Chinese Ports Face Stronger Tides of Trade War, Consolidation
China’s port industry faces fresh tests in the coming year as the trade war with the United States starts to take a toll on business and as the central government steps up efforts to promote port consolidation and price cuts, a UBS Securities analyst said.
The escalating trade frictions since March have led to several rounds of tariffs and forced traders to adjust shipping schedules, and the major effects on port business will start to show in the first quarter 2019, said Xu Lin, an industrial and infrastructure analyst at UBS Securities.
The rapid growth period of China’s port industry backed by surging trade volume has ended, Xu said. Port operators now need to search for more sustainable growth by improving management and services, as well as through mergers and acquisitions at home or abroad, he said.
Chinese ports handle 73% of the country’s exports to the U.S. and 56% of imports to China from the U.S., leaving them exposing them to the risks of the deepening trade war.
Traders in the two countries have rushed to deliver shipments as early as possible in hopes of avoiding new tariff increases, leading to elevated port turnover in the first three quarters, according to Xu. He predicted that fourth-quarter freight volume in Chinese ports will remain higher than in previous years despite the Christmas and New Year holidays.
China’s exports jumped 15.6% in October from a year ago to $217.3 billion, according to the General Administration of Customs (GAC). The rate extended an acceleration in export growth since August, following imposition of the first batch of punitive tariffs by the U.S.
Imports soared 21.4% year-on-year to $183.3 billion in October, following a 14.5% gain in September, according to the GAC.
Xu said the rush of shipments will run out in the first quarter of 2019 as many deliveries have been accelerated.
“If China and the U.S. can’t reach an agreement (to settle the trade war), ports will be under pressure for growth next year,” Xu said.
President Xi Jinping and President Donald Trump agreed on a 90-day truce to the tariff fight on Dec. 1 during a meeting in Argentina, providing an opportunity for the world’s two biggest economies to negotiate a deal.
Xu said the trade war affects goods mainly on value rather than volume, limiting its impact on ports. In the worst scenario, “container volume handled at Chinese port may decline as much as 5% in 2019” from this year, Xu said.
In addition to the trade war, Chinese port operators may face greater challenges from the government’s vows to reduce their service charges and the ongoing campaign of industry consolidation, Xu said.
The National Development and Reform Commission (NDRC), China’s top economic planner, launched an antitrust investigation of the port industry last year and concluded in November 2017 that port operators overcharged customers. The NDRC has since required ports to lower their fees.
In September this year, the State Council, the cabinet, again called on ports to fix their pricing system and reduce charges for container business.
Chinese authorities are also pushing ahead consolidation among ports in hopes of improving industry efficiency and reducing excess capacity. Provincial governments are the main driver of the consolidation with the goal of creating a leading port in each province with water access, according to Xu.
In one of the latest deals, the Anhui provincial government in central China unveiled a plan in early December to merge 10 local port and shipping companies into one.
However, the government-backed consolidation faces challenges to effectively integrate businesses and address complicated debt and shareholding issues at some companies, Xu said. He suggested the adoption of debt-for-equity swaps in port mergers or inviting big shipping companies to lead the deals to help the consolidation move smoothly.
Contact reporter Han Wei (firstname.lastname@example.org)
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