The future of Hong Kong as the world's busiest container port has been jepardised by the failure to negotiate a deal on the colony's political structure. The recent breakdown of talks between the UK and China and the failure to resolve even the simplest issues, leaves many infrastructural plans in the balance. But whilst the wrangling between Beijing and London is set to continue, the shipping industry is losing no time in turning its attention to mainland ports.
For their part, the provincial and city authorities on the mainland that are home to China's major ports need Hong Kong investment to increase handling capacity. The Ministry of Communications estimates that the volume of trade passing through its major ports is 20 per cent greater than they were designed to handle. This means that they often have to wait days before they can be unloaded.
Hutchison Whampoa, the business conglomerate which wields considerable influence in the Hong Kong container port sector, is reluctant to wait for the. political impasse to be concluded amicably. Through its terminal operator, Hong Kong International Terminals (HIT), Hutchison is one of the major names in the controversial container terminal nine (CT9) in Hong Kong. The fact that it has recently finalised terminal agreements in Yantian, Shanghai, Zhuhai and Gaolan, and appears to be impatient with the delays at CT9, is reflective of a mood sweeping through most of the shipping industry.
Hutchison Whampoa has continued its aggressive campaign to obtain majority shareholdings in strategic Chinese container and general cargo ports with the securing of a 70 per cent stake in Yantian International Container Terminals (YICT),
Hutchison top man, Mr La Ka-Shing met with Chinese officials in Beijing in October to sign the agreement which initially allows HIT the right to operate and further develop two phases of the port project. The multi-phase project is expected to facilitate Yantian becoming the major cargo handling terminal in the south eastern sector of the mainland.
Partnering HIT in its majority holding will be China's largest shipping company, COSCO, and Japanese finance houses, Mitsui and Kumagai Gumi (HK) Ltd. Shenzhen Dongpen Industries Company Ltd will hold the remaining 30 per cent share in YICT and Dongpen's brief will be to provide the hardware necessary for future construction projects.
Phase One development will comprise two container and four general cargo handling berths and with construction work now well in hand, the entire site should be fully operational by early 1994. Within Phase Two, three container handling berths are being planned and early reports say that these should be fully operational during 1995. Estimated cost for the construction and development of both phases is placed at US$880m.
Situated off the eastern approaches to Hong Kong, Yantian will be developed to handle the latest generation containerships and will be capable of handling general cargo vessels up to panamax size. Projected container throughput by 1996 is 1.7m teu.
In Hong Kong the official view is still that ports such as Yantian will be constructed to act in a complementary role to the territory's sprawling Kwai Chung terminals, but many shippers disagree with such claims. They feel that the feet-shuffling over Hong Kong CT9 and the continuing problems between the UK and China over the future of the territory could see the whole Tsing Yi project dropped. With that in mind, terminal operators such as HIT are looking elsewhere to develop their positions primarily as China trade outlets as they grow tired of playing the waiting game in Hong Kong.
For cargo handling purposes, the five container berths at Yantian will all be fitted out with post-panamax gantry cranes giving fair indications of the type of vessel expected to use the new port. At present only American President Lines and Hyundai Merchant Marine operate vessels of over panamax dimensions. However Denmark's Maersk Line and Japanese majors, Nippon Yusen Kaisha and Mitsui-OSK Lines have recently ordered new vessels of this type. Importantly, representatives from all these companies have visited Yantian in recent months.
Wharf pulls out
When the Yantian port plan was first mooted in February 1993, Hutchison Whampoa was joined by Peter Woo's Wharf Holdings in initial bidding for the development rights and for several months it looked as if the two conglomerates would be taking on a joint venture deal. However by early summer, Wharf's interest had seemingly dwindled and without any official announcement, the group edged out of the rights race, leaving Hutchison on its own.
Should Wharf have tied up a deal with the Li Ka-Shing business empire, it would have questioned Peter Woo s continued involvement in another of Hong Kong's major terminal operators, Modern Terminals Limited (MTL). MTL seems to be running through a bad patch at the moment with shareholders such as Wharf, Maersk, P&O and Swire all showing impatience at the way MTL management seems hesitant in developing across the border on the mainland.
The restless MTL shareholders have shown interest in initiating their own development programmes in places such as inland Wuhan (Wharf) and, more importantly, Shekou (P&O and Swire). In doing so they even hinted that unless MTL takes a more leading role in mainland port development, a major share-holding shake-up could evolve leading to big names pulling out of MTL. However, analysts say that such a move would be the last resort.
Perhaps the most outstanding revelation comes from normally conservative Maersk Line, which hold a 16.7 per cent share in MTL. Whilst nobody in top management will confirm such an intention, inside sources at the Maersk Hong Kong office say that management have been meeting in Copenhagen to discuss leaving the MTL altogether. The fact that Maersk officials have visited Yantian port in the last few months on frequent occasions, adds more speculation.
Maersk has a considerable number of representative offices in China but in the next few months a new central coordination centre, entirely under Maersk control, will be opened in Beijing.
P&O Asia and the Swire Group's move into Shekou is indicative of their preference for opportunities across the border. ' In mid-November ? three months after news of the move first broke both parties finally confirmed that they were taking a 50 per cent share-holding in Shekou Container Terminals Ltd (SCT). The shares were acquired from China Merchants (Holdings) Ltd (CMH) and COSCO at a total cost of US$80m.
One sticking point which had delayed confirmation of the deal was the replacement of two mainland managers to other locations operated by CMIL Under the deal, two of P&O's most experienced port management executives in Sydney are to take up posts in Shekou in early 1994.
From January 1 next year, P&O will manage the first two phases of the SCT project which when finished will have an annual throughput of 550,000 teu. The project involves the management of two berths capable of handling fourth generation post-panamax container-ships of .over 4,000 teu capacity. P&O also has an option to acquire a share in the creation of two extra berths which are included in Phases Three and Four.
The chairman of P&O, Lord Sterling, commented, "The Shekou project represented P&O's first major step into management and ownership of materials handling facilities in mainland China, and is the first in a series of planned acquisitions in accordance with our strategic expansion in Asia."
Meanwhile P&O Containers is still sending its vessels into Shekou to load Chinese goods bound for Europe. At least one sailing a week is being made, but the vessels are also loading in Hong Kong as well, adding weight to earlier comments by P&O that it was "in no way considering pulling out of Hong Kong and using Shekou as an alternative".
In another development which strengthens the shipping capacity of the mainland, two major container carriers, Denmark's Maersk Line and the US liner company American President Lines (APL) have introduced new lines between China and the Japanese ports of Yokohama and Kobe. The move is part of an effort to find a shorter and more economical routing from central China into the US west coast.
With trade expanding from central China, Maersk and APL have started regular services out of Shanghai using vessels of around 500 teu capacity. This tonnage links up in Kobe and Yokohama with established transpacific trade routes serving the US west coast ports of Long Beach and Oakland.
Interestingly, Maersk has also linked Dalian with Japan by a separate route, deciding against the much-tried service of others who prefer to ship their cargoes into Korean ports.
Further south at the growing port of Xiamen, several overseas companies, including Sinagpore's Regional Container Lines (RCL) and South Korea's Cho Yang Shipping, have set up representative offices in the port and started services into Hong Kong. Xiamen reckons on handling 100,000 teu containers in 1993 and in 1994 the figure is expected to rise to over 200,000 teu.
All these developments raise a challenge to Hong Kong's container operations. The bubble seems close to bursting. *
COSCO in expansionary mood
China's largest shipping organisation, China Ocean Shipping Co (COSCO) is expanding its containership fleet and taking steps to satisfy the aim to become one of the world's leading carriers by the end of the decade.
Close examination of the company's existing and proposed new building programme, shows that over 20 large containerships, none of which are less than 1,700 teu capacity, are being built or have recently been completed for COSCO. According to the Bei jing headquarters, all the vessels will be phased into either transpacific trades or the long haul service form the Far East into northern Europe.
The overall capacity increase COSCO is set to acquire through the new vessels relates to around 40,000 teu which will practically double existing slot space on both services. Discussions are presently taking place between COSCO and various line agencies in the US on the possibility of starting a second transpacific service to supplement the existing link which runs from Asia into Long each, Oakland, Seattle and Vancouver. If such a move is made, then the new look COSCO services into the US west coast would probably take up a Pacific South-west and a Pacific Northwest rotation in a similar manner to other mainline carriers.
Shipyards in Germany, South Korea, Japan and Taiwan are presently constructing the new COSCO vessels, although in the case of Taiwan and South Korea the vessels will be placed on charter to COSCO from Hong Kong-based companies.
The largest are around 3,800 teu capacity and are being built in Germany and Japan. It is these vessels which will probably form the backbone of the new Pacific service, although as delivery of the first is not expected until late next year, COSCO feels it has time enough to make a final deployment decision by mid-year.
Meanwhile through an intricate and well-planed time charter deal involving Hong Kong-based Kenwa Shipping, itself a mainland China-backed company, COSCO is to receive four 3,500 teu vessels from China Shipbuilding Corporation in Kaohsiung. These vessels were ordered in 1992 by a purposely set up Panamanian-registered company known as Windermere (Holdings) which has an office in the same building and has the same chairman as Kenwa. Interestingly, the contract was subsidised by the Taiwan government, although to what extent is being kept under wraps. The first of the vessels, known as Empress Heaven was delivered in October, and the remainder will follow at two monthly intervals.
When this year s figures are released, they are likely to confirm that COSCO carried over 20 per cent of Chinese exports to the US west coast ports and the majority of this is railed across to the New York area. By the end of the decade the amount is expected to increase to 40 per cent and that is a worrying factor for the other established carriers such as Maersk Line, Sea-Land and American President Lines.
These carriers fear that they will see some of the dedicated customers turn to the Chinese company and the only way to stop that will be to drop rates. If that starts to happen, then problems could certainly start to emerge.