Logistics: Networking Asia with the World
Richard NICHOLSON,Vice President, AP Moller – Maersk
Good Mmorning Ladies& Gentlemen,
Mr. Chairman. Thank you for that kind introduction & let me also take this opportunity to thank Boao Forum CEO Summit for inviting me here today.
The ports industry is indeed a very exciting one, and I appreciate the opportunity to share A.P. Moller Maersk Group’s views on some of the key developments our terminal industry is going through. First just a few words about my own company. Then I’d like to go on and consider some of the changes the industry is going through and how ports are responding to that change.
APM Terminals operates more than 38 terminals throughout the world, many of which we developed ourselves & others which we developed in consortia with other operators such as with Cosco Pacific here in China. A. Our core business is the operation and management of container terminals, logistics and liner operation.
With a world market estimated around 360 million TEU in 2004, the container terminal market remains fragmented & fiercely competitive. We do see, though, that a number of larger operators are emerging as they prove able to create more value faster. The largest operators include Hutchison and PSA with their respective strongholds in Hong Kong and Singapore. Ourselves and P&O Ports with larger geographic coverage, and EuroGate with a primarily European base. The large global operators are handling about 50% of the total market, state operators and other independents split the other half more or less 25/25. But as shipping lines demand ever greater efficiencies, larger global port operators are better positioned to respond with new technology so we expect further consolidation in the future.
The container shipping market is closely linked to global economic growth. An old rule of thumb says that shipping growth tracks GDP growth at about double the rate….so a 2.5% GDP growth creates a 5.0% growth in container shipping. Throughout the world, the major economies are developing favorably, and shipping growth is further assisted by the lower logistics costs that are allowing outsourcing of production most notably to Asia, and among the coastal cities of China in particular. In real terms, we see China generating more than 26% of total global container port throughput today and expect that number to increase to 32% by 2010.
The development of container handling volumes over the last 25 years also clearly shows that Asia – and notably China, is indeed the growth and development locomotive in global trade. But a large part of these volumes are driven by consumption in North America and Europe, so this is not the time to be content with ourselves. We are already now seeing regular congestion in key ports. The major ports on the US West Coast, in the United Kingdom, and in North Western Europe are cases in point. For the first time, congestion is proving to be a real issue also in the mature economies. If terminals get backed up on the receiving end, they are eventually going to get backed up at origin here in China.
With increasing production and exports in Asia, most of which is going to North America and Europe, imbalances are worsening, and containers remain longer in terminals. The situation is further amplified by increasing dwell times in ports. This is partly because shipping lines store empty containers longer, and partly because shippers are forced to plan their supply chain with a greater inventory element of “just in case” instead of the traditional low inventory “just in time,” capacity is falling behind. We port operators and shipping lines need to tackle this issue, and now!
We also see changes in customer composition. Our customers, the shipping lines, are getting bigger and so are their vessels. It seems now a certainty that container vessels more than 350 meters long, and with 22 containers across will be deployed in the main East-West trade lanes shortly. We can be sure they will demand more from port operators, and rightfully so. Port operators must stay alert and attentive, or carriers will migrate to other more efficient ports.
It is said that as a general rule, a 350 meter container vessel loses 3,000 US dollars for every hour it sits idle in port. Now that is a strong incentive to find efficiency! Maersk Line after the acquisition of PONL will be two times larger than the next largest carrier……More mergers and acquisitions are sure to come as the industry responds to changing market conditions.
Most market analysts forecast a container terminal market growth of around 10% annually in the coming years. Accordingly, Drewry Shipping Consultants expect the market to grow from about 360 million TEU in 2004 to about 575 million TEU four years from now. It is difficult to map actual capacities, but we generally estimate the design capacity of existing terminals to be around 400 million TEU. It is evident that the industry must rise to the challenge – otherwise we will create bottlenecks and retard economic growth!
Despite capacity growth, the utilization rate is increasing. This trend may further accentuate current congestion issues. Unless significant new capacity additions are found, severe bottlenecks may occur. Bottlenecks are emerging in key parts of the world, and global utilization will increase to 97% in 2009 (from 78% in 2004) unless further capacity beyond known projects is added.
The critical time for more port capacity to become available has arrived. But, there is a long “time-to-market” for new port facilities. It is not just the physical construction time, but also the necessary approval processes. Be they related to regulatory aspects, environmental concerns or other matters, it is important that the right decisions and commitments for expansion are made right now. As an industry we cannot afford complacency. We must review our current value propositions, and align our actions with our expectations for the future. We must consider market growth and how the trades develop, whether we are looking at direct calls, feeder ports, or hub facilities.
A lot of actions ARE being taken throughout the supply chain. Businesses are getting bigger, and all are trying to optimize their supply chains by working around the clock, managing stocks and making use of a wider spectrum of transport services. Carriers are getting increasingly involved in the terminals industry, where they want to protect their access to sufficient and efficient facilities. Are we planning for the future with sufficiently long-term views? The right mix of actions and activities taken now, will position our ports well for the future.
There are a number of issues ports and terminals must deal with urgently to optimize current production. It is simply a fact that at this point we cannot build enough new facilities to keep up with underlying trade growth, so we must also optimize our current operations. We must increase our R&D efforts, and find the technology that will facilitate a quantum leap forward in productivity. We must increase yard densities by stacking higher and wider. We must improve planning, and we must ensure the necessary IT support is in place. And, of course we must look into developing more and larger facilities. But, we must do so in way that respects and protects the health and safety of those involved; as well as finding ways to ensure that we don’t harm our precious environment.
I’d like to conclude on an upbeat note about China, certainly the most exciting place to be in the terminal industry today …. Ten out of top 40 world container ports are in Greater China and moving up the rank ……It’s inevitable that Shanghai and Shenzhen will soon pass Hong Kong and Singapore to become the #1 & #2 global container ports. Ningbo will overtake New York. Guangzhou will surpass Tokyo…... When Dalian jumps over to the top 30 rank, we will be proud to say that one third of the world top 30 ports are located in Greater China.