fujian's from twentieth's to fifteenth in that period. Table 1.1: GROSS OUTPuT VALUE (Y billion in current prices) All sectors Industrial and agricultural 1978 1980 1985 1990 1978 1980 1985 1990 Country total 684.80 853.40 1,658.20 3,799.60 563.40 707.70 1,333.50 3,158.70 8CR 70.57 93.98 2,26.13 608.51 56.54 76.64 177.49 503.25 Zhejiang 23.28 34.42 86.92 207.13 19.78 29.43 72.47 176.94 Fujian 12.26 15.23 34.53 91.99 9.95 12.69 27.22 76.02 Guangdong 35.03 44.33 104.68 309.39 28.61 34.52 77.81 250.29 1.7 In July 1979, the State Council decided to try out the new 'open door' policies in Guangdong and Fujian and create four Special Economic Zones: Shenzhen, Shantou, Xiamen and Zhuhai. In May 1984, it designated 14 open cities, including the cities of Ningbo, 2/ Twenty-Foot Equivalent Unit. 3/ Background information on the SCR economy, ports and shipping are provided in Annex 1. Wenzhou, Fuzhou, Guangzhou and Zhangjiang in the SCR. In 1985, the Yangtze, Pearl River and South Fujian deltas were designated as coastal open districts for development and construction. And in May 1989, the State Council designated investment zones in Xiamen and Fuzhou, exclusively for foreign businessmen. Since then, 27 small zones, totaling 22.5 km2, have been developed in Fujian province. 1.8 Spurred on by the export- oriented policies, foreign trade in the SCR grew at an accelerating rate in the 1980s, more than doubling from $3.3 billion, 9 percent of the nation's total, in 1980 to $7.6 billion in 1985 and then tripling to $22 billion, 19 percent of the nation's total, by 1990. SCR's exports in 1990 amounted to $15 billion, twice the value of its imports and 24 percent of the nation's total 1.9 The spectacular export-oriented growth of SCR's economy was due in large part to the inflow of foreign capital through 'enterprises of the three funded forms."4/ It gave rise to a shift in the composition of the gross regional product, away from agriculture to light industry. The share of agriculture fell from 34 percent in 1980 to 23 percent in 1990, whereas light industry's share rose from 41 percent to 53 percent. The share of heavy industry remained constant at 25 percent. As shown in Table 1.2, the shift was not as pronounced in Fujian as in the other two provinces, since in Fujian province the share of light industry did not start to grow until the second half of the decade. Table 1.2: INDusrRiAL STRucTURE IN TE SCR PROVINCES (Percent) Industrial and Product Product Product agricultural gross valu, of value of value of product value agriculture light industry heavy industry 1980 SCR 100.0 34.0 41.3 24.7 Guangdong 100.0 35.4 40.7 23.9 Fujian 100.0 35.8 39.5 24.7 Zhejiang 100.0 31.5 42.7 25.8 1985 SCR 100.0 29.2 45.5 25.3 Guangdong 100.0 31.5 46.3 22.2 Fujian 100.0 36.4 38.1 25.5 Zhejiang 100.0 24.0 47.5 28.5 1990 SCR 100.0 23.2 52.1 24.7 Guangdong 100.0 4.0 54.2 21.8 Fujian 100.0 30.1 43.4 26.5 Zhejiang 100.0 19.0 52.9 28.1 1.10 In Guangdong province, export-oriented industries are concentrated in the Pearl River Delta and along the coast, in the three special economic zones (Shenzhen, Zhuhai and Shantou), two open cities (Guangzhou and Zhanjiang) and four fast-growing cities/counties (Zhongshan, Dongguan, Shunde and Nanhai). In 1990, 83 percent of the foreign funds flowing 4/ zEnterprises of the three funded forms' consist of Sino-foreign joint venture, Sino-foreip cooperative enterprises and entirely foreign anterprises. - 4 - to the province were invested in these areas and the value of their combined gross product amounted to 77 percent of the provincial total. 1.11 In Fujian province, foreign investment and industrial development are concentrated in the coastal zone comprising the Special Economic Zone of Xiamen, the southern Fujian triangle and the open city of Fuzhou. In 1990, 97 percent of the direct foreign investment in Fujian province went to these areas, which accounted for 71 percent of the provincial gross product. 1.12 In Zhejiang province, foreign investment and industrial development are similarly concentrated in the open areas along the coastal belt, where, in 1990, 84 percent of the foreign capital was invested and 76 percent of the provincial gross product generated. 1.13 Hong Kong and Macao form part of China's coastline and Taiwan is only 78 nautical miles from the coast of Fujian province at the nearest point. The ports of Shantou in Guangdong province and Wenzhou in Zhejiang province are, respectively, 190 and 160 nautical miles from Taiwan. The people share a common ancestry, culture and language. These ties and the geographical proximity have been an important factor in the flow of investment funds to the mainland. In 1990, $1,580 million of Taiwanese funds were invested in Guangdong, $320 million in Fujian and $ 50 million in Zhejiang province. Of the $4.6 billion of foreign funds invested in Guangdong and Fujian in 1989, 71 percent came from Hong Kong, Macao and Taiwan. In 1990 this proportion had risen to 78 percent. By the end of 1990, there were nearly 16,000 enterprises of the "three foreign-funded forms" in Guangdong and Fujian, 70 to 80 percent of which were financed with funds from Hong Kong, Macao and Taiwan. Because they are located in the coastal area, these enterprises rely heavily on waterway and highway transport which is expanding rapidly with growing production. 1.14 The proportion of Taiwan's exports destined for mainland China is approaching 10 percent of the total value of its exports. Hong Kong's 'exports' to Taiwan increased by 31 percent, with components manufactured in Taiwanese-owned mainland factories and shipped back to Taiwan being the most important element. Of the 27.5 million tourists visiting China in 1990, 93 percent were inhabitants of Hong Kong, Macao and Taiwan. Transportation Growth Trends 1.15 During the 1980s, the most significant growth in transportation in the SCR was in highway traffic. Highway tonnage increased at an average annual rate of 14 percent, while ton-kilometers grew at 17 percent. Railway tonnages and ton-kilometers grew at annual rates of 4 percent and 5 percent, respectively. The corresponding figures for waterway traffic were 5 percent and 5 percent. As a result, the highways' share of the SCR's traffic volume rose from 34 percent in 1980 to 54 percent in 1990, while the railways' share dropped from 20 percent to 13 percent and the waterways' share from 46 percent to 33 percent. 1.16 The length of the railway network increased by 13 percent during the period, from 2,847 to 3,213 km. The length of the navigable waterways remained basically unchanged. The most significant growth took place in the length of the highway network, which increased by 21 percent, from 103,838 to 125,877 km overall, while the length of "above class II" highways increased from 309 to 4,007 km. - 5 - 1.17 It is clear that reliance on highway transport is growing rapidly. This is to be expected in an increasingly export-oriented economy based on small to medium processing industries. These industries, located in the coastal areas, have become heavily dependent on truck transport, in particular container trucks. 1.18 A number of express highway projects are under way in the SCR to meet the growing needs of the export-oriented economy. Examples are the Fuzhou-Xiamen-Zhangzhou, Ningbo-Hangzhou, Guangzhou-Zhuhai and Guangzhou-Shenzhen expressways. Railway lines are planned or under construction to the ports of Shantou and Shenzhen (Yantian) in Guangdong province. In Fujian Province, the railway line to Xiamnen is being improved and extended to Quanzhou (Meizhou Bay). These projects will significantly improve the hinterland connections of the regional seaports. 1.19 The growth of the commercial vehicle fleet during the 1980s has been very fast in China as a whole and in the SCR. The national fleet increased from 1.78 million in 1980 to 5.51 million in 1990, an increase of 300 percent. In the SCR the vehicle fleet grew from 172,000 in 1980 to 668,000 in 1990, an increase of 390 percent, led by the growth in Guangdong province, from 99,000 in 1980 to 400,000 in 1990, an increase of just over 400 percent. In 1990, the number of vehicles per 1,000 persons was 5 in the SCR and 6 in Guangdong province, still very low by international standards. 1.20 The inland water and oceangoing fleet of ships and barges in the SCR totaled 35,753 in 1980 with a combined tonnage of 1.357 million dwt. In 1990 the fleet had grown to 114,215 vessels with a combined tonnage of 7.465 million dwt, a growth of 320 percent in number and 550 percent in tonnage, indicating that the average size of vessel had grown by some 70 percent. Even so the average size is only 65 dwt. The growth of the fleet does not fully reflect the growth of shipping in the SCR since non-SCR vessels, domestic as well as foreign participate in coastal shipping. Water Transport Development 1.21 The SCR's port capacity developed in parallel with the growth of shipping and the regional economy. In 1978, only three regional ports, Zhanjiang, Guangzhou and Fuzhou, had berths for vessels of 10,000 dwt and larger. Together they had 22 such deep-water berths with a total throughput of 22 million tons, accounting for 11 percent of the nation's total. 1.22 During the Sixth Five-Year Plan, 40 new deep-water berths were added. New terminals were built in the ports of the SCR and new port districts were created such as Zhapu, Zhoushan and Wenzhou in Zhejiang province, Meizhouwan in Fujian province and Shenzhen and Zhuhai in Guangdong province. Container terminals were constructed in Ningbo, Fuzhou, Xiamen, Guangzhou and Shenzhen. During the Seventh Five-Year Plan, the number of ports with berths capable of handling ships of 10,000 dwt and over increased to 9 but only 10 deep- water berths were added, bringing the total of such berths in the SCR from 62 to 72 by 1990. In spite of this slowing of the pace of port development, port throughput in the SCR rose to 110 million tons, 23 percent of the nation's total. During the 1980s, port throughput thus grew at 14.5 percent per year, whereas the number of deep-water berths increased at an annual rate of 10.5 percent. A notable feature of this growth is that it was dominated by the ever-growing movement of hydrocarbons, raw materials and foreign trade goods. Coal and petroleum alone accounted for 43 percent of the region's seaports in 1990. A number of specialized coal and - 6 - iron ore berths were constructed in SCR ports while power plants, petrochemical plants, refineries and other enterprises built their own terminals to handle coal, petroleum and containers. These developments increased cargo-handling efficiency. A rough indication of this increased efficiency is the growth in the ratio of total tons moved and deep-water berths available, which increased from 1,000,000 tons to 1,500,000 tons per berth from 1978 to 1990. Port Facilities and Current Development Plans 1.23 As of 1990, the SCR had some 160 small, medium and large ports with a total berthing length of 141 km (Table 1.3). Only 10 of these ports had deep-water berths capable of accommodating ships of 10,000 dwt or more. The principal facilities of these ports (and of the port of Shantou which does not have such berths) are listed in Table 1.3. It should be noted that in particular the container storage capacity has substantially increased since 1990. Table 1.3: PRINCIPAL FACILITIES OF MAJOR SCR PORTS IN 1990 Berths Varehousee and stockyards MiD*tu Serth- of f..ontalner all 11 Mi Port vorkboat Port iDg 10,000 Total stocking Silo tank hoist or unren, rail- l.nzth dvt area capacity volum volum Io. capacity no. Power Ti4 Fvovr way (ml (no.1 ('000 U) (TED) - ('OO' UP) -- (k.) (no) (k) X- thel 1m Prov. 27,096 13 3 761 10 212.0 2.94 374 36.5 48 19.620 17 15.555 15,191 Veugho., 1,314 2 20.9 208 16.0 35 3,929 5 1.104 Zboushan 1,008 1 5.5 1,672 69 32 5 1,175 3 675 25,055 10 71.2 1.41 821 50 164 19,787 43 16,605 12,957 rNWho- 1,996 3 14.7 760 198 16 84 7,099 25 6,903 3,616 XDamen 2 217 6 27.6 1.672 as6 so 27 6,147 7 5, 404 9,339 Qb&anzhou ,2146 1 5.6 1.41 27 16 is 1,904 4 1.700 2 6 Pir w. 59, 014 49 307.5 15.70 Gh DtOU 1,215 9.3 309 163 45 S0 4,931 12 1,983 Cushbou 8,873 22 130.9 12,524 2.71 908 250 212 31,430 39 16,087 33,090 Shenahan 2,989 9 4,223 387 45 5 3,133 Zb ian 3,760 17 147.1 3.50 15.70 548 50 15 15,900 8 13,495 74,590 Z= 1,492 1 9.3 55 1.24 For the purpose of long-term port development, MOC has divided the continental coastline in seven zones on the basis of depth of hinterland, regional economic characteristics and the inland transport network. The SCR ports form part of three coastal planning zones, i.e., the Zhejiang sector of the Jiangsu-Shanghai-Zhejiang coastal zone, the Fujian coastal zone and the Guangdong sector of the Guangdong-Guangxi coastal zone. 1.25 MOC plans to develop the ports of Ningbo, Wenzhou, Fuzhou, Xiamen, Shantou, Shenzhen, Guangdong, Zhuhai and Zhanjiang into major ports of national strategic importance. Beilun Harbor of Ningbo port, Meizhouwan Harbor in Fujian and Yantian Harbor of Shenzhen port will gradually be developed as deep-water transshipment ports, able to receive large, deep draft container vessels and/or bulk carriers. Container Traffic 1.26 In the first decade of the development of an export-oriented economy, foreign trade through the SCR ports grew rapidly, along with other port traffic, from 11.3 million tons in 1980 to 37.3 million tons in 1990, maintaining a one-third share of the ports' total traffic. Container foreign trade traffic started in 1982, reached a volume of 89,000 TEU in 1985, and increased rapidly to 360,000 in 1990 and 702,000 in 1991 (Figure 1.1). - 7 - Figure 1.1: SCR FOREIGN TRADE CoNTAINER PORT THROUGHUF DY PROVINCEI ('000 TEU) goo_ 600- otal or SC r Goangq ng\ 400 _\ /{ Fuj n Zh- ang ......_._._.. ............- ....-r 0 - b ' ' ''1 i'''"''''A1 """'L m-Year 1983 1984 1985 1986 1987 1988 1989 1990 1991 1.27 In 1990, the ports of the three SCR provinces moved some 360,000 TEU of foreign trade. Of this total, Zhejiang accounted for 25,000 TEU (mainly, via Ningbo), Fujian for 75,000 TEU (mainly, via Xiamen and Fuzhou) and Guangdong for 260,000 TEU (mainly, via Guangzhou, Zhuhai and Shenzhen). Most containers originating in Fujian and Guangdong provinces are transshipped in Hong Kong. 1.28 This movement of containers through the SCR ports is, however, only 20 percent of all foreign trade containers entering or leaving the region. The remaining 80 percent passes over land to and from Hong Kong via the Shenzhen land link. This land link handled 1,460,000 TEU in 1990, more than the 1,312,000 TEU handled by all Chinese ports combined (Table 1.4). Between the containers passing through the land link and those shipped through SCR ports but transshipped in Hong Kong, more than 90 percent of all the containers entering and leaving the SCR pass through the port of Hong Kong. -8 - Table 1.4: CONTAINER TRAFFIC viA SCR SEA PORTS IN 1990 (TEU, full and empty containers)) International traffic Domestic traffic Port Subtotal Import Export Subtotal Inbound Outbound National total 1,312,182 641,922 670,260 145,409 73,295 72,114 Subtotal of SCR 359,455 173,002 183,453 30,271 15,090 15,181 Zhejiang 25,259 12,544 12,615 12,786 6,442 6,344 Ningbo 22,100 10,993 11,107 Wenzhou 1,250 658 592 12,786 6,442 6,344 Haimen 1,793 890 903 Zhoushan 16 3 13 Fujian 75,990 39,066 39,924 5,656 2,875 2,781 Fuzhou 30,523 15,602 14,921 2,176 1,124 1,052 Xiamen 45,337 23,365 21,972 3,480 1,751 1,729 Quanzhou 130 99 31 Guangdong 258,306 121,392 136,914 11,629 5,773 6,056 Shantou 5,259 2,702 2,557 Guangzhou 109,394 51,599 57,795 11,829 5,773 6,056 Shenzh.n 33,772 12,498 21,274 Zhanjiang 5,669 2,873 2,796 Zhuhai 87,565 43,325 44,240 Other ports 16,647 8,395 8,252 Trade with Hong Kong and Taiwan 1.29 From the container traffic flows discussed above, Hong Kong's importance for the mainland foreign trade is evident. Approximately half of Hong Kong's trade involves exports from the mainland and one-third imports to the mainland. With more and more Hong Kong capital being invested in the SCR and particularly in the Pearl River delta, and mainland investments being made in Hong Kong terminals, relations between Hong Kong and China are getting much closer and trade is growing rapidly. 1.30 Because of political constraints, trade between mainland China and Taiwan is indirect. Most of the mainland commodities bound for Taiwan, such as coal, herbs and foodstuffs, are transshipped at Hong Kong, as are most Taiwan goods bound for the mainland, especially raw materials and containerized goods destined for factories owned and operated by Taiwan investors. Direct navigation between Taiwan and the mainland, avoiding transshipment at Hong Kong, would clearly be more cost effective. - 9 - 1.31 The port of Hong Kong is operating at full capacity. Annual container handling volume per berth ranged from about 200,000 TEU at Hong Kong International Terminals up to a one-time record of 520,000 TEU, achieved by Modern Terminals Ltd. at unacceptably high berth occupancy factors. Container Terminal Eight, in which mainland-controlled companies are investment partners, is under construction. The design capacity of this four-berth facility will be 1.6 to 1.8 million TEU per year, serviced by 13 cranes. Additional capacity expansion is being planned to meet needs beyond 1995, involving additional terminals and improvements in container transport to the mainland by truck, rail and barge (see para. 2.15). 1.32 The three ports on the west coast of Taiwan have a potentially significant role in direct trade with the mainland. Port Keelung, only 70 km from Taiwan's capital, Taipei, has 14 container berths with an average length of 200 m, served by 17 cranes. Container storage areas are constricted, affecting the throughput volume per berth, which is about 95,000 TEU per year. The port of Kaohsiung, some 230 nautical miles south of Keelung on the Southwest coast, is Taiwan's largest port. It ranks fourth in the world in container throughput (after Singapore, Hong Kong and Rotterdam), handling 3.9 million TEU in 1991. The port has 15 container berths, of which 11 have a depth of 12-14 m. The average throughput per berth is 250,000 TEU per year. Three new leased berths, with three to four cranes per 320 m berth, are nearing completion. Container Terminal 5 will be completed by 1996. It will have 7 container berths and 1 multipurpose berth, and a 100 ha container yard capable of storing 54,000 TEU. This should boost capacity by at least 2 million TEU. The port of Taichung, located about midway between Keelung and Kaohsiung, is a much smaller port. It handled 130,000 TEU in 1990. It is the closest Taiwanese port to Xiamen and could play an important role in direct trade across the Straits. - 10- 2 TRAFFIC FORECASTS Principal Development Trends Affecting the SCR 2.1 The future economic development of the South China Region is expected to be affected by the following trends: (a) Economic development and areas open to foreign investment will spread gradually from China's coastal regions to the interior and consequently will generate a larger proportion of long haul cargo trips. (b) There will be a structural shift from large, state-owned to smaller, more geographically dispersed private and cooperative enterprises. (c) China's economy will become more market oriented and integrated with the world economy. Its trade growth will be increasingly impacted by developments in the Asia Region and containerization is likely to follow growth patterns similar to those of its Asian neighbors (see Annex 2). (d) The return of Hong Kong and Macao to China and the advent of direct shipping across Taiwan Strait will further strengthen the economic development of the area. (e) The expanding economy will put ever-increasing demands on transport in terms of access, speed and customer service. 2.2 Ports are essential to meeting the goal of expanding foreign trade and to the movement of bulk commodities between national production and consumption centers. Inland waterways and ports offer considerable opportunities for low-cost transport penetration to inland markets at relatively low infrastructure development cost. The structural changes in the Chinese economy, which are most advanced in the SCR, will place an increasing value on the quality of service of transportation systems. Broadly, this means that speed and reliability will be increasingly important in customer decisions as compared to decisions made previously by government officials or on the basis of tariffs regulated by Government. Highways and road transport will therefore become increasingly important components of the transport system. Although this will cause some diversion of rail traffic to trucks, this reduction in rail freight traffic demand will not be able to close the gap between supply and demand before the year 2000 without a much higher level of railway investment than is currently planned. 2.3 China's experience to date in opening up and reforming its economy has shown that its accelerating participation in work trade has caused relentless pressure on shipping and - 11 - air transport. These elements of the transport system will continue to be linked to the concern for increasing foreign exchange earnings. Ports and airports will have to meet the high technical standards imposed by the need to serve foreign vessels and aircraft. Maritime Transport Development in the SCR 2.4 Future maritime transport in the SCR is expected to have the following features: (a) Coal and petroleum transport to the SCR from north China and abroad will continue to grow to supply the power plants and the petrochemical plants of a fast growing economy. Specialized, high-capacity bulk carriers and port terminals will be needed to achieve efficient transport operations and take advantage of economies of scale. (b) With only half the national average amount of farmland per capita, the fast- growing SCR economy faces rising cereal import needs. Efficient bulk grain carriers and grain terminals will be needed to assure that these needs can be met from northeast China and abroad. (c) Container traffic has been growing rapidly ever since the opening up of the SCR economy began. Most of this traffic has moved via Hong Kong because of insufficient container terminal capacity along the SCR coast. Container traffic is expected to grow even faster than the SCR economy because of the still relatively low level of containerization, i.e., a higher proportion of manufactured goods will be moved in containers. Container terminal capacity will have to be increased very substantially to cope with this traffic. (d) In addition, Roll-on/Roll-Off (Ro-Ro) vessels and terminals will be needed for transportation between the mainland and nearby coastal islands and between the mainland and Taiwan, when direct navigation across Taiwan Strait becomes a reality. TraMc Forecast for the Year 2000 2.5 The same principles used to make national forecasts are used for the provincial ones. This includes taking advantage of waterway transport as much as possible. For the SCR region as a whole and for each province, it is expected that their economic growth rate will be faster than the national average. 2.6 The level of development, in terms of transport volume, that the SCR regional economy reaches by the year 2000 will be most influenced by five factors: the economic growth of China, the role of Hong Kong, growth of world trade, the competitiveness of Hong Kong Port and the capacity and efficiency of the Region's ports. 2.7 Two forecast scenarios are proposed based on a low- and high-pace development perspective: (a) Scenario #1 assumes annual national and SCR economic growth of 6 percent, with growth rates in world trade and in Hong Kong lower than this. There - 12 - would be no significant increase in Hong Kong's Port capacity after 1997 and the increase in the SCR's port capacity would lag behind demand. Trade restrictions will still be widespread and direct trade with Taiwan will not yet be allowed. (b) Scenario #2 assumes an annual national growth rate of 8 to 9 percent and SCR growth of 11-12 percent annually, Hong Kong maintains its leadership as a maritime port and its economy grows at 7 to 8 percent. World trade expands rapidly, with many existing restrictions removed. SCR port capacity is greatly increased to keep pace with demand. 2.8 On the basis of Scenario #1, the growth of cargo volume generated by the SCR, domestic and international, in all modes, will be 2.5 billion tons in 2000, an 80 percent increase over 1990 and a 6 percent annual growth. This will be 13 percent of the national volume of goods traffic (Table 2.1). Table 2.1: CARGO TRAFC FORECASr FOR THE SCR PROviNCES La (SCENARiO #1) (million tons) Mode 1990 2000 Total ZJ FJ GD Total ZJ FJ GD Overall cargo traffic 1,406 329 272 805 2,524 590 464 1,470 of which: Highway 1,103 229 236 638 2,020 420 400 1,200 Waterway 219 83 17 119 370 140 034 196 Railway 84 17 19 48 134 030 030 74 La ZJ = Zhejiang Province; FJ = Fujian Province; and GD = Guangdong Province. 2.9 In Scenario #2, the SCR cargo traffic volume growth would average 9 to 10 percent annually to a total volume of 3.0 billion tons, twice the 1990 volume (Table 2.2). This volumetric growth will be somewhat slower than the increases in the value of production, as the SCR economy shifts to higher value manufacturing. 2.10 The seaport throughput volume component of waterway's traffic has also been forecast on the basis of these two scenarios (Tables 2.3 and 2.4). These values include each ton of cargo that arrives in and departs from a seaport by vessel, i.e., transshipment cargo is counted twice. Seaport volumes in the SCR will increasingly be affected by the rapid growth of foreign trade, the continued strategic emphasis on manufacturing for export, and the region's dependence on imports of raw materials and grains. The two scenarios are as follows: (a) For Scenario #1, an annual growth rate of 8.3 percent is forecast, more than doubling 1990 volumes by the year 2000. The rate of increase will be greatest in Fujian, followed by Zhejiang and Guangdong (6 to 7 percent per year). In the year 2000 the bulk commodities of coal, petroleum, metallic ores and grain - 13 - Table 2.2: CARGo TRAmFC FORECAST FOR TH SCR PROVINCES (SCENARiO #2) (million tons) Mods 1990 2000 Total ZJ FJ GD Total ZJ FJ GD Overall cargo traffic 1,406 329 272 805 3,030 699 560 1,770 of which: Highway 1,103 229 236 638 2,422 494 488 1,450 Waterway 219 83 17 119 447 169 38 240 Railway 84 17 19 48 161 36 36 90 Table 2.3: WATERBORNE CARGO TRAmc FORECAST FOR THE SCR PROViNCES (SCENARIO #1) (million tons) Mods 1990 2000 Total ZW FJ GD Total ZJ FJ GD Waterborne cargo traffic 219.0 83.0 17.0 119.0 370.0 140.0 34.0 196.0 of vhich: Dy sea 78.3 18.0 9.0 50.4 142.7 34.0 22.7 86.0 By river 140.7 65.0 7.1 68.6 227.3 106.0 11.3 110.0 Table 2.4: WATERBORNE CARGO TRAFFC FORECAST FOR THE SCR PROVINCES (SCENARIO #2) (million tons) Mode 1990 2000 Total ZW FJ GD Total ZW F GD Waterborne cargo traffic 219.0 83.0 17.0 119.0 449.2 169.0 40.9 239.3 of which: By sea 78.3 18.0 9.0 50.4 174.6 41.0 27.3 106.4 by river 140.7 65.0 7.1 68.6 274.5 128.0 13.7 132.9 will represent 64 percent of SCR total throughput. Coal will be the largest component of bulk cargo at 75 million tons; followed in importance by petroleum, 51 million tons; metallic ores, 42 million tons Qargely transshipment of iron ore at Beilun, Ningbo); and grains, 14.2 million tons (Table 2.5). (b) For Scenario #2, the forecast assumes that Guangdong's effort to catch up with the economies of the 'Four Little Dragons of Asia' is reinforced, and that Fujian's coastal development strategy is implemented faster. SCR port - 14 - Table 2.5: SCR SEAPORT FORECAST FOR THE YEAR 2000 BY PRINCIPAL COMMODrrY (SCENARIO #1) (million tons) Cargoes 1990 2000 Total ZJ FJ GD Total ZJ FJ GD Overall seaport throughput 127.60 34.10 14.50 79.00 286.70 104.00 40.00 142.70 of which: Coal 29.17 12.20 2.22 14.75 75.00 30.20 7.10 37.70 Petroleum 22.58 6.05 1.20 15.33 51.00 15.60 8.90 26.50 Metallic ores 10.09 6.15 0.01 3.93 42.00 36.00 0.30 5.70 Grain 7.67 0.68 1.43 5.56 14.00 1.60 2.40 10.00 Cont. by weight 2.38 0.13 0.60 1.65 16.00 1.40 2.90 11.70 Other 55.71 8.89 9.04 37.78 88.70 19.20 18.40 51.10 throughput will reach 369 million tons in 2000, almost three times the 1990 volume or an annual growth rate of 11.1 percent (Table 2.6). Table 2.6: SCR SEAPORT FORECAST FOR THE YEAR 2000 BY PRINCIPAL COMMODrrY (SCENARIO #2) (million tons) Cargoes 1990 2000 Total ZJ FJ GD Total ZJ FJ GD Overall seaport throughput 127.60 34.10 14.50 79.00 386.05 147.20 47.50 191.36 of which: Coal 29.17 12.20 2.22 14.75 89.70 36.20 8.50 45.00 Petroleum 22.58 6.05 1.20 15.33 61.20 18.70 10.50 32.00 Metallic ores 10.09 6.15 0.01 3.93 47.30 36.00 0.30 11.00 Grain 7.67 0.68 1.43 5.56 17.05 2.15 2.90 12.00 Cont. by weight 2.38 0.13 0.60 1.65 33.07 1.64 3.44 28.00 Other 55.71 8.89 9.04 37.78 137.73 52.51 21.86 63.36 2.11 Key considerations underlying the region's container traffic forecast are: (a) The volume of containers shipped through SCR ports in 1990 was about 400,000 TEU, small by international standards, but growth will be very rapid, faster than in the rest of China and faster than for any other commodity group. (b) Within the SCR, volumes generated in the Pearl River Delta will exceed other areas because export manufacturing is most concentrated there. (c) Container transport through the land link of Shenzhen in 1990 was about four times greater than SCR port throughput. The share captured by SCR ports will increase substantially. This will likely occur because: - 15 - (i) there will be substantial additions to port capacity, through new berths and higher productivity; (ii) some of the new terminals will have the capability to receive and handle third- and fourth-generation container ships and Ro-Ro vessels; (iii) construction of better rail and road access to SCR ports is in progress and will continue to receive high priority; (iv) SCR ports will continue to have labor and land development costs substantially lower than those in Hong Kong; (v) SCR ports will adopt many of the management techniques and heavy investment in container handling equipment that have made Hong Kong's container terminals among the most productive and reliable in the world; (vi) Hong Kong port will not be able to eliminate the increasingly severe transport and logistical bottlenecks to access mainland cargo; (vii) a larger proportion of China's light manufactured exports will be containerized closer to point of origin, instead of in or near a port. (d) Hong Kong container throughput volumes will continue to grow as long as terminal capacity is available. The growth rate, however, will slow as SCR ports' share of Chinese cargoes increases. The volume of containers transshipped in Hong Kong will increase relative to reexports of mainland containerized cargoes. (e) Intermodal door-to-door services will gradually extend further inland to noncoastal areas. However, because the capacity constraints on road and rail will take rather longer to correct than those in the ports and the distribution logistics support must be institutionalized, the noncoastal areas will not be important generators of SCR container port throughput until after the year 2000. 2.12 As with the projections for other commodities, a Low Scenario #1 and High Scenario #2 are assumed. Growth rates were applied to SCR container port throughput in 1990 (390,000 TEU) plus that estimated to move through Hong Kong (1.6 million TEU). Table 2.7 shows how the factors were used to estimate SCR-generated container throughput in year 2000. All growth rates are compounded over a 10-year period. 2.13 Probably 80-90 percent of this demand will be generated in the Pearl River Delta area. A portion of it will continue to be accommodated in Hong Kong, which will be a Chinese port from 1997. As explained in para. 3.16, Hong Kong will by the end of 1996 have a total capacity of about 10.3 million TEU. Presently about 40 percent of capacity is devoted to Chinese trade, but one can expect this to grow to 60-65 percent. Therefore, Hong Kong may handle up to 6.5 million TEU of mainland-generated traffic. Before deciding to plan beyond this capacity in Hong Kong, one must consider the alternative ports. - 16 - Table 2.7: FORECASTS OF SCR-GENERATED CONTAINER THROUGHPUT FOR THE YEAR 2000 Low High Asaumption Scenario TEU Scenario TEU #1 (mln) #2 (mln) (a) Growth of export manufacturing in SCR (1990 base 2 mln TEU) 12Z/yr 6.0 14Z/yr 8.0 (b) Increase in container use as a percent of (a) +3%/yr 2.0 +4%/yr 3.4 (c) Impact of inland 0/Ds as percent of SCR generated throughput (a) 15% 1.0 20% 1.6 Total 9.0 _ 13.0 2.14 Assuming that Hong Kong's capacity to handle mainland container traffic were capped at this level, other ports may need to have capacity to accommodate about 2.5 million TEU under Scenario #1 or, under Scenario #2, 6.5 million TEU. These forecasts were then distributed between SCR ports on the basis of: * existing port throughput * future development of port infrastructure * hinterland generation possibilities ,and * discussion with port authorities They are shown in Tables 2.8 and 2.9, which follow. Hong Kong Container Traffic 2.15 In Hong Kong, containerized goods constitute about 48 percent of all inbound dry cargo and 66 percent of outbound. The Planning Department of the Hong Kong Government updated its cargo forecasts in early 1991.1/ It projected that containerized cargo volumes would grow at 10 to 11 percent per year from 1990 to 1996 and at 8 to 9 percent from 1996 to 2001. On this basis, container traffic in and out of Hong Kong would grow from 6.6 million TEU in 1991 to 9.1-9.5 million TEU in 1996 and 12.3-13.5 million TEU in 2000. Estimated capacity at Kwai Chung Terminals is now about 5.5 million TEU. An additional 1.5 million is handled midstream. With Terminal 8 (under construction) and Terminal 9 (to be completed in I/ Port Development Strategy Review, Port Cargo Forecasts, April 1991, Port Development Board/Planning Department, Hong Kong. - 17 - Table 2.8: CONTAINER THROUGHPUT FORECAST FOR MMOR PORTS IN THE SCR FOR TE YEAR 2000, SCENARIO #1 (1,000 TEU) Ports 1990 2000 SCR Total 390/a 2.500 Zheiiana Province 25 220 Ningbo 22 165 Wenzhou 1 20 Haimen 2 16 Zhoushan - 14 Fulian Province 76 370 Fuzhou 31 130 Xiamen 45 220 Quanzhou - 20 GuanadonR Province 258 1,910 Shantou 5 76 Guangzhou 109 300 Shenzhen 34 814 Zhanjiang 6 70 Zhuhai 88 350 Others 17 300 La Total includes 30,000 TEU of domestic trade. Note: Figures include empty containers. 1996), terminal capacity will have reached 8.8 million TEU. There are no more anchorages for midstream operation expansion. Any further capacity would have to be built on Lantau Island (see Map 3, 'Hong Kong Port and Airport Development Strategy"). Completion of Terminals 10, 11 and 12 at Lantau (12 berths) by the year 2000 would increase total terminal capacity to 13.6 million TEU, sufficient if demand growth does not average greater than 12 percent per year in 1992-2000 (Table 2.10). 2.16 The Hong Kong Planning Department fiurther estimated that the growth of transshipment traffic would slow down from 7.9 percent to 6.6 percent per year and that river traffic would grow at 4 to 5 percent per year. This implies that the overland transport of containers would grow even faster than container traffic in general. The overland traffic in and out of China at a 1990 base of 1.6 million TEU and growing at a rate of 12 to 14 percent per year would have to climb to from 5.0 to 5.9 million TEU in the year 2000. This amounts to an average highway traffic equivalent to 14-16,000 twenty-foot containers per day. - 18 - Table 2.9: CONTAINER THROUGHPUT FORECAST FOR MAJOR PORTS IN TE SCR FOR T YEAR 2000, SCENAIO #2 (1,000 TEU) Ports 1990 2000 SCR Total 390/a 6.500 Zheiianx Province 25 500 Ningbo 22 350 Wenzhou 1 64 Haimen 2 16 Zhoushan - 20 Fuiian Province 76 550 Fuzhou 31 160 Xiamen 45 370 Quanzhou - 20 Guangdona Province 258 5,500 Shantou 5 200 Guangzhou 109 500 Shenzhen 34 3,300 Zhanjiang 6 200 Zhuhai 88 400 Others 17 400 Pearl River (midstream) Lb - 500 La Total includes 30,000 TEU of domestic trade. 1k Potential needs to be studied. Note: Figures include empty containers. 2.17 The Planning Department forecast assumes that Hong Kong's transshipment traffic growth rate would continue to lag behind total container traffic by a significant and increasing margin and, conversely, that land traffic to and from China will grow at a higher and accelerating pace. In its planning for increased container port capacity, it fails, however, to consider the alternatives available after 1997 on the China mainland, which would have the opposite effect. Expansion at Lantau is far more expensive in terminal and land access costs than at Yantian. The latter, moreover, has direct rail and uncongested highway access to the mainland. It should be recognized that a significant portion of the projected China-generated overland container traffic (5.0 to 5.9 million TEU by the year 2000) potentially could be handled by Yantian. 2.18 In summary, Hong Kong as a container port, would have to target the market segments in which it would be most competitive relative to SCR ports. These are the deep ocean routes served by the largest capacity vessels and the regional cross-trades, which are attracted by the frequency of ship calls in Hong Kong serving all liner routes. - 19 - Table 2.10: TABLE OF ESTIMATED DEMAND AT KWAi CHUNG AND LANTAU, USING SLIDING GROwTH SCALES 5-17 PERCENT/YEAR (million TEU) Estimated Efficient Year Demand Demand Demand Demand Demand Demand Operating Terminal 172 142 122 102 8S 5S Capacity Requirements 1992 5.28 5.14 5.05 4.96 4.87 4.74 5.4 Tl-T7 1993 6.17 5.86 5.66 5.46 5.26 4.97 5.85 T8-lst berth 1994 7.22 6.68 6.34 6.00 5.68 5.22 6.75 T8-2nd & 3rd berths 1995 8.45 7.62 7.10 6.60 6.14 5.48 7.60 T8-4th berth + T9-Ist berth 1996 9.89 8.68 7.95 7.26 6.63 5.76 8.80 T9-2nd-4th berths 1997/a 11.57 9.90 8.90 7.99 7.16 6.04 10.00 T10-lst-3rd berths 1998 13.54 11.29 9.97 8.79 7.73 6.35 11.20 T10-4th berth + Tll lot E 2nd berths 1999 15.84 12.87 11.17 9.67 8.35 6.66 12.40 TI1-3rd & 4th berths + T12-lat berth 2000 18.53 14.67 12.51 10.63 9.02 7.00 13.60 T12-2nd-4th berths /a After T9 the Rambler Channel is full; so any developments (TIO-T12 and beyond) must be at LAntau. Taiwan Container Trafric 2.19 Taiwan is already a major force in intraregional trade and as a transhipment center for trade between Southeast Asia, Europe and North America. One can expect a rapid expansion in trade volume between China and Taiwan because of Taiwan's proximity to the Chinese mainland, its location along the major shipping route between Japan and Hong Kong, the rapid growth of Taiwanese investments in China and its need for raw materials that China can supply. 2.20 When political conditions allow direct trade, one may anticipate a substantial volume of cross-straits trade, generated largely by exchanges between Taiwanese-owned enterprises on the mainland and their parent companies. Equipment and semiprocessed goods will be interchanged based on comparative advantages. Following the experience of Hong Kong, much of the labor-intensive light industries will be transplanted to China, with finished goods reexported either to Taiwanese markets or transshipped to world markets. For some products such as equipment, China will become a major market for Taiwan. The economic benefits are - 20 - so compelling that most observers believe there is no question that the trading barriers will drop, and it is only a question of when.2/ 2.21 Attempting to forecast volumes of container traffic between China and Taiwan, under free trade conditions, is difficult because the new conditions will generate traffic that would not occur were present trading restrictions to remain. 2.22 Kaohsiung port may also pose some threat to Hong Kong's pivotal role as a transshipment hub for China traffic, particularly eastbound cargo. Its port charges are about half that of Hong Kong, largely because of lower labor and terminal development costs. The gap has been narrowing as a consequence of a higher rate of inflation in Taiwan, coupled with an appreciation of value of the Taiwanese dollar. The rerouting of liner services in the region may give Kaohsiung a greater role in transshipment traffic now moved through Hong Kong. The feeder service established by APL between Chiwan and Kaohsiung (calling at Hong Kong), begun in 1989, may be indicative of developments in this direction. Similar feeder services may be established between Yangtze River ports and Kaohsiung, particularly for transshipment of westbound cargo between Europe, the Middle East and China. 2.23 Containerized cargo from Hong Kong to Taiwan in 1990 was 1.2 million mt or 8 percent of the total. Hong Kong, however, is the largest destination for Taiwan's container exports at 2.6 million mt or 26 percent of the total outbound (Table 2.11). A large part of the outbound cargo, although consigned to Hong Kong, is destined for China. Keelung port leads with a 55 percent share of containerized shipping with Hong Kong, followed by Kaohsiung (31 percent) and Taichung (14 percent). Keelung is well suited to handling feeder container vessels and is convenient to Taipei where most of the traded goods are produced or consumed. 2.24 It is also instructive to note that there is 700,000 tons of containerized cargo moving between Shanghai and Hong Kong, of which 500,000 are transshipment. It is not difficult to imagine the transshipment cargoes diverting to Kaohsiung under the open trading assumption. 2.25 Given the rapid growth in Taiwanese investments in the SCR over the last two years, a consequence of deliberate promotion on the part of Chinese authorities, one may assume that the volume of containerized trade transitting Hong Kong has already risen to about 1 million tons and could continue to grow at a rate of 20 percent a year or to 4 million tons by the year 2000 (approximately 500,000 TEU). The convenience of direct trade between Fujian Province and Taiwan will certainly generate additional trading between the two, which could be catered to by Ro-Ro vessels and port facilities appropriate to their use. One could easily imagine a daily shuttle of 500 TEU or 175,000 TEU yearly in the year 2000, which would be additional to the transshipment forecast. If one assumes that containers presently recorded as consigned to/from _l In 1992 Taiwan's Government took its first tentative steps towards formulating direct ties. Lawmakers approved a bill that would allow direct air and shipping links under special permits issued by the Government, with instructions to the Ministry of Transport and Communications to work out the method under which these could be issued. Taiwanese businessmen opposed to the ban on direct trade have estimated it has cost Taiwan $8 billion over the past five years. The Board of Foreign Trade has publicly expressed its concern that overreliance on the mainland market could make Taiwan an economic captive of China. - 21 - Table 2.11: VOLUME OF SEABORNE CONTANERIZED CARGO, 1990 (Million mt) Hong Kong/Taiwan Hong Kong/China Trans- Total Import Exportla shipment/b In Out TAIWAN - Total 3.8 2.5 0.7 0.1 0.5 Keelung 2.0 1.3 0.4 0.3 Kaohsiung 1.5 0.9 0.3 0.1 0.2 Other 0.3 0.3 - - - CHINA - Total 2.5 0.5/c N.A./d 1.3 0.7 Shanghai 0.7 0.2 0.3 0.2 Guangzhou (incl. Huangpu) 0.1 N.A. 0.1 Zhangjiang 0.1 N.A. 0.1 Xiamen 0.1 0.1 Others 1.5 0.3 0.9 0.3 La Comprise exports and reexports. /b Goods transshipped in Hong Kong under a through bill of lading. IQ Total seaborne imports were 5 million mt; therefore, only 10 percent containerized. Ld Total seaborne exports were 1.4 million mt, only negligible amounts containerized. Source: Hong Kong Shipping Statistic, Census and Statistics Department, 1991. Shanghai, now transshipped through Hong Kong, will divert to Taiwan, and that the 1990 volume grows at 20 percent a year, there would be about 250,000 TEU in this trade. In sum, therefore, we may forecast a volume of about 1 million TEU trade between the SCR and Taiwan by the year 2000 if normalized trade relations occur. Hong Kong-based China Merchants, which has ties to the mainland Government, has recently announced plans to build a major economic development zone in Zhangzhou in southern Fujian, larger than Shekou and tailored to investors from Taiwan. Projects of this magnitude may make the above estimates seem conservative. - 22 - 3 KEY ISSUES A. INTRODucTloN 3.1 From the foregoing chapters, which reviewed the region's economic growth and traffic development and the traffic forecasts, the explosive growth of container traffic, both past and anticipated, stands out as the most notable phenomenon as well as the principal area of concern for the region. Bulk traffic (coal, petroleum, grain, fertilizer, cement, iron ore) is also expected to grow rapidly and will require substantial investments in facilities and equipment, but dealing with this growth poses no unusual strategic issues. The techniques to handle these commodities, although constantly developing, are well understood and generally practiced in China. This does not mean that decisions on the optimum combination of size of vessels, port handling and storage capacity and inland transport means do not have to be made carefully to take advantage of natural conditions, economies of scale, etc., but they are of the nature that are guided by feasibility studies of particular systems. The same applies to taking advantage of economies that may be achieved by neo-bulk cargo handling methods for commodities such as steel and wood products. 3.2 The revolution in general cargo movement brought about by the container age, in which China was left behind, raises an important set of interrelated issues that involves China's entire transport system. It is this set of issues that has emerged as the focal point of this study. This chapter discusses the key issues of intermodal container transport, as a basis for developing strategic goals for ports and shipping in the SCR. 3.3 Questions about port capacity, port location and the alternative trades or markets to which a port can aspire are raised in Section B, 'Configurations of Port Capacity." Once these goals are agreed, it becomes possible to design appropriate facilities, both within the port and those providing access to the port. These needs should at a minimum satisfy the requirements of the immediate hinterland but may, under certain circumstances, serve an area which overlaps the market of another regional port. 3.4 The role that a port can play is significantly determined by its accessibility to landside transport and logistics systems. These limitations are therefore discussed in Section C, "Intermodal System Constraints." 3.5 A variety of organizational models and regulatory regimes are available to enhance productivity, promote private investment and management, while safeguarding the public interest insofar as national policy and regulation is a legitimate concern and responsibility of government. In China, a start is being made in experiments with decentralization of port management and operations. This timely issue is discussed in Section D, "Institutional and Regulatory Concerns." - 23 - 3.6 Anticipation of technological change is an important issue in the planning process. Without critical review of likely trends, both in equipment and management systems to efficiently operate the hardware, investments may quickly become obsolete or operate well below the levels of productivity obtained elsewhere, therefore providing a poorer level of service at higher cost. This topic is covered in Section E, 'Technological Trends in Container Transport." B. CONFIGURATIONS OF PORT CAPACrrY Lead Centers and Their Role 3.7 There is clearly a shift towards larger vessels in the long-haul trades between Asia and Europe and Asia and North America. Vessel sizes ranging between 2,700 and 4,400 TEU capacity are becoming normal, offering shipping companies operating economies of scale. 3.8 Many ports in China aspire to become load center ports and to develop a transshipment capacity for international container traffic. Few, however, can meet the criteria for success, which include the following: (a) The port serves an adjacent urban center which generates a large volume of container traffic and has efficient and sufficient inland transportation facilities. (b) The port is located near a main shipping route and offers cross-trade opportunities, that is cargo transfers between other regional ports. (c) To minimize empty container handling, the balance between import and export cargo should be as nearly equal as possible and not substantially worse than at alternative ports. (d) The port is accessible for large vessels requiring water depths of 13-15 m in the access channel and at the berths. (e) Container-handling equipment that is reliable, is capable of serving large ships and of sufficient capacity to assure a quick vessel turnaround. Precise vessel scheduling and cost control are the objective sought by both liner operator and port management. (f) Port storage capacity is geared to the container loading and unloading volumes of large container ships. (g) The container-handling tariff and other port fees are competitive. (h) The port is well-managed, operated 24 hours, 7 days/week, and equipped with up-to-date and reliable communication and information systems. 3.9 Clearly it is only possible and efficient to assign a few ports this role. Cargoes carried by these supervessels and requiring transfer to other ports will be shifted to smaller vessels providing a feeder service to hub ports. These may be traditional lift-on/lift-off type, - 24 - some with their own gear, or may be Ro-Ro (or a combination of the two) depending on the sailing distance, port equipment, and the distance between secondary port and inland cargo O/D. 3.10 Presently, Hong Kong and Japanese ports are the primary load centers serving South China ports. Even COSCO schedules incorporate liner services following this pattern. Taiwan already has a major transshipment port at Kaohsiung and has the conditions to serve as a load center for China, especially for Fujian, given its proximity and the considerable business relationships between the two. It is estimated that rerouting Taiwan-China trade from transhipment in Hong Kong to across the Taiwan Straits would save at least a day and about $1,300/TEU freight and handling costs. There is also potential for diverting some of Shanghai's deep-sea shipments now transshipped through Hong Kong. The big issue is whether there is need for additional load centers. Potential Load Center Locations and Capacity 3.11 Zhejiang Province. Recent studies on the optimization of Ningbo port have shown that this port should complement Shanghai, and will have the potential to be the load center serving Jiangsu, Zhejiang, Anhui, Jiangxi and possibly Hubei. The principal constraints are the road and rail access capacity, container terminal operating inefficiencies and inadequate logistics management. 3.12 Pearl River Delta. There is now recognition that Hong Kong's role as the China gateway depends crucially on how its road, rail and barge links are developed and, related to this, how much China is prepared to build up Guangdong container ports and particularly the Port of Yantian, which has deep water and could thus be a major competitor to Hong Kong. 3.13 Excellent road and rail access between Yantian and Guangzhou's transport network is nearing completion. The cost of building a terminal at Yantian is about 25 percent of that in Hong Kong, where Terminal 8 with four berths cost $1 billion, of which half was for land purchase and reclamation. Furthermore the costs of moving containers between Guangdong industrial sites and Hong Kong terminals, about $350 per TEU, can be avoided. In Hong Kong, container warehouses and CFSs are multistoried buildings, because of the scarcity of waterfront space. In Yantian, the more conventional type buildings will be used at lower cost. 3.14 All of the above factors will allow capital investment to be much lower in Yantian than in Hong Kong, for equal design capacities. When lower operating costs in China are also factored in, the mainland port has overwhelming potential to operate at lower cost. 3.15 The principal advantages that terminals in Hong Kong retain is a high level of productivity achieved by a high utilization rate of berthing space and rapid loading/unloading of containers, which minimizes vessels berth time. This is achieved through a high level of investment in terminal and vessel handling equipment, and by employing highly skilled and motivated management and labor, supported by sophisticated information management systems. Over time, one may expect these characteristics to be adopted by mainland terminals, in some cases with the participation of the same companies that have made Hong Kong or Singapore models of efficiency. 3.16 The landside access to Hong Kong's container terminals is becoming severely congested at today's traffic levels, which average about 15,000 TEU/day and 20,000 TEU at - 25 - peak. Assuming an average 1.5 TEU per truckload, there are already 10,000 or more truck movements daily. The roads serving Kwai Chung are nearing saturation. On one occasion in 1991, there was virtual 'gridlock' when Kwai Chung reopened after a brief shutdown caused by a typhoon warning. To permit diversion of future road traffic to Terminal 9 and later to Lantau Island, very costly waterway crossings and access roads will have to be constructed. The cost of providing rail access to these proposed terminals would be prohibitive. 3.17 Loading and unloading containers between container vessels and barges at anchorages midstream has been used effectively in Hong Kong and now accounts for about 1.7 million TEU/year. Handling rates are about half those at terminals, a sufficient differential to make this attractive to smaller vessels operating regionally with much lower fixed costs, and less precise sailing schedules than the large transoceanic vessels. There are several constraints to expanding midstream capacity in Hong Kong. Additional suitable moorings locations are not available and the channel linking the Delta with the harbor is already congested with small shuttle barges. This has led to a proposal to build a barge handling facility on the Pearl River Estuary side of Hong Kong, from which containers would then have to be moved by road to Kwai Chung's terminals. Such a terminal or additional midstream moorings would probably be better located within the Delta, closer to the several small ports serving the Delta. 3.18 With the existing restriction on direct shipping between Taiwan and China, traffic in this trade is now almost entirely transshipped through Hong Kong. When direct trade becomes legal, one can expect a range of shipping between Pearl River Delta ports and Taiwan, bypassing Hong Kong, with small oceangoing container vessels calling at river terminals replacing barges in this trade. It is important that this shift be anticipated with the provision of appropriate vessels and terminals. 3.19 Fujian Province. What role should Fujian's two main container ports play? Certainly these will primarily serve the province's own cargo movement requirements. Since deep-sea liner vessels will not wish to call at both Xiamen and Fuzhou, how will the ports complement each other? Or will both be served primarily by feeder lines? This was not considered in the recently completed Xiamen Master Plan. Until a high class road connects both, perhaps there needs to be a seaborne scheduled shuttle service between the two, so that vessels with cargo for both ports can discharge at either. To what extent can one assume capacity is interchangeable? 3.20 In 1990 Fuzhou's container throughput was about 30,000, of which 22,000 were full (72 percent), there being more exports than imports. Throughput of full containers has trebled since 1985. At Xiamen 1990 throughput was 45,000, of which 32,000 were full (71 percent), exports exceeding imports, and the growth rate of full container handling has been similar to that in Fuzhou. Therefore, both ports appear to be similar but small participants in containerized activity. There is also movement of containers between Hong Kong and Fujian Province by road and of breakbulk cargo that is stuffed into containers in Hong Kong. These cargoes may be diverted to Fujian's ports at some future date. Total throughput of all cargoes at the two ports is also similar, between 5 to 6 million tons each, but with domestic trade accounting for almost 79 percent at Fuzhou and only 56 percent at Xiamen. 3.21 If these ports remain largely limited to serving provincial requirements, will their throughput reach levels which would be attractive for regular scheduled calls by large container ships? The monthly gross output value of light industry in Fujian is about Y 3 billion. The - 26 - comparative value for the Shanghai/Ningbo hinterland is about Y 26 billion and for the Hong Kong/Guangdong proximate hinterland about Y 13 billion.1/ If Hubei and Jiangxi were included in Fujian's hinterland, this would add about Y 4 billion in output value, still a relatively small base for generation of containerized traffic volumes sufficient for large vessel port calls. However, should these values increase at more than 10 percent per year, which is quite possible, there may be need to begin to install facilities with much greater capacity in the decade beginning in the year 2000. 3.22 The liner operators have to make strategic decisions concerning the number of ports of call for large vessels. The greater the number of ports, the longer the overall schedule for the vessel and the lower its effective annualized slot capacity. While each shipping company makes its fleet deployment and scheduling decisions based on its own marketing plan and the mix of deep-sea and feeder services it will use, the business is very competitive. It is instructive that only 12 ports in East Asia are served by the large container vessel liners, the lowest in volume being Manila and Kelang with throughputs of 642,000 TEU and 603,000 TEU, respectively. In these ports the percentage of empty TEU does not exceed 20. 3.23 Another handicap is that Fujian's ports lack the geographical advantage and large traffic volumes that make Hong Kong, Japan and Taiwan attractive transshipment points for regional cross-trade traffic. Therefore, it is most important that the role which Fujian's ports can play in regional shipping be evaluated conservatively and realistically. Moreover, it is important to coordinate the development plans of the two ports. If they seek to be gateways for other inland provinces, what are their comparative advantages and how can these be actualized? Feeder Services 3.24 Feeder services play an important role in container shipping in the SCR. They are defined as short-haul services, designed to link small ports or ports with channel depth restrictions, to high-volume hub ports. In the SCR they take two forms. There are the coastal/inland waterway feeders, principally using towed or self-propelled barges, linking Pearl River Delta ports to Hong Kong. There are also the short-sea feeders utilizing small-capacity, dedicated container vessels or mixed cargo vessels with services between Hong Kong and Taiwan, and linking SCR coastal ports with Hong Kong and Japan. 3.25 In the Delta region, barge services are dominant. They are particularly well suited to shuttling containers between vessels moored at anchorages and nearby Hong Kong terminals or ports on the inland sea, rivers or canals. Although they move slowly, load/discharge boxes at half the rate of larger vessels, and have capacity commonly in the range of 50-100 TEU, they are very versatile and economical and have proved very popular with shippers. A major drawback is that it is difficult to mix mooring and cargo handling of such vessels with that of liners at the same terminal. Consequently, the practice in Hong Kong has been to segregate the two operations, and to move cargo between terminals by truck, which adds to handling and road congestion. When construction begins on Terminal 9 in 1994, midstream operators will lose 800 m of waterfront and 120,000 ni2 of backup land at Tsing Yi. This displaced traffic may turn to mainland facilities in order to keep costs down. Where waterway channel width is narrow, a large volume of small craft movements may compete with larger I/ China Statistics Monthly, 1990. - 27 - vessels for capacity. This is already becoming a problem in the channel linking the Delta waterways traffic to Hong Kong's harbor. 3.26 Chinese ports have been largely closed to foreign feeder vessels. By monopolizing this trade, Chinese companies have been able to charge considerably higher tariffs than for comparable length sailings elsewhere and to receive payment in foreign exchange. In recent years, this restrictive policy has been somewhat relaxed. The degree to which foreign firms will wish to compete is uncertain. On the one hand, there are advantages to a deep-sea operator by gaining control over the total sea voyage (scheduling, security, pricing, etc.). However, operating feeder services requires a specialized set of skills and a suitable fleet, which mainline shipping companies may not view as profitable. A common-user feeder service operator has as his principal business freight consolidation. For a liner operator it is a marketing tool, namely a means of ensuring that customers receive reliable service and of increasing mainline ships' capacity utilization. This reduces flexibility in terms of size or frequency of consignments. Solutions to this dilemma include Chinese/foreign joint ventures, specifically to provide feeder services, or for the large vessel operator to set up his own subsidiary, specializing in feeder services. 3.27 The feeder services available to Fujian's ports are provided largely by companies owned by municipalities and the province and companies based in Hong Kong, including a joint venture between SINOTRANS and China Resources (HK). Vessels are typically in the 100-250 TEU range and self-loading. There are daily sailings to/from Hong Kong and several weekly services to/from Japan. 3.28 One might expect the configuration of feeder services serving Fujian ports to be substantially different if direct trade with Taiwan is allowed. If this trade is designated 'cabotage," would Chinese and Taiwanese registered vessels share and control the market? Taiwan would become a competitive load center serving Fujian, substantially reducing the Taiwan-Hong Kong routing for Fujian's foreign trades. China's main shipping companies probably would stand to lose market share in this event, because Taiwanese and other foreign- owned companies would have access to a larger share of Fujian's international traffic than at present. Control of the feeder services may give Taiwanese and PRC shipping companies an edge in capturing the long-haul deep-sea traffic. 3.29 It is likely that shippers of cargoes moving on routes south of Fujian would find Hong Kong as convenient as Taiwan for transshipments, but on north and eastbound routes, Taiwan might be a substitute for Japan. Taiwan can continue to underprice Hong Kong's port and handling costs and to offer liner companies exclusive use berths. 3.30 Another factor influencing feeder scheduling is the positioning of empty boxes. If the present imbalance at Fujian's ports persists, a large number of empties hale to be 'imported." A shift to transshipment in Taiwan requires that the carrier stockpile empties there. Taiwan would have the greatest advantage as a transshipment center if it could reduce empty container repositioning costs by achieving a better directional balance in Fujian's container movements. 3.31 Apart from traffic between Hong Kong and coastal/river ports, there does not appear to be a need for coastal movement of containers containing cargoes having O/Ds - 28 - overseas. Until completion of a high class road between Fuzhou and Xiamen,2/ one may find that a reliable ferry service for containers between the two would provide better customer service and greater flexibility in use of port capacity. C. INTERMODAL SYSrEm CONSTRAIlNS 3.32 Containerization of cargo is designed not simply to facilitate handling of breakbulk type cargo on vessels. Just as importantly it permits door-to-door delivery of the cargoes in a convenient, safe, unitized manner. Therefore, while there are legitimate reasons for stuffing/unstuffing containers in ports, this does not take full advantage of the logistics efficiencies permitted by the use of containers. This is particularly true where the full contents of a container are consigned to a single origin/destination, be that an enterprise or a CFS (container freight station). Therefore, providing facilities with which containers can be moved to/from ports by either road, rail or coastal/inland waterway will in part determine the attractiveness of the port to shippers and the boundaries of the hinterland that the port is likely to serve. Road Systems 3.33 Road transport provides the highest level of service and flexibility for moving containers or breakbulk cargoes normally containerized to or from ports. A road vehicle can move small units, 1 or 2 TEU, door-to-door, whereas trains or waterway vessels are adapted to carriage of multiple units concentrated on one or a few itineraries. Most frequently, even when rail or road are used for the long-haul segment of the transport system, a road vehicle is used for pickup or delivery of the cargo or container at its final inland O/D. 3.34 Container trucking requires that roads be designed as limited access highways or expressways, where relatively high speeds can be maintained safely. The road conditions in China at present are poorly adapted for the movement of tractor trailers. When these ir prove, international experience indicates that.-trucking will be the preferred mode for container movements up to at least 400 km. The Government has identified 12 corridors as key components of China's National Trunk Highway System, a network of interprovincial freeways. Four of these, two north-south and two east-west, will be given priority. The coastal north-south and the southern east-west corridors will serve the SCR. 3.35 For those enterprises that are not located along major transport corridors, door- to-door container service will come much later. Because large trucks will not be able to travel on secondary roads, which have gross bridge loading capacities of 20 tons or less, containerized freight will continue to be stuffed/unstuffed at CFSs for onward carriage breakbulk in small trucks. This is apt to be a more important constraint to adoption of fully integrated containerized systems than is the availability of appropriate handling equipment at origin/destination. Z/ Financing of the first phase (81 km) of a four-lane access-controlled highway between Xiamen and Qanzhou, as the first phase of the Xiamen-Fuzhou highway, is being considered by the Bank. - 29 - Rail Systeam 3.36 The constraints and issues related to the role of rail have been expressed clearly in the Draft Inception Report for the rail-based container study.3/ The highlights of the report are summarized here. Most rail corridors are strained for capacity, and therefore services have to be prioritized. Unless movement of containers is accorded a portion of scheduled capacity, as a priority and separate from other freight services, rail cannot offer a sufficiently attractive service. The wagons for transporting containers must be dedicated to this service. Time in terminals often consumes more time than the cargo movement on rail. It is essential, therefore, that the railways have the storage and handling facilities and logistics control systems, which will ensure minimum delays at either end of the rail segment and that the number of stops for pickup, discharge and interchange is limited. Confidence in scheduled delivery times is important to cargo owners and to the owners of the containers themselves. The new operating philosophy and techniques required for intermodal services necessitate new organizational structures adapted to container services. The marketing and pricing of these services is key to their competitiveness. 3.37 A full-fledged rail container pilot operation, providing daily scheduled ervices north and southbound, is programmed to begin from January 1995. If this proves successful, the prospects for further expansion are more likely to be limited by the railroads ability to supply service than absence of demand. It is as yet unclear how much additional capacity will be added to the mainline linking Beijing to Guangzhou, either through electrification or new line construction or what priority will be assigned to ISO container traffic under supply constraint conditions. 3.38 The Railway Investment Study (RIS) concluded that higher levels of unsatisfied demand are to be expected in the future and that there will be a need for even more serious rationing of capacity, with the potential effect of lowering rail service levels. Capacity allocation ruled that would be the most favorable for ISO container traffic would have as criteria the economic value of the goods to be shipped, combined with length of haul, expressed in terms of ton-kilometers of high tariff cargo. Container unit trains have the potential use locomotive power and wagons very efficiently because of rapid turnaround schedules required by shippers and achieved by higher running speed and low standing time in terminals. It is interesting to note that Hong Kong's container terminals have no rail access. This occurred because they were not designed as gateways for surface shipments to the Chinese hinterland. 3.39 Hong Kong's container terminals were built without rail access. They were designed to handle traffic generated by the Colony and transshipments, not large volumes of traffic crossing its landside boundary with China. The KCRC, the colony's railroad, remains principally a passenger railway. Hong Kong's Government, and particularly enterprises dependent on its shipping business, are very concerned that this deficiency will result in a loss of potential Chinese traffic, especially as container traffic by rail gains in volume. The obstacles to providing rail access are formidable. 3.40 Studies have been commissioned by the Hong Kong Government and the Kowloon-Canton Railway Co. to explore increasing rail capacity between the Chinese border and I/ Pilot container transport subcomponent of the Sixth Railway Project. ,- ---- - 30 - downtown Hong Kong, including access to the Kwai Chung terminals. It seems that this option would cost at least HK$5 billion because of high right-of-way land acquisition costs, tunneling, the existing intensive use of land near the terminals, and the difficulty of finding a location for a rail terminal within the port. (Constraints and options in Hong Kong are further discussed in Annex 3). 3.41 To provide rail access to new terminals planned for Lantau Island woulk require a major bridge or tunnel structure linking it to the mainland. Therefore, the new ports in Shenzhen, with rail access, will have a potent advantage over Hong Kong facilities, insofar as serving as a gateway for long-distance inland points, where rail may be competitive with road or waterway transport. Waterways 3.42 Rivers can sometimes substitute for rail or road as part of an inland transport system. Ports along the Yangtze river, as far north as Nanjing, are already beginning to play an important role as container ports, with regular feeder services between several of them and Japan and Shanghai. Although barges carrying bulk commodities navigate as far upstream as Wuhan, it is probable that other modes would supply a more acceptable service level to container movements for distances exceeding 500 km. 3.43 Short-haul feeder services are also an important component of container traffic between Hong Kong and Pearl River ports. One issue is how to prepare the Pearl River ports to receive a rapid growth in calls by direct liner services from Taiwan or other regional ports, bypassing transshipment in Hong Kong. American President Lines is already providing such a service. 3.44 Another issue is whether there is a need for a container barge terminal near the mouth of the Pearl River, where a high-volume interface between river craft and first- and second-generation container ships could be achieved. Are there additional possibilities for exploiting the midstream transfer technique in the Estuary, modeled on the success with this system in Hong Kong, that would compare favorably with the barge terminal concept? Intermodal Transfer and Storage 3.45 The interface between modes is critical to the level of service and costs of container shipping. Ship operators will prefer calling at ports where load/unload operations minimize time in port, and where containers which they own or manage are recycled relatively quickly. Therefore, a sufficient number of export containers have to be prepositioned in port to enable loading to occur as rapidly as equipment allows. For arriving containers, their removal to off-port locations should also be expeditious, minimizing storage space requirements, storage costs and delivery delays. Terminals for transfer of containers between modes or for consolidation of LCL cargo need to be located at strategic sites inland. The decision on ownership and management of these intermodal linkages is very important. For example, one of the largest Hong Kong-based conglomerates plans to develop a mega-container center at Wuhan, designed to act as a consolidation point for containerizable cargo for onward shipment through Hong Kong. - 31 - 3.46 Since most door-to-door container movements by rail or waterway vessel will finally involve a transfer to trucking, one must consider how to provide reliable trucking services at CFSs. Among the options are for the rail or waterways transport enterprise to operate its own trucking, to contract out these services, or to rely on consignees to arrange for these services. For example, SINOTRANS, which operates vessels, also has a large trucking fleet (about 6,000 vehicles) operating nationwide. More typically in the SCR, trucking is carried out by a multitude of small companies, some with Hong Kong partners, moving cargo between Hong Kong and the mainland. 3.47 The design and control of the through-transport operation is elsewhere typically managed by the deep-sea liner operators as the intermodal operator directly or through agents, since they have a large investment in containers and container ships to protect. Control of containers through computerized container numbering systems that allow each container to be tracked throughout the intermodal pipeline is essential to the management of the door-to-door operation. Expediting the return and positioning of empty containers is particularly important. In the SCR, current conditions make this difficult to accomplish for a number of reasons that include transport infrastructure and container transport vehicle deficiencies, an inadequate communications network and, until very recently, the prohibition against inland transport operations by foreign operators. Commercial Systeas 3.48 These are the systems by which the intermodal operators provide the shippers with service and price options. Under current conditions in the SCR, the shipper has to rely on the services of a few Chinese freight forwarders with limited capacity and experience in international intermodal transport. SINOTRANS, the largest freight forwarder in China, operates mainly as a nonvessel operating common carrier (NVOCC) and issues multi modal bills of lading. COSCO, China's major liner operator, provides intermodal services through two freight forwarding arms, PENAVICO and COSCOFRE. The China Railway Foreign Service Corporation (CRFSC), a subsidiary of the Ministry of Railways (MOR), obtained a license for international freight forwarding in May 1990, with the intention of strengthening MOR's capability to provide international transport services. Early in 1992, American liner operators were given permission to operate in China, which should lead to an improvement in intermodal services. This was due to pressure from the United States Federal Maritime Commission, but is likely and ought to be expanded rapidly to other foreign shipping companies. It is part of a wider change in the Government's strategy toward promoting foreign trade. This includes gradually terminating a wide range of discriminatory measures including pricing of port services, solicitation of cargo and ownership of warehouses and trucking. Flow of Information 3.49 Operation of the intermodal system requires the provision, storage and retrieval of data and the transmission of instructions and information. For intermodal transport to operate at an appropriate scale and speed, large amounts of information and, instructions need to be transmitted quickly. Rationalization and standardization of procedures and the establishment of computer networks that allow direct transfer of data between the various participants in the door- to-door chain are essential to the efficient operation of the intermodal system. - 32 - Uability Network 3.50 This network is designed to protect the owner of the cargo from financial loss in the case of cargo loss or damage in any of the links of the intermodal chain. Although intermodal container transport has greatly reduced the level of claims, it has made the liability question more complicated because of the many links and the different modes involved. Different modes traditionally were subject to separate insurance regimes until in the seventies, the International Chamber of Commerce (ICC) devised rules for Combined Transport based on a network system. These rules were revised in 1991 by UNCTAD and ICC, introducing the principle of liability for delay of cargo as well as for loss or damage. Many deep-sea liner operators, as intermodal operators, issue intermodal bills of lading as evidence of contract for the movement of the goods between the places specified. The Logistical Approach 3.51 Producers and manufacturers manage the inflow of materials and the outflow of finished goods (also referred to as the supply chain) to minimize the time goods are in transit and the size of inventories. Dependable intermodal services, directly connecting the producer with the consumer, have contributed greatly to the success of the logistical approach. In the SCR, where export-oriented industries are playing an increasingly important economic role, facilitating the logistical approach by providing the physical facilities as well as encouraging appropriate commercial practices and institutional arrangements, deserves high priority attention. D. INSTITmoNAL AND REGULATORY CONCERNS Introduction 3.52 The principal issue to be resolved is how and where to strike the balance between centralized, national planning and regulation of ports and autonomy for the local operating authorities who are increasingly financially independent and whose actions are largely motivated by local (municipal or provincial) interests and resources. The question has to be analyzed by an examination of the pros and cons of a number of subsets which comprise the broad issue. Finandal Resources 3.53 Provincial and local governments, especially those with seaports, have very substantial access to finance. This has occurred as their tax base has increased as a result of rapid industrialization and a reduction in the proportion of taxes that have to be remitted to the national government. Thereby, the funds available for public investment have swelled and greater disparities in modernization between different political jurisdictions are bound to occur. It implies that the lesser-endowed areas will be more linked to central decision making with respect to public investment policy because of a greater reliance on national funding. The greater financial autonomy of the better-endowed may also lead to competition between ports for service to the same or overlapping hinterlands. While this competition can be healthy, to the extent that it offers shippers choices and probably provides incentives to innovation and efficiency, it may also lead to overinvestment in infrastructure and poor allocation of scarce resources from the national perspective, unless infrastructure investment takes place in a broader regional and/or national planning framework. - 33 - 3.54 To date, the undercapacity of port infrastructure, coupled with the rapid rate of China's foreign trade growth, has made almost any investment fail-safe. For 1995 and beyond, major port investment should fit a national strategy. As discussed earlier in this chapter under 'Potential Load Center Locations and Capacity," the major trade-offs to be considered in the SCR are: (a) Whether or not to try to coordinate further port capacity development in Hong Kong with mainland port growth in the Guangdong/Pearl River area. (b) Whether or not to differentiate between the role of the Fuzhou and Xiamen ports. Is there a need for a third deep-water port in this province? (c) Whether or not Ningbo port can fulfill a complementary role as a deep-water port for Shanghai. 3.55 Examples of foreign investment and management of port facilities already exist. Most dramatic is the decision by one of the two largest Hong Kong terminal operators, HIT, to enter into joint venture with the Shanghai Port Authority to operate all the container terminals in Shanghai and to make an investment in their modernization. The port of Tianjin was the first in China to have a Sino-foreign joint venture terminal. Opened in 1992, SINOR Terminal is equipped to handle unitized cargos, forest products and other general cargo. The foreign partner is Gearbulk Terminals of Norway and the management team comprises both expatriate and local staff. The Tianjin Commercial Bonded Warehouse (CBW) is also an equity joint venture between the Port Authority and Royal Nedlloyd Group, with a first-phase investment of $19 million. CBW has 20,000 m2 of covered storage and offers a wide range of foreign trade, storage, transport and distribution services. Management and Operation 3.56 Port management and operation is considered here mainly in the context of container movements. 3.57 Any assessment of the effectiveness of the management and operation of ports is closely linked to the institutional question of the administrative structure under which the port operates. Since the opening up process in China began, the national port administration, at the Ministry of Communications (MOC), has gradually given way to a more decentralized structure, where MOC retains broad control over major investments and general tariff policy, but port operations are controlled by regional or municipal authorities . 3.58 Is this an appropriate institutional structure or should ports be even more independent, perhaps privately owned and operated, to be efficient? A look at three of the world's largest and most efficient container ports, Hong Kong, Singapore and Kaohsiung, provides a useful perspective on that question. 3.59 The port of Hong Kong is basically owned and operated by private -rminal operators and by shipping lines who have acquired the right to develop and operate terminal sites from the government through public bidding or negotiated agreements. Singapore is a public - 34 - port, operated by a public agency, but has recently begun to consider leasing terminals to private operators. Kaohsiung is publicly owned but has leased many of its container terminals to shipping companies to operate, with the option of installing their own equipment. 3.60 Efficient large-scale container operations are clearly possible under either public or private management. It should be recognized, however, that the Port of Singapore Authority (PSA), although a public agency, operates very much like a commercial enterprise. PSA sets its own performance and productivity targets, has the power to hire and fire employees, sets its own salary schedules, determines its own objectives and the strategies to achieve them, and has the authority to change the organizational structure if needed. 3.61 In the SCR, as in China as a whole, ports are moving toward operating more as commercial enterprises as a result of the progressive decentralization of the decision-making process. The notion of competing for cargo has entered the strategy deliberations of the managements of ports that potentially serve overlapping hinterlands. In some instances, in Special Economic Zones such as Shenzhen, private enterprise, in the form of Joint Venture companies, is providing port services in competition with the public ports. This commercialization and liberalization of the port sector may be the best way to insure efficient, customer-oriented services, at least cost to the public sector. 3.62 The decentralization and commercialization of the ports in China has only recently begun. The strategic question is how far it should proceed. At this stage in China's development, and given the scarcity of investment resources, unconstrained competition between ports is likely to lead to wasted resources. Increasingly, municipalities view the construction of modern port facilities as a prerequisite to full participation in the export boom and there is a temptation to discount regional or national considerations. The Government has to continue to allocate resources and set priorities between modes at national and regional levels, given the resource constraints. If carried out within the framework of regional plans, private investment in ports would, however, help to alleviate these constraints and introduce at the same time more effective, profit-oriented management practices. Decentralized operation of the ports on a commercial basis with local and/or foreign private participation would go a long way to improve port management and operation. Planning Major Transport Corridors 3.63 China covers a huge land area and has more urban centers with population in excess of a million, than any other country. These major centers need to be linked by corridors, with heavy capacity transport facilities. Those cities which are not seaports need good access to one or more ports. Only planning at a national level can accomplish this objective. Implementation, however, can and should be delegated. There should be a consensus on the criteria for network development both with respect to location and capacity of each mode. This need not be simply a top-down exercise. To the extent that local governments and other major transport users can be offered participation, the consensus built product is likely to be more responsive to needs. 3.64 Presently, most of for-hire long-haul transport vehicles are owned and operated +by public agencies. This is going to change as foreign investors are now permitted to join Chinese in joint-venture road transport companies. Consequently, there will be more participants - 35 - with whom to coordinate planning but with greater motivation to streamline decisions and to get results that aim at improved service at lower cost. External Relations Impact 3.65 Certain policy decisions, which require negotiation with foreign governments or international organizations will, as in all nations, have to be the prerogative of the central government. This has already occurred with respect to the future status of Hong Kong. It has still to be resolved concerning direct trade with Taiwan. The extension to US shipping companies of the right to offer services within China equivalent to that offered Chinese firms in the United States was agreed earlier this year. China's MFN status and accession to GATT are policy issues whose resolution will have impact on foreign trade volume and consequently on port throughput. The potential for the Trans-Siberian rail system can only be achieved with vigorous support and negotiating initiative between the Chinese Government and those governments along its corridor. 3.66 Foreign trade and port development are critically interdependent. Therefore, MOFTEC and the Ministry and Communications should be formally joined in critical policy and investment decisions. Both organizations have oversight responsibility for major shipping/freight forwarding companies, COSCO and SINOTRANS. E. TEHNOLOGICAL TRENDS IN CONTANER TRANSPORT Introduction 3.67 Container transport, being intermodal and a relatively new system, can expect to experience a significant number of technological changes over the next 20 years. Many of the new methods, such as Electronic Data Interchange and specialized high-volume railway services, already practiced elsewhere have yet to be introduced in China. Port modernization, in terms of design and equipment is, however, more advanced than other system components. The facilities are being adapted to the specialized vessels operating worldwide and appropriate port handling equipment, not yet manufactured in China, has been imported. Vessels are being built for the Chinese deep ocean container fleet, either at home or abroad, to specifications which can make them competitive with foreign liners. There are, however, two types of vessels which may be very well suited to SCR conditions and which are underexploited, namely Roll-on/ Roll-off and mid-sized shallow draft container ships. China has seriously lagged behind in terms of the inland transport and logistic systems and the electronic data management control systems needed for efficient intermodal operations. Without major technological upgrading in these areas, the very large Chinese commitment of capital investment in container shipping and handling facilities will not produce the cost reductions and service reliability achieved elsewhere from such investments. Technological trends in container transport are discussed in further detail in Annex 4. Vessels 3.68 Draft limitations in access channels are a constraint in most SCR ports. Wide- beam container vessels are now being built to specifically permit the operation of larger capacity (1,300 TEU) ships, where controlling depths are under 9 meters, as is the case in access to the Yangtze and Pearl River ports. To cope with these depth limitations, China has developed - 36 - equivalent innovative designs for coastal coal vessels. The potential for this design innovation must be carefully evaluated. Use of such ships could substantially affect the potential for direct shipping on regional routes, reducing the need for transshipment and increasing the potential for containerized cargo throughput at river ports. 3.69 Roll-on/Roll-off vessels, which are widely used on short sea routes in Northern Europe, the Mediterranean, and the Caribbean, are infrequently used in China. The potential for use in the SCR is probably greatest between mainland ports and the many coastal islands. They could be ideal as well for handling the nontransshipment component of the future Taiwan Straits trade. This technology requires relatively minor investments in portside facilities by comparison with lift-on/lift-off traditional systems. Load/unload time is also relatively fast, a very important criterion for economizing on short-sea services. Ro-Ro vessels take several forms that include the traditional ferries, ships dedicated to moving over-the-road trailers and those designed to move unitized cargo and containers on specialized chassis. There is even a new system concept called "Sealift" which involves preloading flats of 96 TEU capacity and "floating" these platforms onto the decks of self-propelled seagoing barges. What is the scope for incorporating these types of fast handling vessels in the SCR maritime environment? Management Systems 3.70 Under this heading one may include information systems (EDI), logistics management, and intermodal interface. Where containerized cargo systems are highly developed, improvements in management systems provide the competitive edge. In China, it is important not to focus only on the physical constraints to containerized cargo movement between ports and hinterland. These are clearly significant and need urgent attention, as already discussed. Equally as important is the issue of how to move forward with the building of management systems that will "lubricate" the infrastructure. This includes the manner in which organizations relate to each other, performance criteria and incentives, and human resources development. Training must go beyond developing competence in systems technology, to include an understanding of the efficiency and accountability which may be derived therefrom. 3.71 The term "seamless" has come to be applied to the goal of intermodal transport. This means providing the shipper with a service, which, although involving many parties and several transport modes, appears to the customer as a fully integrated and highly reliable operation. To achieve this goal in China will be a great challenge for the coming decades. - 37 - 4 GOALS AND RECOMMENDATIONS A. PLANNING 4.1 Planning in China has historically been very centralized and compartmentalized. The goal should now be to have a planning framework which encourages and rewards dialogue between facility designers, operators and users, and which will break down the institutional barriers between different modes and political jurisdictions. It should furthermore recognize that the future demand for services cannot be estimated with precision and is no longer determined by a set of centrally politically prescribed production targets to be met largely by state-owned industries. In the SCR in particular, the pace of change is so fast that most forecasts are outdated almost as quickly as published. There is so great a dispersion of economic production units, that no government institution can claim to hold the rudder any longer. Moreover, the rate of growth is substantially determined by foreign investors producing for foreign markets, which SCR industries have only recently penetrated to a major degree, and over which they have little control. MOC/MOFTEC 4.2 The Ministry of Communications (MOC) has overall responsibility for planning in ports and waterways. COSCO, the national shipping line is also under its jurisdiction. Most foreign trade goods can only be shipped to or from China by vessel, international road and rail traffic being negligible. The Ministry of Foreign Trade and Economic Cooperation (MOFTEC) is responsible for overall management of foreign trade. It also operates the largest freight forwarding company, SINOTRANS, which itself operates trucking and vessels in foreign trade. Therefore, the two ministries should institutionalize a system of joint planning to ensure that the bottlenecks to foreign trade logistics are removed as rapidly and efficiently as resources permit. Foreign investors would be greatly encouraged to see the interests of these two Ministries dovetail, particularly where the management of containerized freight is involved. MORIMOC 4.3 The Ministry of Railways may not have participated substantially in the movement of foreign trade goods in the past, but it will become a major player soon. As the deep hinterland of Southern China begins to participate in the export industries' foreign trade boom, only the railways and inland waterways can provide economical transport access to coastal ports to make industries located at more than 400 km from the coast competitive with those in coastal provinces. There is an opportunity now to form new planning structures between the two ministries in anticipation of this traffic. Presently, the interface largely occurs at the port between the local rail traffic manager and port managements. Neither have much advance notice of what traffic is to be moved or what rolling stock will be available. Most intermodal cargo - 38 - has been domestic. There has been little experience with unitized cargoes, with most manufactured goods being moved breakbulk in boxcars. MOR has the intention of establishing and training a new organizational unit specifically to serve container traffic. This unit should be formally linked to planning counterparts in the ports and waterways subsector. In the planning process, significant potential customers of intermodal services should be consulted. This should include industrial enterprises and the freight forwarding services.I/ Port Users/Port Operators Interface 4.4 Vessel operators are the principal customers of a port. They have a substantial self-interest in cooperating with port planners and management to see that improvements are made, that operations become more reliable, and that future needs are anticipated. They are more likely to patronize a port in which they have a participatory role. 4.5 Therefore, it is highly recommended that port users be formally drawn into the port planning and management system. As ports open to foreign-flag vessels become more numerous, the participation of foreign liner owners becomes more necessary. Furthermore, they can bring to the process their worldwide experience and perspective on future developments in trading pattens and technology. As Hong Kong and Taiwan are closely related parts of the regional ports and shipping system, their input should be sought informally, if formal channels are not open yet. The new policy of permitting private companies to own or operate container facilities in selected Chinese ports will facilitate the recommended planning process. Hong Kong/Shenzhen Interface 4.6 The Shenzhen SEZ is both a significant generator of container throughput handled in Hong Kong and the corridor through which all surface transport between China and Hong Kong moves, by virtue of its common border with the Territories. Major investment decisions with respect to container port capacity growth will be required before 1997, when Hong Kong officially becomes part of China. Decisions on related investments in road and rail access are also involved. 4.7 Therefore, to arrive at realistic plans and least-cost solutions, the Central Government or the Shenzhen local Government should be working with Hong Kong authorities and commercial interests to jointly plan their future. This should have as its principal goals the early creation of a metropolitan port authority which would begin to operate in 1997 and the formulation of an investment program that would meet the throughput requirements for at least the next 10 years. The management structure should reflect a partnership of private and public interests and investors. The ways in which the facilities in Hong Kong and Shenzhen can complement each other in order to avoid waste of resources should be the spirit motivating joint planning. For example, it may be that Hong Kong is most effective as a transshipment port and feeder for inland waterway vessels, whereas Shenzhen has a natural advantage for handling Chinese traffic that requires inland transport over significant distances. 11/ Tere is a plan by one of the biggest Hong Kong conglomerates to develop a rmega-container center at Wuhan designed to act as a consolidation point for containerizable cargo for on-shipment through Hong Kong or Shenzhen ports relying on rail. - 39 - SCR's Relationship with Taiwan 4.8 Normalization of trading relationships with Taiwan will have the greatest impact on the three provinces closest to Taiwan comprising the SCR and most especially Fujian. The volume of trade, which is already very significant for Taiwan, is driven by the large investments being made in manufacturing by Taiwanese investors.2/ Given continued encouragement by China's authorities, the substantially lower manufacturing costs of items such as clothing, small appliances, and toys in China and the relatively small natural resources base of Taiwan, all the economic conditions for growth of their trading relationship exist, hampered only by the lack of direct ocean transport. 4.9 When direct trade will be permitted, one can therefore expect a further surge in trade. Both parties must continue to prepare for this eventuality. There will be a need for a large fleet of small vessels to engage in this coastal type trade and a need for port facilities, especially in Fujian, to cater to them. In order to take advantage of ro-ro systems, arrangements will have to be made to allow vehicles registered in either China or Taiwan to operate on each other's roads. China's deep-sea container vessels will want docking and terminal rights in Taiwan and the Taiwanese will want reciprocal privileges. With these in place, one is likely to see Taiwan's role as a transshipment hub for SCR trade grow, attracting cargo which would otherwise have been handled at Hong Kong or in Japan. Regional Planning 4.10 Presently in the SCR each port authority that has a Master Plan has based it on a very limited view of its role within a regional context. The constraints that national central planning and its design institutes used to impose continue to be weakened by the increased devolution of decision-making to local authorities and the ability of the ports to self-finance a lot of investment through funding generated locally. Now that private foreign investors are being allowed to participate, financial independence will become even greater. While there are benefits which may be derived from port competition, such as more aggressive pricing and higher standards of service, port facility planning should take place in the framework of a regional plan to avoid waste of resources. 4.11 For the Pearl River Delta, Guangdong Province should have a strategy for servicing the container transport needs of both the west and east delta subregions. Fujian province should have a strategy for joint planning of Xiamen and Fuzhou. To serve the Yangtze delta region, a strategy will be needed which identifies and provides a foundation for consensus as to the comparative advantages of Shanghai and Ningbo in serving this market. To formulate an effective strategy in this case requires a willingness on the part of the several political jurisdictions involved to recognize common interests. B. FoRECAsTING 4.12 In China forecasting needs to be much less of a top-down, macroeconomic exercise. This is no longer appropriate where central government no longer has full control over 2/ Trade between the mainland and Hong Kong was about $7 billion in 1992, an increase of 20 percent over 1991. Taiwanese investment in the SCR is a about $4 billion/year, raniing only behind Hong Kong and the United States. - 40 - provincial and municipal economic rates of growth and the structure of that growth. The light manufacturing sector, which propels the growth in demand for containerized internationally traded cargos, is an illustration of market-driven rather than centrally planned growth. 4.13 New attitudes and methods of forecasting are required. Forecasting should be the responsibility of provincial governments that are close enough to the locus of economic activity to have relatively reliable statistics, while preserving a broader and perhaps more realistic vision of the future than do municipalities or port authorities. Provincial planners also can incorporate growth parameters, such as tax receipts, power generation, and plans for other transport modes. 4.14 Forecasting should not be limited to the five-year planning framework. Changes in the economy of the SCR are coming too quickly, with too many parties involved, to make single point forecasts valid. Multiscenario estimates, updated yearly, will be more useful. This requires systematic updating of a data base and continuous correlation of models to ensure that they are a reasonably accurate reflection of the economic dynamics. Moreover, since container traffic demand depends on many externalities, MOFTEC should have a responsibility for supplying regional planners with statistics and forecasts related to foreign trade and world economic trends. C. PORT OPERATIONS AND HUMAN RESOURCE DEVELOPMENT Port Operations 4.15 Efficient, large-scale port operations are possible under either public or private ownership and/or management, as shown by the performance of the ports of Singapore, Kaohsiung and Hong Kong, which operate under different combinations of public and private ownership and management. The SCR ports should (a) learn from the management structure and experiences in ports of other countries, irrespective of their social system or the form of ownership, as long as the management is effective; (b) gradually introduce container traffic management, the most sophisticated and advanced form of management ever practiced in the shipping industry, to the SCR ports; and (c) acquaint port management with advanced management tools and the application of computer-based technology to modernize port operations. 4.16 The introduction of management systems is unlikely to be effective unless management and staff are motivated to improve the operational performance of the port. This type of motivation is typically harder to achieve in governmental organizations than in privately owned companies where the company's fortunes depend on its efficiency. Ports are, as indicated earlier, operated in a variety of ways, generally combining administration by a government entity with operations contracted out to various port operating companies. This can take the form of contracts with stevedoring, warehousing, tugboat and dredging companies or go as far as the leasing of entire terminals to operating companies, where the principal function of the port administration is that of a landlord. Experience indicates that ports are more likely to be operated efficiently when they involve the private sector in their operations. This is due, on the one hand, to the greater inherent incentives private companies have to set and meet their own performance targets and, on the other hand, because of the pressure they tend to put on the port administration to provide the conditions to enable them to meet these targets. - 41 - 4.17 China's ports are gradually moving toward a recognition that operational autonomy and the contracting out of services to other entities (cooperative enterprises or private companies) can enhance their efficiency. The Shanghai Port Authority, for example, recently signed an agreement with Hutchinson Whampoa Ltd., to form a joint-venture company, Shanghai Container Terminals, to take over the operation of the port's container terminals. In the SCR, there are many opportunities for the ports, especially the principal container ports, to take similar initiatives. Such initiatives will be a key element in bringing these ports up to intenational standards of operational efficiency. Management Skills 4.18 Achievement of management goals depends critically on the human element. Modernizing port management and raising port productivity in the SCR requires a major effort in human resource development. Acquiring the technical skills to operate technologically advanced systems is generally possible through the technical assistance offered by the suppliers of equipment and associated operating and management systems. The training may be supplied abroad or at the port site to trainees who already possess the necessary level of technical and language skills. Beyond these technical skills, however, managers as well as technicians need to develop new attitudes and learn new methods for such things as: * objectively measuring performance; * managing human and physical assets; and * practicing strategic planning on an ongoing basis. Such training should receive as much attention in the planning process as the planning of the physical investment. Training 4.19 There are many well-organized ways to deliver the various elements of this training. On-the-job training with the participation of experienced joint-venture partners, on site or abroad, has proved to be a particularly effective way in many instances. The most important condition for the success of all training efforts is, however, that training be an integral part of the organization's culture. Training should be "institutionalized' in the sense that: (a) the organization maintains up-to-date training programs for staff at all levels, and (b) successful participation in the training program is a principal consideration for professional advancement/promotion. D. FUNDING Sources 4.20 The central government was traditionally the source of port construction funds. Since the opening-up process was started, steps have been taken to broaden the sources of funds, mobilizing funds through multiple channels at home and abroad. Thanls to more liberalized policies, China has obtained port development loans from the World Bank, the Japanese - 42 - Overseas Development Fund, the Asian Development Bank and a number of foreign governments. It has promulgated preferential measures to foreign investors in ports and terminals and set up joint ventures for terminal operations in Nanjing, Tianjin, Shanghai and other ports. Port development fees have been introduced and funding systems established by MOC to support port infrastructure construction projects. There are, however, still a number of financing channels that have not been sufficiently explored. In addition to securing and expanding existing financing channels, it is now necessary to explore further possibilities such as: (a) encouraging foreign investment for port development in any of these forms: joint ventures, cooperative enterprises or entirely foreign enterprises; (b) drawing on the experience of the ports of Singapore, Hong Kong, Kaohsiung and others, allowing large domestic and foreign shipping lines or terminal operating companies to lease terminals or establish joint ventures for terminal operation; (c) setting up joint public/private stock companies to engage in stevedoring and transportation operations. SCR Port Investment Needs to the Year 2000 4.21 It is not the intent of this study to design a port investment program for the SCR. One can, however, make order-of-magnitude estimates of port development requirements based on the container cargo forecasts, average throughput capacity of berths, and average costs per berth based on recent project construction experience. Under scenario #1 (Table 2.8), construction already programmed for completion on the mainland and Hong Kong by 1995/96 3/ would seem to be adequate to meet the year 2000 forecast requirements. However, scenario #2 forecasts for Guangdong Province are 3.5 million TEU greater. Assuming a productivity of 250,000 TEU per 350 meters of berth, serviced by 3-4 cranes, gives a need for 14 additional berths and about 50 cranes. The estimated cost per berth, including cranes, is about $50 million. Therefore, the port development funding required is in the order of $700 million. Perhaps an additional budget of 20 percent should be allowed for channel works and navigational aids. The use of ro-ro vessels to move cargo between the mainland and offshore islands would reduce the port investment costs somewhat. Construction of feeder barge berths would be another way to reduce investment cost in some cases. Both of these means for economizing on capital expenditure programs need to be thoroughly investigated. 4.22 There will also be a need to supply extra capacity in Fujian but this is not likely to exceed two more berths. In Ningbo, there are six newly constructed berths, two of which are now equipped for container handling. The other four are designed as multipurpose berths and can be rapidly converted to container specialization by installing container cranes and acquiring other handling equipment. The six berths are expected to be sufficient for needs through the year 2000, even under scenario #2. 3/ Four new berths are now coming on-stream at Chiwan, Shekou and Guangzhou (which add about 900,000 TEU capacity). The new deep-water port at Gaolan 45 km west of Zhubhi will have a container berth. Two berths will be completed at Yantian by 1995. In Hong Kong, Terminals 8 and 9 with four berths each are scheduled for completion in 1994 and 1996, respectively. - 43 - E. INFORMATION SYSTEMS 4.23 Organizations engaged in the process of containerized transport will have to adopt electronic data interchange (EDI) systems in order to link the several participants in the process and to aim at achieving the goal of "seamless' intermodal door-to-door service. In view of the interdependence between the SCR and Hong Kong in matters relating to foreign trade, and more specifically container movements, it would be very convenient and efficient if both adopted the same technology. 4.24 The Hong Kong Government, after four years of study, has elected to become a shareholder in the Tradelink Community Electronic Trading Service (CETS). Other shareholders include the two major container service companies, Hong Kong International and Modern Terminals, Maersk Line, Hong Kong Telecommunications, banks and commercial firms. Tradelink will market its service to exporters, importers, freight forwarders, transport companies, CFS operators, banks and insurance companies, and many Government Departments. Under the agreement with the Hong Kong Government, Tradelink is given exclusive rights to handle Government electronic trade transactions for a period of seven years from the introduction of the service, expected to start in 1994. Hong Kong's Secretary for Trade and Industry has estimated the present documentation cost of trade at a staggering HK$9.8 billion. It views the establishment of Tradelink as essential to maintaining Hong Kong's future competitiveness. CETS will be one of the first major EDI services in the world to be designed around EDIFACT, the international standard adopted by UNCTAD. It will therefore be compatible with trading partners worldwide. 4.25 In China, there should be a collaborative initiative of several government agencies such as SINOTRANS, MOC, MOR, and provincial transport departments, perhaps led by MOFrEC, to review the product and services offered by Tradelink with a view to their suitability for adoption in China. If this were to result in a positive determination, it would be logical for Chinese organizations to seek to become shareholders. Implementation of the system would require further measures involving legislation, government regulations, coordination, and perhaps financial incentives to accelerate entry into the system. F. INTERMODAL INFRASTRUCTURE 4.26 In order to expand container services to a larger hinterland, ports in the SCR need better hinterland transport links. 4.27 The long coastline of the SCR allows waterborne transport access to a large portion of the most highly industrialized locations. Therefore, continued use, upgrading, and expansion of vessels as a part of the coastal container delivery system is recommended. The objective should be to make this mode more cost-effective. These vessels are normally serviced by cranes, either onshore or onboard, which have much slower rates of handling than container gantries and often lack the lifting capacity to handle loaded 40-foot boxes. In order to maximize the role that small feeder vessels can play, there is probably a need to add new equipment to smaller ports specifically adapted to servicing these vessels more efficiently. In some cases, ro-ro type vessels may provide a more efficient solution than lift-on/lift-off systems. 4.28 Better port facilities for integrating feeder vessels with large deep-sea vessels are needed. Berths built and equipped for one type of vessel are inappropriate for the other. - 44 - Therefore, a terminal has to have separate berths for each or different terminals need to be built in the hub port to service each, joined by an efficient system for transfer between terminals. The latter solution has been put forward by Hong Kong, which is seeking private investor interest. The proposed site, however, would require that containers be transported by road between the barge terminal and existing terminals, thereby contributing to the road access congestion problem. The scheme, if located in Shenzhen, on the east side of the Delta, and linked to Chiwan or Shekou container terminals, might be more feasible. 4.29 The rail container pilot project, which is a component of the Bank's sixth railway loan, is intended to demonstrate that this mode can be a major component in a strategy to make international container transport more accessible to noncoastal regions. The southern terminus is Guangzhou. Its linkage to container ports is not specified. It is recommended that the pilot project be expanded to include service directly to ports in Shenzhen. 4.30 Road transport of containers is most constrained by the absence of high-quality roads over which semitrailers can operate efficiently. Here it seems that plans for major improvements in the SCR are well under way or in advanced stages of planning. The SCR and China as a whole have an unprecedented opportunity to design its major expressway network with a geometry, particularly in terms of access and exit ramps and overhead clearances, that would allow the latest container trailer configurations to operate. This could lead to very substantial transport economies and one should expect a surge in demand for container trucking services, as a consequence. The practice of stuffing and unstuffing containers in or near ports will decrease as the full benefits of door-to-door services become attainable by using road transport. This structural shift, together with the high growth rates forecast in port throughput, will generate a high demand for services requiring substantial investments in trucks, vehicle maintenance and terminals. Foreign investment partners, who can also contribute management and operating skills from abroad, should be sought. - 45 - 5 ROLE OF THE BANK Bank Involvement in Ports and Shipping Development in the SCR 5.1 The Bank Group has supported the development of the transport sector in the SCR through projects, sector studies, technical assistance and training. Its first port loan was made in 1982, for the ports of Huangpu (Guangzhou), Shanghai and Tianjin. The loan financed a coal terminal at Huangpu and the purchase of container equipment for all three ports. Further loans were made to SCR ports in 1987 (Huangpu) and 1988 (Ningbo and Xiamen) for container, multipurpose and bulk cargo berths and handling equipment. The Bank has also funded and sponsored training, technical assistance and various studies in port planning, operations management and containerization. 5.2 Studies carried out in collaboration between the Chinese authorities and the Bank and dealing with ports and shipping issues in the SCR are: (a) the Guangdong Province Comprehensive Transport Study, 1991; (b) a recent multiport optimization study to evaluate medium- to long-term options for developing the deep-water seaport of Ningbo and the Ningbo master plan, 1991; (c) an update of the Xiamen master plan, 1991; (d) a multimodal transport study to examine strategic options in developing the transport system of the Yangtze Economic Zone (Shanghai Municipality together with the provinces of Jiangsu, Zhejiang and Anhui), 1992. Recommendations for Future Bank Action 5.3 As indicated above, the Bank, through its lending operations and the sector studies it has carried out or sponsored, has contributed substantially to ports and shipping development in the SCR. Its port lending focus has been on increasing the cargo handling capacity and efficiency of the ports of Huangpu (Guangzhou), Xiamen and Ningbo. Considerable emphasis has been placed on the development of the container handling capabilities of these ports. The problems associated with the creation of an efficient door-to-door intermodal system have been recognized, but could not be tackled effectively in the context of the individual port loans. 5.4 This study, by looking at the region as a whole, has highlighted the magnitude and the multimodal nature of the problems the SCR faces in catching up with the developments - 46 - of the container age that has revolutionized general cargo transport in the commercial world with which it trades. This highly sophisticated world is right at the region's doorstep in Hong Kong and Taiwan, with commercial relations becoming closer every day. The scheduled return of Hong Kong to China by 1997 and the anticipation of direct trade between Taiwan and the mainland lend urgency to the need for taking effective action to allow the region to continue on its export-oriented growth path. 5.5 The Bank, with its broad involvement in the transport sector, including extensive lending for ports, roads and railways and support for transport sector studies, is in a unique position to assist in defining an intermodal action plan to meet the transport needs of the SCR and in particular the Pearl River Delta, where the needs are most pressing. The Bank could also be helpful in supporting a joint approach by China and Hong Kong to transport planning, which is essential to the success of an intermodal system for the area. Hong Kong and China are planning large investments in infrastructure to support such an intermodal system. Lack of coordination would entail the risk of very costly misinvestments and operational inefficiencies. Joint planning will make it possible to take maximum advantage of comparative strengths, e.g., the advanced technology, modern management experience and sophisticated commercial network of Hong Kong and the space and low cost of land and labor of the mainland. Private enterprise is doing exactly that and infrastructure and institutional developments should follow this lead. 5.6 A possible intermodal project for the Pearl River Delta might include: (a) the financing of transport infrastructure and equipment investments; (b) support for institutional and regulatory changes needed to allow the intermodal system to function; (c) support for actions to facilitate the participation of private investors and operators in intermodal transport; (d) support of Chinese institutions that may engage in the major human resource development effort needed to address deficiencies identified earlier, particularly in distribution logistics and related EDI control systems. 5.7 Other areas recommended for continued Bank involvement in the SCR would be assistance in defining and developing: (a) the relative roles of the ports of Xiamen, Fuzhou and Meizhou Bay, particularly in view of the anticipated direct trade with Taiwan; and (b) the role of Ningbo as a load center port serving the Yangtze Economic Zone. - 47 - ANNEX I BACKGROUND INFORMATION ON SCR ECONOMY, PORTS AND SHIPPING Geography and Population 1. The Southeast Coastal Region (SCR), as shown in Map 1, comprises the coastal areas of three provinces, Zhejiang, Fujian and Guangdong bordering on the East and South China seas and some 4,600 islands under the jurisdiction of these provinces. Hong Kong, Macao and Taiwan are geographically a part of the region and play a very important role in its present and future economic life. Because of their special and changing status, they are treated separately for descriptive and statistical purposes. 2. The length of the SCR mainland coastline accounts for over 50 percent and the island coastline for over 60 percent of the mainland and island coastlines of the country (Table 1). The three SCR provinces have a combined area of some 400,000 km2, 4 percent of China's land area, with a population of 135 million, 12 percent of the nation's total and three times its average density (Table 2). Table 1: MAINLAND AND ISLAND COASTLINES Mainland coastline Island coastline Region Length Proportion Length Proportion (km) (X) (km ) (x.) Country total 18,000 100.0 14,000 100.0 Subtotal of SCR 9,800 54.4 8,700 62.1 Zhejiang 2,200 12.2 4,000 28.6 Fujian 3,300 18.3 2,100 15.0 Guangdong 4,300 23.9 2,600 18.6 3. Hilly land and high mountains separate the three provinces from neighboring inland provinces and make inland transport difficult. Guangdong and Zhejiang province feature broad plains along the coast and rivers. Fujian province has only a narrow coastal strip hemmed in by hills and mountains. The manpower resources and production facilities of the region tend to be concentrated in the coastal plains because of these geographical features. Ports and Economic Activity 4. The region's principal ports are located in coastal "open cities"-Ningbo, Wenzhou, Fuzhou, Guangzhou and Zhanjiang-or special economic zones-Xiamen, Shantou, - 48 - ANNEX 1 Table 2: POPULATION DISTRIBUTION OF THE SCR PROVINCES IN 1990 Region Population Proportion Population density (10,000) (S) (persons/km2) Country total 114,333 100.0 119 Subtotal of SCR 13,551 11.9 338 Zhejiang 4,168 3.7 409 Fujian 3,037 2.7 242 Guangdong 6,346 5.6 357 Shenzhen and Zhuhai and have been important factors in the success of the SCR in pursuing the Government's 'opening up' policies and establishing an export-oriented economy. The region's unique and principal advantage, however, is its proximity to the major international port, commercial and trade facilities of Hong Kong and Taiwan. 5. The economic importance of the region is illustrated by its import and export performance which totaled $22 billion in 1990, $15 billion of which exports, representing 19 and 24 percent, respectively, of the nation's total volume. Regional industrial and agricultural production is 16 percent of the nation's total (Table 3) and, at Y 1,658 per capita, exceeds the national average by 30 percent (Table 4). Since the region lacks raw materials and energy sources to support heavy industry, light industry accounts for 66 percent of the industrial output, well above the national average of 49 percent (Table 3). The region's industrial production depends heavily on coal, petroleum and raw materials from other provinces or from abroad, making efficient transport of these bulk commodities a high regional priority. Table 3: SCR INDUSTRIAL AND AGRICULTURAL PRODUCTION IN 1990 (Y billion) Gross output value of industry and agriculture Industrial share Light induct Total Proportion Total Proportion Total Proportlon of (S) (2) industry (S) Country total 3,158.7 100.0 2,392.4 100.0 1,181.3 49.4 Subtotal of SCR 503.2 15.9 386.5 16.2 254.7 65.9 Zhejiang 176.9 5.6 143.2 6.2 93.4 65.2 Fujian 76.0 2.4 53.1 2.2 32.9 62.0 Cuangdong 250.3 7.9 190.2 8.0 128.4 67.5 Basic Transport Network and Traffic 6. The SCR has a basic transport network comprising all transport modes. The core of the network is formed by the 15 state highways that link the major seaports and the large and medium inland cities. The highway density, at 31 km per 100 kim2, is three times the nation's average (Table 5) and grew 11.7 percent in the period 1985-90. Other important - 49 - ANNEX I Table 4: SCR PER CAPITA GROSS OuTrUT VALUE AND NATIONAL INCOME Per capita Per capita gross output value national income Compared with the Compared with the Amount nation's average Amount nation's average (Yuan) (x) (Yuan) (Z) Country total 1,547 100.0 1,262 100.0 Subtotal of SCR 2,048 132.4 1,658 131.4 Zhejiang 2,008 129.8 1,743 138.4 Fujian 1,534 99.2 1,280 101.4 Guangdong 2,319 149.9 1,784 141.4 Table 5: HGHWAY DENSrrY IN SCR PROvINCES 1985 1990 Mileage Density Mileage Density ('km) (km/100 km) (km) (km/100 km) Country total 942,395 9.8 1,028,348 10.7 Subtotal of SCR 110,713 27.8 124,243 31.0 Zhejiang 23,438 23.0 28,561 28.1 Fujian 35,987 29.6 41,011 33.8 Guangdong 51,288 28.8 54,671 30.8 transport links consist of the waterways of the Pearl River delta, the coastal sea routes and the railway lines connecting the ports of Ningbo, Fuzhou, Xiamen, Shenzhen, Guangzhou and Zhanjiang with the hinterland (Figure 1). By the end of 1990, the region had 124,000 km of roads, 25,000 km of navigable river channels and 2,568 km of railway lines, respectively 12, 23 and 5 percent of the nation's totals. Five airports, at Hangzhou, Xiamen, Shantou, Shenzhen and Guangzhou are built and operated for international traffic, while airports at Ningbo, Wenzhou, Huiyang, Zhanjiang, Fuzhan, Meizhou, etc., are for domestic use. There is one oil pipeline from Zhanjiang to Mauming. 7. Freight transport in the SCR has developed rapidly since reform and opening up to the outside world started and has played an important role in the region's economic growth. Highways, waterways and railways in the SCR moved 14 billion tons of traffic in 1990, accounting for 131.5 billion ton-kilometers, 15 and 6 percent of the respective national totals. The modal drstribution of this traffic is shown in Table 6. The throughput of the region's seaports reached 115 million tons in 1990, 24 percent of the total throughput of the nation's ports. This high percentage relative to the region's share of China's population (12 percent) and production (16 percent), is indicative of the importance of ports and shipping to SCR's economy. - 50 - ANNEX 1 Table 6: MODAL DISrRIBUTION OF SCR TRAFFC (percent) Total Hifthway Waterway Railway Traffic Turn- Traffic Turn- Traffic Turn- Traffic Turn- volume/& over/b volume over volume over volume over Country total 100 100 75.8 13.2 8.4 45.3 15.8 41.5 Subtotal of SCR 100 100 78.7 43.0 15.6 24.7 5.7 32.3 Zbejiang 100 100 69.6 25.6 25.2 37.6 5.2 36.8 Fujian 100 100 86.8 41.1 6.2 22.9 7.0 36.0 Guangdong 100 100 79.6 54.7 14.8 17.4 5.6 27.9 /a Measured in tons. /b Measured in ton-kilometers. 8. The main flows of SCR waterborne traffic consists of coal-mainly from the ports of Qinhuangdao, Lianyungang and Shijiu; petroleum-mainly from Dalian and Qingdao; ores-mainly imported from abroad and to a lesser extent from Hainan province; construction materials-largely intraprovincial traffic; wheat-mainly imported from abroad and coarse cereals from north and northeast China. Ports and Shipping Administration 9. The ports and shipping administration closely reflects the general ownership patterns and governmental administrative structure of the country. There are at present three types of ownership in China: ownership by the nation, i.e., state-run enterprises under central, provincial, municipal or county governments, collective ownership and private ownership. The administrative function of the Chinese government operates at four levels: (a) central government, (b) provincial government, (c) government of prefectures and municipalities directly under the central government, and (d) county government. Transport administration departments exist at each of these levels. 10. The state-level transport administration departments are the Ministries of Communications (MOC) and Railways (MOR), the Civil Aviation Bureau and the Ministry of Energy Resources (for pipeline transport). Communications departments or bureaus administer highway- and water transport-related matters at each of the three other levels of government. Highway and water transport in the three SCR provinces are administered along the lines of these nationwide patterns (Figure 1). Railways within the SCR are managed by the Shanghai and Guangzhou Railway Bureaus of MOR and air transport by the China Civil Aviation Authority. 11. In the port sector, MOC and the provincial governments exercise dual leadership over the major ports such as Ningbo, Wenzhou, Fuzhou, Xiamen, Shantou, Shenzhen, Guangzhou and Zhanjiang. MOC controls policy, development strategy and general planning as well as investment decisions for major projects, while provincial governments or local port authorities are fully responsible for day-to-day port operations and management. 12. Shipping affairs in the SCR are administered by the Zhejiang Shipping Authority, the Fujian Ports, Navigation and Shipping Authority and the Guangdong Shipping and Waterway - 51- ANNEX 1 FIgure 1: ORGANIZATION CHART OF WATERWAY AND HIGHWAY TRANSPORT ADMnNIsTRATioN |State Council| uinistry of C inications] Port Authorit Prt Authority Provincial Departentl ishippingEtrrs =~~~~~ tl Directly Under HOC nDual Leadership of Coiunications [Directly Une OiC Vatervarly Bureau of Co_ mncatione of S6hipping Enterprises Directly |Bureau | |Prefectures and Hunicipalities| | Under Provincial GovernimentI |POrt Directly Under County Office of Shipping Enterprises Directly Local Goverment Co nications Under Local GoverCment | Local Porte| | Local Shipping Enterprises Control Company. They are responsible for administering shipping enterprises and waterway development in their respective provinces. Maritime safety supervision is MOC's responsibility; it directly controls Maritime Safety Bureaus at the major ports, while marine safety supervision of smaller ports has been delegated to local government. Port Sector Reform 13. In the opening up process, the Chinese government has adopted a series of reform measures in the port sector. The principal measures are: (a) Delegating Management Power to Enterprises. In a shift from the centralized system with a dominance of state-run enterprises in the transport market, a dual leadership structure by the central and local governments has been adopted, with the latter playing a primary role. Transport enterprises are exposed to competition, under a guideline that waterways can be used by all and transport operations can be carried out not only by state-run enterprises but by collective firms or individuals. It has recently been announced that foreign companies may invest up to 50 percent in joint ventures serving the domestic shipping market. All MOC's ports except Qinhuangdao port have been handed over to local authorities, either under dual leadership or entirely under local control (provincial, metropolitan, enterprises, etc.). (b) Multiple-Source Financing for Port Development. Investment solely by the state has been replaced by multiple-source financing, including central government, local governments, departmental funds and foreign capital. The use of foreign capital includes loans from the World Bank, the Japanese Overseas Development Fund, the Asian Development Bank, the Kuwait - 52 - ANNEX I Government, etc. Foreign funded enterprises are being encouraged to invest in terminal construction. To facilitate such investments, the State Council has issued 'Provisional Preferential Regulations on Port Development by Chinese and Foreign Joint Ventures." (c) Expansion of Port Functions. Chinese ports were mainly constructed and operated by specialized transport departments concentrating on cargo handling. Since reform and opening up, transport departments have cooperated with manufacturing and material processing departments, as well as with foreign- funded enterprises, to construct and operate ports jointly. Foreign enterprises are allowed to establish either joint ventures or fully foreign-funded port enterprises. Port operation exclusively by MOC has come to an end. Operation of port based industries, warehouses and bonded storage areas, have been added to the original cargo handling function of the port. (d) Following international practice, the domestic transport market has been gradually opened up and the port system has been modified. The same tariffs now apply to domestic and foreign vessels and tariffs are allowed to respond to market forces, within a certain range, established by MOC. (e) Domestic and International Competition for Port Design and Construction has been adopted instead of the former Government-directed distribution of tasks to Design Institutes and State Construction Companies. Shipping Enterprises 14. Both Chinese and foreign vessels transport cargo in SCR waters. Domestic vessels are owned by operators from the three SCR provinces, other provinces and the central government. The three SCR provinces operate a substantial merchant fleet in China (Table 7). By the end of 1990, the vessel fleet of the three SCR provinces consisted of some 99,900 self- propelled vessels with a tonnage of 6.525 million dwt, for an average vessel size of 62 dwt. Table 7: SCR VESSEL FLEET IN 1990 Ships Zhejiang Fujian Guangdong Self-propelled (no.) 53,925 5,990 40,059 Net tonnage (ton) 1,210,208 564,006 4,750,879 Passenger spaces (no.) 142,932 39,776 132,959 Tug power (kW) 71,846 18,171 97,747 Barge net tonnage (ton) 451,706 29,002 458,921 Passenger apaces (no.) 11,385 100 987 15. Of the 213 shipping enterprises in Zhejiang province, 85 are marine and 128 inland river transport enterprises. Most of the vessels are used for moving coal, iron ore and - 53 - ANNEX 1 Table 8: SCR DISTRIBUrION OF BERTHING LENGTH AND DEEP-WATER BERTHS Berthing length Deep-water berths Length Proportion Berths Proportion (m) (Z) (no.) (M) Country total 277,470 100.0 312 100.0 Subtotal of SCR 141,100 50.9 72 23.1 Zhejiang 27,100 9.8 13 4.2 Fujian 25,000 9.0 10 3.2 Guangdong 89,000 32.1 49 15.7 construction materials. The biggest vessel is a bulk carrier of 16,400 dwt. Several shipping lines serve Hong Kong and Japan from the ports of Ningbo and Wenzhou, operating five container vessels. The largest of these is a 11,000 dwt container carrying ship with a capacity of 320 TEU. 16. Fujian province has 230 shipping companies, located in Fuzhou, Quanzhou, Zhangzhou and Xiamen, of which 182 are marine transport enterprises. These enterprises own 2,398 ships and barges with a net tonnage of 720,000 dwt, an average vessel size of 300 dwt. The vessels are used mainly for transporting coal, oil, steel, construction materials, fertilizer and grain. The largest tanker is 90,000 dwt and the largest bulk carrier 28,600 dwt. Fuzhou and Xiamen have shipping services to Hong Kong, Japan, South Korea, Singapore and Malaysia. Fujian province has 16 container carrying ships with a combined tonnage of 20,000 dwt and capacity of 1,600 TEU. The largest container carrying ship is 3,400 dwt with a capacity of 200 TEU; the main container shipping routes are from Fuzhou to Hong Kong and Japan. 17. Guangdong province has 378 shipping enterprises, most of them located in ports like Guangzhou, Zhaoqing, Jiangmen, Shantou and Zhanjiang, of which six are ocean transport companies. The vessels carry mostly coal, construction materials, fertilizer, grain and other agricultural products. The largest vessel is 6,180 dwt. The international shipping routes are mainly to Southeast Asia. Some 60 container carrying vessels mostly barges, serve Hong Kong from Guangzhou and Zhuhai. The largest of these is a 1,700 dwt vessel with a capacity of 110 TEU. - 54 - ANNEX2 REGIONAL DEVELOPMENTS 1. The evolution of container shipping in East Asia will be profoundly affected by the changes in the industrial structure and trading patterns of its countries. 2. On the one hand, Japanese trade with its Asian neighbors will exceed its trade with the United States for the first time in decades. This is occurring as Japan increasingly integrates its manufacturing processes with those in neighboring countries by either manufacturing finished products in the lower labor cost countries, utilizing components imported from Japan, or having certain parts made elsewhere in the region, which are subsequently integrated into a Japanese product. A third trade flow is 'triangular," in which components are exported to Asian nations by Japan and final products go from these countries to European and US markets. 3. Japan has also taken market share from the United States in the provision of finished goods to the newly industrializing countries of the region. Japan's dominance as an investor and supplier of official aid has supported this growth in trade, despite the substantial appreciation of the Yen, related to other currencies. While trans-Pacific trade in containerized goods will continue to grow, it is likely that intraregional trade will grow faster. Moreover, the share of trans-Pacific trade originating in or destined for Japan is likely to decrease relative to other regional countries. Initial estimates by the ESCAP-sponsored Regional Maritime Strategy Study are that by the end of the century exports from East Asia (excluding Japan) to North America will have grown to around 2.5 million TEU/year, only a little less than the current total volume for the trans-Pacific trade. This itself would support about 15 weeldy sailings of 4,000 TEU vessels. With this level of market growth, the trend toward decoupling of Japanese and East Asian services is likely to continue. 4. As China's manufacturing sector achieves gains in the manufacture of higher- value, higher-quality products, it will also seek to share of regional markets for other than consumption goods. Its regional trading opportunities will be enhanced by the very substantial share of investment being made in China's export industries by overseas Chinese residents in the region. There will continue to be political pressure from the United States to reduce China's trade surplus. Therefore, strategically China will probably seek to be less dependent on trans- Pacific trade. 5. Average GDP growth rates in East and South Asia have remained at levels at least double that of the EC and the United States. These high growth rates have been fueled by manufacturing. Container throughput of the ports of East Asian economies has increased faster than their growth rates in manufacturing (see Table 1). China, a relative latecomer to these export markets, can be expected to follow a similar pattern, including a one-time acceleration caused by the transition from breakbulk cargo handling to containerization. Table 2, based on - 55 - ANNEX2 Hong Kong shipping statistics and excluding transshipment traffic, shows how far behind other nations China is in the use of containers in foreign trade. Table 1: GROWTH RATES - GDP, MANUFACTURING AND PORT THROUGHPUT (TEU) IN EAST ASIAN ECONOMIES AND CHINA (Average growth rate in percent) 1985-90 1985-89 Economy Real GDP Manufacturing TEU Indonesia 5.31a 13.0 29 Malaysia 5.4 12.9 16 Philippines 2.7 17.8 18 Taiwan (China) 8.1 8.2 15 Thailand 8.9 12.9 24 Korea 9.7 14.2 18 China 8.5/b 10.0 16 La 1985-89. & Data refers to growth of NMP by industrial origin. Source: Key indicators of Developing Asian and Pacific Countries, Asian Development Bank, 1991 and Containerization International Yearbook, 1990. 6. The data for Taiwan (China) and Korea are most interesting because of the speed with which the conversion to containerized shipments has occurred and because most of the direct shipments received are composed of manufactured goods that can be containerized. In the short period of four years, Taiwan (China) and Korea doubled their percentage of containerized exports, attaining levels comparable to North America and Europe. China's percentage also doubled, but from a tiny base. The growth in container trades will, therefore, continue to outrace that of China's total foreign trade. It would not be unreasonable to assume that the degree of containerization of China's exports from rapidly industrializing coastal areas would, by the year 2000, reach the level that Taiwan (China) and Korea attained in 1987, which would translate into a 15 percent increase annually in container penetration. In the period 1985-89, Taiwan (China), Korea, Malaysia and the Philippines all had approximately a 15 percent per year increase in container throughput. 7. To summarize, the relative size of the manufacturing sector in Southeast Asian countries has increased, as has the importance of trade linkages between them. This growth is strongly oriented toward export markets and composed of a range of commodities that are well- adapted to containerization. These developments are increasing the importance of regional shipping. The vessel handling these trades can operate efficiently out of modest-sized ports, and by offering high frequency service, put a lower premium on volume per sailing and speed than for the long-line ocean services. The volume increase in trans-Pacific trades, excluding Japan are approaching levels where Japan may be bypassed as a port of transshipment and therefore offers new opportunities for creation or expansion of alternative, less expensive hubs (Table 3). - 56 - ANNEX2 Table 2: PERCENTAGE OF CONTINERIZATION FOR DlRECr OCEAN CARGO BY GEOGRAHCAL ZONE La (Percent) Zone of loading/discharge 1987 1988 1989 1990/b Australasia/Oceania 11.0 13.2 13.7 10.7 North America 67.9 83.2 82.8 81.3 Europe 69.5 70.1 76.5 74.3 Middle East 24.7 26.4 25.7 19.0 Central and South America 8.9 8.7 7.2 8.8 Africa 3.4 2.4 3.6 3.8 Indian Subcontinent and Myanmar (Burma) 65.9 72.1 62.1 60.5 Singapore 12.7 12.9 12.1 12.1 Malaysia 17.7 21.0 28.7 25.3 Thailand 36.5 35.1 34.7 41.3 Indonesia and Brunei 24.5 27.5 22.6 12.3 Philippines 40.2 23.9 33.4 32.5 China 3.9 6.6 8.2 9.5 Taiwan (China) 40.3 44.8 63.5 79.6 Japan 34.9 32.9 27.0 33.7 Korea 34.4 50.5 52.1 67.0 Others 29.1 25.5 21.7 27.1 Total 25.8 27.1 27.4 30.1 LA Percentage of containerization = Containerized cargo + Total direct ocean cargo. & Estimates based on the first nine months' data. Source: Shipping statistics compiled by the Census and Statistics Department, Hong Kong. - 57 - ANNEX 2 Table 3: PERCENTAGE OF CONTAINERIZATION FOR TRANSSHIPMENT OCEAN CARGO BY GEOGRArlnCAL ZONE La (Percent) Inward Outward Zone of loading/discharge 1987 1988 1989 1990/b 1987 1988 1989 1990/k Australasia/Oceania 93.6 82.9 87.2 96.8 99.6 99.7 99.4 97.8 North America 69.7 85.7 81.8 99.2 99.9 99.9 100.0 100.0 Europe 80.4 85.6 94.5 96.0 97.2 98.8 99.1 99.6 Middle Eact 32.8 66.5 52.7 98.4 83.2 88.0 94.7 94.8 Central & South America 16.6 19.2 24.7 50.2 67.6 79.9 85.4 89.1 Africa 21.8 41.6 71.5 54.4 61.0 64.5 72.4 77.9 Indian Subcontinent & Myanmar (Burma) 86.6 97.5 60.1 30.3 25.5 33.9 37.8 49.4 Singapore 98.2 92.1 92.8 95.6 79.1 80.8 86.3 90.6 Malaysia 85.0 95.5 79.1 97.7 29.9 35.8 46.8 57.8 Thailand 92.2 80.7 65.7 78.6 65.6 77.4 85.0 84.3 Indonesia & Brunei 67.0 28.8 13.1 45.6 70.3 64.3 55.3 61.9 Philippines 99.5 97.9 100.0 98.2 92.0 96.7 96.9 97.2 China 34.6 40.2 48.7 57.5 47.9 64.0 72.8 81.6 Taiwan (China) 97.9 98.5 99.2 96.7 94.6 97.9 97.7 99.1 Japan 86.0 89.3 80.1 89.1 99.3 99.0 99.9 99.9 lorea 93.2 90.9 73.0 77.9 97.4 99.7 99.4 96.4 Others 32.8 17.1 23.7 34.7 66.4 81.1 85.0 86.1 Total 60.9 65.2 67.6 76.6 80.0 84.7 88.8 92.1 Li Percentage of containerization = Containerized cargo . tota1 transshipment ocean cargo. /b Estimates based on the first nine months' data. Source: Shipping statistics compiled by the Census and Statistics Department, Hong Kong. - 58 - ANNEX 3 CONSTRAINTS AND OPTIONS IN HONG KONG Alternative Modal Links 1. There is now recognition that Hong Kong's role as the China gateway depends crucially on how road, rail and barge links are developed and, related to this, how much China is prepared to feeder to/from Kaohsiung, or perhaps even more importantly in the long term, build up the Port of Yantian, which has deep water and could thus be a major competitor to Hong Kong. 2. Part of Hong Kong's forecast growth may in fact be captured by Yantian. Hong Kong container traffic is not expected to grow as fast in the next five years as it has recently (see Table 1). How far should one expect Lantau, where construction and infrastructure costs are particularly high, to be developed, when there is already so much cargo potentially for Yantian? Is there even a danger of Hong Kong port investors helping to develop deep-water facilities on the China side as they follow shippers who "vote with their feet" in protest at the high costs of cross-border container trucking (HK$34,000/move)? Table 1: Hong Kong Container Throughput, 1988-91 TEU ('000) X Change/yr TEU Increase ('000/yr) 1988 4,033 1989 4,464 10.7 431 1990 5,101 14.3 637 1991 6,1601a 20.8 1,059 La Of which midstreaming 1,598 (31.7 percent growth over 1990). Source: Census Statistics Department, Hong Kong. 3. Practically all containers are trucked in and out of Kwai Chung and the road network is nearing saturation. On one occasion in 1991, there was virtual 'gridlock" when Kwai Chung reopened after a typhoon warning shutdown. - 59 - ANNEX 3 Surge Traffic 4. Container movements by truck between China and the Kwai Chung Container Terminal are estimated at 1.25 million TEU. Empties predominate northbound. Surges at the port gates are a regular occurrence as the three border crossings are not open round-the-clock. Any TEU movements involving those wharves used by lighterage companies serving vessels moored midstream would be additional. 5. Traffic flow would be dramatically increased if opened 24 hours and some of the permits for Man Kam To were switched to Lok Ma Chau. Truck utilization rates would be markedly improved-and costs contained-if China permitted a loaded move to be made both ways on a regular basis. It would also make sense for more space for empty container and chassis storage to be available on either side of the border. Barge Options 6. But even if all these changes are made, growth is such that alternatives to road transport must also be found. Consultants (Scott Wilson Kirkpatrick), preparing a Freight Transport Study for the Transport Department, consider that the number of container trucks needed by the year 2000 will cause severe road congestion unless there is some kind of modal shift. Hong Kong's Marine Department data suggest that around 400420,000 loaded TEU are currently moving by coastal shipping. 7. In this connection, both Cosco-HIT and MTL say that the facilities they are building at Terminal 8 will include provision for barge handling operations. The government itself is inviting developers' interest in a proposed barge terminal at Tuen Num Area 38, New Territories. River trade vessel calls are forecast at 42,000 in 1996, equivalent to some 500,000 TEU, rising at 8 percent per year thereafter. 8. The northern part of the proposed container complex at Lantau (Terminal 10 onwards) is right in front of the Pearl River Estuary. A site for a container barge/ship transhipment facility is being studied accordingly. Rail Option 9. But barges alone may not be enough. The Transport Branch has commissioned from MAM (an acronym for MVA Asia Ltd, Acer Consultants and Maunsell Consultants) a Rail Development Study (RDS), scheduled for completion by the end of 1992. 10. The object of the RDS is to find optimal passenger and freight solutions for the years 2000, 2006 and 2011 and it seems likely that a rail freight link between Kwai Chung and China will be identified as one of the top priorities. 11. One difficulty is in finding a suitable railhead, since the preferred site behind Terminal 7 and Terminal 8 is already earmarked as the Terminal 8 related use zone. Moreover, although near-dock, the site is not strictly on-dock, so special permits would be needed to allow LMVs to operate between ship and railcar. -60 - ANNEX3 12. Looking further ahead, it transpires that the cost of a rail freight link to Lantau could be prohibitively expensive because of the extra bridge construction costs involved, although the Port Development Board (PDB) has not yet ruled out Lantau-China intermodal trains. 13. As new rail links have to be developed for passenger traffic, freight would not have to bear the whole cost. 14. Understandably, the main promoter in Hong Kong is the Kowloon Canton Railway Corporation (KCRC), a government railway but with its own statute (i.e., it has to run at a profit). KCRC's China freight traffic has declined to just 220 wagons/day, mostly breakbulk that is then stuffed in containers in its railyard, the equivalent of 80,000 TEU per year. 15. Based on parameters provided for it by consultants A. T. Kearney Inc., KCRC estimates that a new rail link between Kwai Chung and China, crossing the border at Lok Ma Chau, would have a freight capacity of 44 x 72 TEU (36 flatcars) trains/day each way, which works out at 2.28 million TEU/year on a 360 day/year basis! 16. This figure seems improbable in less than 20 years, although KCRC says the limiting factor is train handling capacity at Kwai Chung, not the availability of paths for freight trains. There are two other points to bear in mind. First, 2.2 million TEU would be less than 40 percent of Kwai Chung container traffic in 1997, even if this grew by only 5 percent/year between now and then. 17. Second, the link, if it is ready in 1997, matches the scheduled completion date of the second Beijing-Shenzhen rail link. China does not have an integrated road network but instead is heavily committed to rail along the central north-south axis. The new link will be electrified and double track throughout, while a third north-south rail link is also planned. 18. One striking fact is that although 60-65 percent of Hong Kong's container traffic is cross-border, no one has tabulated the origin and destination points. Although it is questionable whether relatively short-haul traffic between Hong Kong and Shenzhen or even Fujian (currently the fastest growing economic zones in the world) would convert to rail, nearly all KCRC's rail freight today has traveled 1,500-2,000 km in China (25 percent from Shanghai). Meanwhile, many southbound wagon loads of exports are stripped and transferred either to containers that are then trucked across the border or to Pearl River barges. 19. Obviously it would be much more sensible to move the container by rail between Kwai Chung and railheads in China's interior. Since both Yantian and Shekou will be linked to the main trunk line, it follows that the diverted traffic is Hong Kong's to lose. 20. The proposed rail developments are exciting because, for all the fantastic achievements of Hong Kong, Singapore and Busan, there is no Asian Pacific rim port with a ship-rail weapon in its armory and this, in the final analysis, is the real feature of the North American gateways. Hong Kong could be set to develop one and secure its own future as much of its cargo base threatens to become 'discretionary." - 61 - ANNEX 3 Terminal 8 21. The commissioning of Terminal 8 (the first berth is due for handover in August 1993 with the other three at six-monthly intervals) is eagerly awaited. HIT's 20 to 40 ft ratio today is 1 to 1, so the Terminal 8 productivity figures, based on three cranes per berth, work out at 100,000 container moves/crane year! MTL and Cosco-HIT have placed orders for Terminal 8 for a total of 13 quay cranes and 46 RTGs. 22. The generous terminal area allocation for Terminal 8, 60 ha plus a further 26-30 ha for related use (e.g., chassis parking, CFS, etc.), represents recognition for the first time that land has been the major constraint on productivity at Kwai Chung. As a function of greater land availability, dynamic capacity at Terminal 8 is put at 0.4-0.45 million TEU/berth year, compared to about half that at the existing 10 berths of HIT which has, at Terminals 2, 4, 6 and 7, a particularly high ratio of quay wall to total area. 23. MTL has a berth occupancy of 70 percent on weekdays and 85 percent at weekends, so for all practical purposes it is already overloaded. MTL's traffic grew 14 percent last year to 1.56 million TEU moved across only 3 berths! It is forecasting lower growth in 1992, as Maersk is relocating some transhipment business to its own terminal in Kaohsiung. The threat of Kaohsiung, particularly for central and north China cargoes, is recognized in Hong Kong and forms much of the new interest in intermodal links. Construction of a feeder port in Fujian Province is already under way. Terminal 9 24. Terminal 9 will be shared by HIT, MTL and Tsing Yi Container Terminal Consortium. The latter comprises Jardine Pacific, Hong Kong Land, Sea Land Orient Terminals, Sea Land Service Inc., Sun Hung Kai Properties, New World Development, Hanjin and SINOTRANS. 25. The first berth at Terminal 9 must be ready by mid-1995 and the terminal completed by end of 1996. If demand increases 12 percent per year, this terminal would be fully utilized by end of 1997. 26. There will be a separate access road into Terminal 9, linked to a 4-lane bridge which will be added to the existing 2-lane bridge between Tsing Yi and Kwai Chung. The so-called CRA 4 (Route 3) bridge linking Terminal 9 directly with Stonecutters Island is not thought to be required until 2005-07. 27. More pressingly, the government is examining a new road link to the Chinese border-the proposed CRA 1 (Route 3), which would tunnel under the country park in northwestern New Territories (NT) and access all the terminals via a new bridge linking north Tsing Yi with NT at Ting Kau. 28. CRA 1 is going ahead, but whether with public or private (toll) funding is not clear. The existing highway to Kwai Chung has already been enlarged to "dual 5" status and can be widened no more, while the Tuen Men highway itself, the most popular route for Chinese container traffic, is becoming congested as traffic in the NT new towns around Tuen Mun and Ching Chung Koon also grows. -62 - ANNEX 3 29. As to Terminal 9 itself, the feasibility study, led by Maunsell-Scott Wilson, calls for a 4 x 320 m berth facility able to accommodate 60,000 dwt vessels. Terminal area would be 60 ha with at least a further 26 ha for related use, including a 4 ha CFS. Total reclamation is 127 ha. The cost of land acquisition and development alone is estimated at between HK$4.1 billion and HK$5 billion, depending on the location of the sources of fill material. Productivity of Hong Kong Container Port 30. The new berths, 320 m long, at Terminal 8 East are being rated at 400,000 TEU capacity, with 3 cranes serving each. This is about twice the rate achieved at the 10 berths that HIT presently operates. However, the new facilities will have 3 cranes per berth, twice the present number (16 cranes on 10 berths) and a stacking capacity of 9,125 TEU per berth, whereas the total stacking capacity is now 5,350 TEU per berth. The rated capacity implies an average handling of 370 TEU per crane day. Modem Terminals, operating 3 container berths with 11 cranes, handled 1.37 million TEU in 1990 or 0.45 million TEU/berth and 340 TEU per crane. The one berth operated by SEA-LAND moved about 300,000 TEU in 1990. About 75 percent are 40-foot units. All terminals' berths and yards operate 24 hours a day, and 7 days a week. - 63 - ANNEX4 TECHNOLOGICAL TRENDS IN CONTAINER TRANSPORT Introduction 1. Container transport, being intermodal and a relatively new system, can expect to experience a significant number of technological changes over the next 20 years. Many of the new methods already practiced elsewhere have yet to be introduced in China. However, port modernization, in terms of design and equipment, is more advanced than other system components. The facilities are being adapted to the specialized vessels operating worldwide and appropriate port handling equipment, not yet manufactured in China, has been imported. Vessels are being built for the Chinese container fleet, either at home or abroad, to specifications that can make them competitive with foreign liners. However, in terms of the land-side transport and logistic systems and the electronic data management control systems, China has seriously lagged behind. Without major technological upgrading in these areas, the very large Chinese commitment of capital investment in container shipping and handling facilities will not produce the cost reductions and service reliability achieved elsewhere from such investments. International Container Transport Trends 2. International container transport is undergoing significant changes. While in Europe and North America at least 70 percent of manufactured goods are containerized for ocean shipment, this is not yet the case for most Asian countries, where container penetration of foreign trade generally falls in the range of 20-50 percent. These same Asian countries have experienced high growth rates in GNP, manufacturing and foreign trade, contributing to a fast growth in container traffic (Table 1). In 1990, Asian ports accounted for 37 percent of the world container throughput, European ports 22 percent and North American ports 22 percent. Among the 20 countries with the largest throughput, nine were Asian with China ranking 19th, but with a gain of 18 percent in 1989/90, exceeded only by Singapore (Table 2). All of the top 20 container ports worldwide have a throughput in excess of 1 million TEU, equivalent to some 10 million tons of containerized goods, a level that a few ports in China may reach by the year 2000. Large container vessel liner calls in East Asia are largely limited to 12 ports, the lowest in volume being Manila and Kelang with throughputs of 642,000 TEU and 603,000 TEU, respectively. In all such ports less than 20 percent of containers handled were empty. 3. At high-volume ports worldwide, a large proportion of ISO containers exceed 20 feet, whereas in China the proportion of 20-foot size dominate because of smaller production facilities generating traffic and the shortage of heavy lift capability outside the ports. By 1990 fully cellular container ships accounted for 52 percent of the total container capacity worldwide. The trend to build specialized vessels and larger ones is continuing. The largest (fourth generation) container ship is 58,000 dwt and has a carrying capacity of 4,482 TEU. Even larger post-Panamex vessels are being built (Tables 3 and 4). - 64 - ANNEX 4 Table 1: WORLD CONTAiNER PORT TRAmC TOP 20 (1988-90) No. Port 1990 TEU 1989 TEU (No.) 1988 TEU (No.) Country/region 1 Singapore 5,223,500 4,364,400 (2) 3,375,427 (2) Singapore 2 Hong Kong 5,100,637 4,463,709 (1) 4,033,427 (1) Hong Kong 3 Rotterdm 3,665,955 3,617,295 (3) 3,288,829 (3) Netherlands 4 Kaohsiung 3,494,631 3,382,512 (4) 3,082,838 (4) Taivan 5 Kobe 2,595,940 2,458,964 (5) 2,263,214 (5) Japan 6 Busan 2,348,475 2,158,828 (6) 2,065,462 (7) South Korea 7 Los Angeles 2,116,404 2,056,629 (7) 1,652,069 (9) USA H Hamburg 1,968,986 1,727,609 (10) 1,621,615 (10) Germany 9 New York/Now Jersey 1,898,436 1,988,318 (8) 2,095,530 (6) USA 10 Keelung 1,807,271 1,787,067 (9) 1,709,763 (8) Taivan 11 Yokohama 1,647,891 1,506,338 (12) 1,452,857 (13) Japan 12 Long Beach 1,598,078 1,575,117 (11) 1,484,467 (11) USA 13 Tokyo 1,555,140 1,438,524 (14) 1,396,026 (14) Japan 14 Antwerp 1,549,113 1,473,746 (13) 1,469,949 (15) Belgium 15 Felixstove 1,417,694 1,359,804 (15) 1,278,893 (15) UK 16 San Juan 1,381,403 1,289,031 (16) 1,245,311 (16) Puerto Rico 17 Seattle 1,171,091 1,040,890 (19) 1,024,035 (19) USA 18 Bramen/Bremerhaven 1,163,347 1,203,955 (17) 1,121,454 (17) Germany 19 Oakland 1,124,123 1,090,597 (18) 1,031,776 (18) USA 20 Bangkok 1,018,290 924,040 (22) 791,584 (21) Thailand 4. Modern management and advanced information technology are two important prerequisites for developing container traffic. An efficient inland container collection and distribution network is needed to take advantage of the container's full potential, which means door-to-door service. Only if these conditions are met can a reliable, effective and fast service be achieved. Vessel Design 5. For their Far East/Europe or North American routes, major liner companies now seldom order vessels with less than 2,500 TEU capacity (third generation) and most often in sizes exceeding 3,000 TEU up to about 4,400 TEU (fourth generation), the largest size that can pass through the Panama Canal (Table 5). These vessel are normally capable of cruising at 24 knots, faster than the older vessels. At new-built costs of at least $60 million or $20,000 per TEU slot, the owners must do as many voyages as possible to be profitable. The cost penalties for delays in berthing, container discharge/loading, and vessel departure are severe. Therefore, reliability in port access and handling gives a port a competitive advantage. Even where a vessel owner's choices are limited, he will have to charge shippers a higher rate for service to a port that has operational constraints. These may include closure of port operations at certain times of day or days of week, frequent shoreside equipment breakdowns, labor disputes, uncertain docking schedules, channel restrictions limiting vessel load or movement only under conditions of high tide, and lack of modern systems to facilitate communications and documentation. 6. In regional services, the trend is toward specialized container vessels and away from mixed use ones. Fewer vessels are being equipped with their own container handling equipment. Both of these trends are a reflection that increasingly ports are establishing specialized berths for containers alone with appropriate shoreside lifting equipment. The size of vessels operating between Asian ports is on the increase and now includes second and third generation ships, many of which have been withdrawn from longer routes. The rapid increase - 65 - ANNEX4 Table 2: WORLD CONTAINER PORT TRAFIC BY COuNTRY/REGION-TOP 20 LA (1988-90) Country/ No. region 1990 TEU 1989 TEU (No.) 1988 TEU (No.) 1 US 15,278,162/b 14,632,763/c (1) 13,968,282 (1) 2 Japan 7,851,608/d 7,539,316/e (2) 6,909,050 (2) 3 Taiwan (China) 5,430,039 5,278,227 (3) 4,889,091 (3) 4 Singapore 5,223,500 4,364,400 (5) 3,375,100 (7) 5 Hong Kong 5,100,637 4,463,709 (4) 4,033,427 (4) 6 UK 4,016,569/f 3,786,704.L (6) 3,670,196 (5) 7 Netherlands 3,761,184 3,725,702 (7) 3,382,676 (6) 8 Germany 3,265,747 3,092,829 (8) 2,816,650 (8) 9 Korea 2,348,475Th 2,158,828/h (9) 2,065,462 (9) 10 Belgium 1,901,172 1,768,157 (-10) 1,724,267 (11) 11 Spain 1,859,057/i 1,768,1591J (-10) 1,761,884 (10) 12 Italy 1,807,183/k 1,670,541/k (13) 1,632,196 (12) 13 Australia 1,636,359 1,727,611 (12) 1,288,884 (15) 14 France 1,567,511/1 1,605,792/1 (14) 1,435,045 (13) 15 UAE 1,563,277 1,366,741 (16) 1,042,637 (18) 16 Canada 1,524,771 1,432,062/m (15) 1,402,673 (14) 17 Philippines 1,383,525 1,286,208 (18) 1,096,743 (17) 18 Puerto Rico 1,381,403/n 1,289,031/n (17) 1,283,620 (16) 19 China 1,143,898/o 968,860to (19) 793,706 (22) 20 Thailand 1,078,290 939,040 (20) 795,301 (21) /a Excluding ports on inland waterway. L Excludes Stockton. /c Excludes Detroit, Gloucester City, Gulfport, Milwaukee, Stockton. Ld Excludes Hakata, Tomakomai, Yokkaichi. Lj Excludes Hakata. Lf Excludes Larne, Swansea. Lg Excludes Larne, Swansea, Thamesport. Lb Excludes Inchon. Li Excludes Alicante, Santander. a Excludes Alicante. Lk Excludes Bari, Catania, Marina di Carrara. a Excludes Cherbourg. Lm Excludes Toronto, Vancouver. La Excludes Ponce. L/ Excludes Fuzhou. Source: Containerization International Yearbook 1991 and 1992. in intra-Asian container volumes has made use of these ships economical, without a loss in service frequency and convenience for the shipper. - 66 - ANNEX 4 Table 3: WORLDWIDE CONTANER SHIPS IN OPERATION AND ON ORDER IN 1990 In operation On order Capacity Number Capacity Number Ships (box space) of ships (box space) of ships Cellular container ship 1,650,061 1,300 348,717 186 Ro-Ro container ship 114,350 140 2,866 6 Modified container ship 109,306 136 - - Somicontainer ship 634,506 1,904 37,666 94 Bulk/container ship 314,938 348 1,894 5 Ro-Ro ship 262,103 597 12,820 27 Other ships 87,027 348 868 1 GRAND TOTAL 3,172.294 4.773 404.823 317 Table 4: MAiN CHARAcTERIsTcs OF CONTANER SHIPs Year of Carrying Capacity Length Width Draft Speed com ission capacity (dwt) (TEU) (m) (D) (m) (kt) Ist gene- ration 1965 10,800-15,000 700-1,000 171 24.5 7.9 20.6 2ad gene- ration 1969 16,000-29,600 1,500-1,800 227 30.5 10.7 21.5 3rd gene- ration 1972 48,540 3,000 290 32.3 13.0 26.0 4th gene- ration 1984 58,000 4,480 289.5 32.3 11.6 18.0 Post Panamx a 1988 41,250-47,270 3,900-4,960 275-305 39.4 11.0 24.0 Peae j 1992 50,900 4,425 275 37.1 13.5 24.0 A aPL C-10 ships. a Based on C(H Normandie. 7. An interesting development is the design of mid-sized vessels with shallow draft to offer the potential of operating into ports where water depth restrictions are 8.5 meters. These 1,248 TEU Nanta Bhum class vessels were ordered by Regional Container Lines from Hanjin, the first two of five were placed in service in 1989 and 1990. The vessels have an overall length of 147 meters and a breadth of 25 meters and a service speed of 17 knots. The latter versions are being built to a design that would permit modifications for increasing capacity at some time in the future. This is in line with the strategy of some mainline operators, including Taiwan's Evergreen, whose latest orders from Japan for vessels of about 3,200 TEU capacity include specifications allowing future "jumbo-ization' of vessels. - 67 - ANNEX4 Table 5: CONTRACTED NEW BULDINGS TONNAGE (T) CAPACIrY AS OF JULY 1, 1992 FOR FAR EAST AND ROUND THE WORLD ROUTES No./size Operator Capacity of ships (TEU) Intended route deployment Cosco Shanghai 4 x 3,490 13,960 Europe/Far East; US/Far East 3 x 3,800 11,400 Europe/Far East; US/Far East 25,360 Hyundai Merchant Marine 5 x 4,400 22,000 USWC/Far East Hanjin Shipping 5 x 4,024 20,120 USWC/Far East/Europe R Line 5 x 3,500 17,500 USWC/Far East P&O Containers 4 x 4,002 16,008 Europe/Far East Evergreen Line/Uniglory /b 3 x 3,950 11,850 RTW DSR-Lines 5 x 2,674 13,370 RTW Hapag-Lloyd 3 x 4,400 13,200 Europe/Far East Senator Line 2 x 2,668 5,336 RTW 2 x 3,000 6,000 RTW Neptune Orient Lines 3 x 3,600 10,800 USWC/Far East NYK Line 2 X 3,808 7 616 Europe/Far East Nedlloyd Lines 3 x 3,950 7,900 Europe/Far East Lloyd Triestino 2 x 3,000 6,000 Mediterranean/Far East cHA 2 x 2,700 5,400 Europe/Mid-East/Far East 7 x 3,200 22,400 Europe/Mid-East/Far East Mitsui OSK (MOL) 4 x 4,800 19,200 Europe/Mid-East/Far East L/ Cosco has subsequently ordered 4 x 3,800 TEU vessels from German yards. Lb Evergreen vessels being built at Onomichi Dockyard, Kove at rating of 3,388 TEU. On delivery, ships will be 'jumbo-ized' in Taiwan to 3,950 TEU loading capacity. 8. For short direct and feeder services, a variety of small vessels will continue to be used. For these services, frequency of service is usually more important to shippers than is vessel speed or container handling capacity. Therefore, there are many vessels in the 100400 TEU range, many of which, in protected costal areas and in rivers, are self-propelled or towed barges. These are inexpensive to own and operate, they offer greatest flexibility, and capacity can be added quickly in small increments. Roll-On/Roll-Off Vessels 9. Ro-Ro vessels, widely used in Northern European, Mediterranean, and Caribbean ports can reduce container intermodal handling costs significantly and permit faster door-to-door services when the sea voyage is a relatively small portion of the total transport distance for the container. These vessels may either transport containers or bulk loads on a trailer chassis, which is moved between port terminal and vessel by a tractor designed specifically for this purpose, or may operate as vehicle ferries, in which case the over-the-road tractor remains linked to its - 68 - ANNEX trailer for the sea voyage, normally accompanied by a driver. The latter is the simpler system, where regulations permit, but it does immobilize an expensive vehicle and driver for a period of time and occupies more deck space on the vessel. The chassis system requires that the port provide more services, and that a logistics system be available at both port of origin and destination for delivery and pickup of the cargo, a system which may be less reliable than the former. 10. In Southeast China, there is certainly a role for these types of vessels. They are particularly well suited to movements between the many islands and the coastal mainland and could be a major carrier of trade between China and Taiwan in the future. The size of vessel and frequency of sailing can be specifically tailored to the route requirements. Ferries are ideal multipurpose vessels, serving passenger motor vehicles, nonmotorized vehicles, and pedestrians. The all-freight ro-ro vessel is better suited to routes with relatively high cargo volumes, calling at specialized container ports. These vessels are designed to carry heavier deck and ramp loads than the normal ferry. They are sometimes equipped with lift-on/lift-off capability, and require specialized tractors for movement of chassis. The ro-ro vessel designed to carry containers on chassis is less expensive to build, for an equivalent cargo carrying capacity, than a ferry, largely because it uses vessel space more efficiently. Its capital cost per TEU capacity, however, may be double that of a conventional cellular container ship, largely because of the need to provide for onboard loading ramps and decks with adequate strength to handle heavy axle load stress, the extra space taken up by the chassis, and unused space allowed for maneuver of tractors. 11. On routes where heavy seas prevail, ferries can be intrinsically unsafe. They have little internal subdivision and generally sail with small margins of stability. High cargo handling rates are necessary for profitability. There may be little time to check cargo before boarding. The largest single cause of loss is cargo shifting. The movement of cargo in or on road trailer poses greater safety problems than on chassis. Their higher center of gravity will, in rough weather, increase the likelihood of movement of cargo within the container or movement of the vehicle itself causing shipboard damage and, in severe weather, possibly endangering the integrity of the ship. The container, if packed according to domestic shipping standards, by persons untrained in the special precautions normally taken for ocean cargoes, is particularly vulnerable to damage. The trailers therefore need to be lashed to the deck securely, a procedure which requires extra time and appropriate fitting both on trailer and vessel, and tie- down apparatus. For ferry services, it is essential that government specify and enforce rigorous safety standards. The maritime services should not have to accept responsibility for unsafely packed trailers. They should be accountable for using safe lashing technology. In 1985 a joint IMO/ILO Guidelines for packing Cargo in Freight Containers or Vehicles was published. The IMO has also adopted a Code of Safe Practice for Cargo Stowage and Securing. If adopted and enforced in China, these two guidelines should reduce safety hazards of this transport vessel. 12. New ro-ro vessels of both types continue to be built, confirming that there is a role for each. For example, the major English Channel operator Sealink has recently placed two new ferries into service capable of accommodating 120 eighteen-meter trailers on two of three cargo decks. By using two different deck levels at both bow and stern, loading and discharge operations can take place simultaneously. This capacity is being added in spite of the competitive challenge shortly of the Channel tunnel. 13. Ro-ro tonnage is also rising at Hamburg. Almost 2.3 million tons of ro-ro cargo was handled in 1991, up from 1.5 million in 1990, about half of this on the short Scandinavian - 69 - ANNEX 4 trade routes. In Italy new services are being opened or expended between the mainland and its islands. A single Miami-based line operates 12 ro-ros between the mainland and Caribbean destinations. 14. Ro-Ro chassis on suitably equipped vessels also have the capability for handling very heavy loads at least cost. These loads would otherwise require the port or vessel to be equipped with very expensive heavy lift equipment. For example, Atlantic Container Line has four 180-ton roll trailers for carrying outsized loads such as transformers and generators. They are moved by specialized tractors. The loads are placed on huge Cargo Bridge pallets, which are lifted on/off the trailers hydraulically, so there is no need for the specialized trailer to travel with the load, as long as there is a similar trailer at the receiving port. In Japan, a cargo vessel has been specifically designed to handle the heavy cargo requirements of steel mills. This ro-ro is engaged in carrying unitized steel coils, up to 90 tons, loaded on 10 ton tare weight pallets. It can carry 29 pallets. The pallet carrying vehicle discharges the pallet onto a lift on board, which then stows the pallet on the cargo deck. All cargo handling is carried out automatically, with the exception of the pallet carrying (port-based) vehicles, and is monitored from a control room via an interactive graphic display. Heavy-lift vessels also have military applications essential to rapid mobilization of wheeled and tracked vehicles, as was evident in the recent logistics for Desert Storm. The Sealift System 15. This is an innovative system developed in Sweden for handling lumber, which could be adapted for handling containers. It could prove viable for short sea container operations, at lower cost than other methods. The handling system requires proloading in port of large "flats' each having a capacity of 96 TEU, containers three high, eight abreast, and four deep. The flats are suspended between a jetty providing access for cargo handling equipment and a smaller pier. The internal distance between these two structures corresponds to the beam of specialized barges. The barge-like vessel would add ballast to float under the platform. Then by discharging ballast, the platform would be lifted onto the vessel deck. To discharge the platform, the ballasting procedure would be reversed. 16. The initial concept envisages a vessel capacity of four platforms or 384 TEU. The concept is to allow small export terminals, which cannot justify the equipment necessary for more conventional on shore container handling methods, to have service on a regular basis. It offers the advantaged of a lift-on/lift- off system at low investment cost. For comparable vessel sizes, a Sealift ship is estimated at $10-12 million as compared to at least $15 million for a conventional ro-ro. Very high vessel utilization rates may be achieved by rapid loading/ unloading. The system, however can only be applied in constant water level conditions. Tidal conditions could severely disrupt a schedule Container Sizes 17. At high-volume ports, the proportion of containers exceeding 20 feet can be greater than 75 percent. The higher this value, the greater is the potential for productivity across a berth. In smaller ports and in countries such as China, which has poorly developed handing capacity for containers in the port hinterlands, the percentage is much lower. In the United States, new orders for containers are often for sizes 45 feet or larger. These have become popular as highway regulations have permitted longer trailers and as rail wagons have been built - 70 - ANNEX 4 to accept them. Although primarily in domestic use, these oversize units are beginning to be used in international trades as vessel designs are being adapted accordingly. Because these sizes offer greater efficiencies where volume of goods shipped are large, one must anticipate a continuation of the trend. Ports and inland transport modes will therefore have to adapt as well. Information Management 18. In intermodal transport particularly, electronic data interchange is no longer just a desirable option. It is an essential ingredient to achieving productivity and customer satisfaction. Application of EDI both reduces time consumed in intermodal interface and also will significantly reduce paperwork and human errors in documentation. Used properly EDI should facilitate the connection between organizations through the exchange of business data in a standard format. A key element is that all parties responsible for a shipment, liner companies, ports, truckers, railroads and agents, be tied into the system. This requires planning in systems compatibility, training of staff, acquisition of the appropriate hardware and software, and a reliable private or public communications network to enable the various parties to communicate. 19. A multifaceted system can provide for Bill of Lading transmission, customer service information, shipment location messages, rate information, tracing from any location, fax/phone automatic notification of units available for pickup/unloading, mainframe-to-fax delivery of custom-created shipment status reports, electronic funds transfer, and electronic mail. In addition to facilitating operations, the data base can be used for planning purposes such as corridor analysis and transit-time studies. 20. The term "seamless" has come to be applied to the goal of intermodal transportation. This is an expression for proving the shipper with a service, which although many parties are involved in the logistics, appears to the customer as a fully integrated operation. One of the greatest challenges to intermodal transport in China will be to achieve this goal. This requires setting specific targets, time phasing implementation, and coordination between concerned parties. Starting from nearly a clean slate in respect to MIS systems, China has the opportunity to take advantage of the lessons learned and the software developed in other countries. The Government can play a key role in standardization of systems and in providing the policy guidance and resources to bring state-owned enterprises and those service providers over which the Ministry of Communications and MOFERT have supervision, into the system. As foreign companies are permitted to operate a full range of transport and broker services in China, there should be a technology transfer dividend in respect to EDI systems. 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