long term outlook for port development in china · total cargo throughput, 2012 [m mt] 3...

Long term outlook for port development in

Port Development Forum

Anthonie Versluis, Partner

Shanghai, March 25, 2014

port development in China

Today's agenda

1. Latest economic trends and developments

2. Mega trends in global shipping

3. China's economy and ports in 20 years

4. Throughput forecast methodologies

2China Port Conference 2014_v5.pptx

This document shall be treated as confidential. It has been compiled for the exclusive, internal use by our client and is not complete without the underlying detail analyses and the oral presentation. It may

not be passed on and/or may not be made available to third parties without prior written consent from Roland Berger Strategy Consultants. RBSC does not assume any responsibility for the completeness

and accuracy of the statements made in this document.

© Roland Berger Strategy Consultants

4. Throughput forecast methodologies

5. Implications for investors

World GDP growth rate compared with world trade growth rate [%]

World trade growth rate is commonly outperforming GDP growth rate, indicating enormous opportunities

20%

25%

World trade growth rate

World GDP growth rate

• World trade growth is more volatile than GDP growth. However, it

1 Latest economic trends and developments


-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

1980 1985 1990 1995 2000 2005 2010 2015

growth. However, it recovers quicker and stronger

• World trade growth is outperforming GDP growth by a factor of ca. 1.5

Source: IMF, UNCTAD, Roland Berger

Economic recovery has been driven by surging trade from the US and developing nations in particular

130

140

150

120

125

130

135

150

160

170

US Europe Developing nations

2006 value = 100 2006 value = 100 2006 value = 100

Total Export-Import by value



70

80

90

100

110

120

130

Jan-14Jan-12Jan-10Jan-08Jan-06

70

75

80

85

90

95

100

105

110

115

120


70

80

90

100

110

120

130

140


Export

Import

Export

Import

Export

Import

Source: : Central Planning Bureau, Netherlands

Asia not only contributes the most to the total maritime trade, but has also shown a steady growth in its market share

6,000

7,000

8,000

35

40

45

50

%Million tones

Maritime trade - North America Maritime trade - Europe Maritime trade – Asia1)

6,000

7,000

8,000

35

40

45

50

%Million tones

6,000

7,000

8,000

35

40

45

50

%Million tones



0

1,000

2,000

3,000

4,000

5,000

0

5

10

15

20

25

30

35

12111009080706

% of world export% of world importExportImport

1) Developing nations in Asia

Source: Review of Maritime Transport 2013, UNCTAD

0

1,000

2,000

3,000

4,000

5,000

0

5

10

15

20

25

30

35

12111009080706

0

1,000

2,000

3,000

4,000

5,000

0

5

10

15

20

25

30

35

080706 12111009

Asia (led by China) was not only the least impacted by the crisis, but is also expected to lead future growth

8.7%

10.4%

7.7%

Economic performance and outlook by region (growth rate of GDP)

> Tepid growth amid strong fiscal consolidation

> Downside risk to growth outlook with US monetary policy tapering

> Growth remains weak due to structural weaknesses

> Subdued economic outlook

> Growth driven by strong consumption and investment

> High growth expected to continue

> Resilience from strong domestic demand and intraregional trade

> Dip in 2013 forecast due to political tension/ natural disasters in certain countries2)

> Slowdown as a result of structural issues and weak export demand

> Weak outlook due to sluggish consumption and investment


6China Port Conference 2014_v5.pptxSource: Asian Development Outlook 2013 and Asian Development Outlook Supplement December 2013, ADB; IMF World Economic Outlook Database

8.7%

6.5%

3.4%

1.8%

7.7%

-4.4%

-2.8%

6.0%

4.7%

8.2%

1.7%1.8%

5.0%5.5%

6.5%

-0.3%

2.8%

4.7%4.8%

6.7%

0.0%

1.6%

South Asia

1.4%

East Asia

6.8%

EuropeUSA South East Asia

1) Forecasts based on IMF (for USA and Europe) and ADB (for East Asia, South East Asia and South Asia); 2) Political tensions in Thailand and typhoon in Philippines

20131)2012201120092007

Over the years, liquid bulk trade has gradually declined, though still remaining the largest, while dry bulk has consistently increased

6%

10% 14% 14% 15% 15% 14% 15% 16% 16%

30%26%

32% 28% 27% 27% 26% 26% 24% 24% 24%

16%

24%

3%

Outlook

> Oil and gas

– Marginal growth

– Economic slowdown

and high oil price

World maritime trade tonnage by cargo type

2 Mega trends in global shipping


51%44%

36% 34% 35% 34% 33% 34%

16%25%

22% 24% 24% 24% 25% 27% 28% 28% 29%

10% 14% 14% 15% 15%

30%32% 31%33%

29%

20082007 20121980 20001990 2005 20132)2011201020092006

and high oil price

> Major dry bulks

– Strong growth

– Asian demand for iron

ore and coal

> Container

– Slower growth

– Slump in European

import demand and

global export volumes

ContainerOil and gas Other dry cargoFive major bulks 1)

Source: Review of Maritime Transport 2013, UNCTAD

1) Consists of iron ore, grain, coal, bauxite/alumina and phosphate rock2) Based on a forecast by Clarkson Research Services

Total merchandize trade growth in China

Global crisis had significantly impacted China's maritime trade; however, recovery has been strong and quick

22%

18%

23% 19%

17%

25%

21%

17%

24%

Merchandize import

3 China's economy and ports


-19%-17%

-18%

% growth post-

crisis: 2010-2012

% growth mid-

crisis: 2009

% growth at of

start crisis: 2008

% growth pre-

crisis: 2000-2007

Total merchandize trade

Merchandize export

Merchandize import

Source: WTO statistics, China Statistical Abstract 2013

Growth will come on the back of some of the largest ports in the world that are located in China

Top ten ports in the world

538

736744

Total cargo throughput, 2012 [m MT]

3 China's economy and ports in 20 years

Inner Mongolia

aut. region Jilin

Heilongjiang


301365373

402434442

476538

Tang

shan

Dal

ian

Qin

gdao

Yin

gkou

Gua

ngzh

ou

Rot

terd

am

Tia

njin

Sin

gapo

re

Sha

ngha

i1)

Nin

gbo-

Zho

usha

n

Source: Port of Rotterdam statistics

1) Including domestic trade and river trade

Hebei

Shanxi

aut. region Jilin

Jiangsu

Zhejiang

Anhui

Fujian

Jiangxi

Shandong

Henan

Hubei

Hunan

GuangdongGuangxi Zhuang

aut. region

Hainan

Sichuan

Guizhou

Yunnan

Tibet aut. region

Shaanxi

Gansu

Qinghai

Ningxia Hui aut. region

Xinjiang Uygur aut. region

Chongqing munic.

Shanghai

Tianjin

Qingdao

Dalian

Guangzhou

Ningbo

Nanjing

YingkouTangshan

China's economic development in its key growth regions on the east coast will continue to drive port throughput, led by the Bohai Rim

Economic development

2,120

2,314Harbin

Changchun

Bohai Rim

Economic Circle

Total cargo throughput [m MT]


CAGR: 13%

CAGR: 15%

10China Port Conference 2014_v5.pptxSource: China Statistical Abstract 2013

291437

347

181

762

972

772

421

1,586

1,942

1,324

632

2,120

1,555

663

Pearl Delta OthersYangtze Delta Bohai Rim

2005 20102000 2012

Wuhan

Shenzhen

Shanghai

Beijing

Chongqing

Tianjin

Hangzhou

Chengdu

Shenyang

Qingdao

Suzhou

Changchun

Dalian

Zhengzhou

Xi'an

Xiamen

Guangzhou

Ningbo

Nanjing

Kunming

Yangtze River Delta

Economic Circle

Pearl River Delta

Economic Circle

CAGR: 11%

CAGR: 13%

Throughput growth of top Chinese ports

Throughput growth of ports in China has recovered since the global crisis

17%

25%

14%

Annual growth (’08-’09)





Tianjin

8%7%

Shanghai

9%

-3%

5%

Guangzhou

6%5%

11%

Ningbo-

Zhoushan

9%

11%

14%

5%

Qingdao

9%

Source: WTO statistics, China Statistical Abstract 2013

China is expected to become a high income economy in the next ~20 years and growth is likely to stabilize at global benchmark levels

Chinese economy projections


Real GDP growth rate forecasts, 2013-2040 [%]

10

11

GDP per Capita (PPP) forecasts, 2013-2040 [USD]

39,914


0

1

2

3

4

5

6

7

8

9

2005 2010 2015 2020 2025 2030 2035 2040 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040

10,425

15,471

26,174

Source: IMF WEO Database, CIA World Factbook, RB analysis

Accordingly, China's production tonnage output will be constrained, as the GDP will be driven primarily by the services sector

60%

70%

80%

Algeria

Myanmar Indonesia

MalaysiaThailand

China today

Industrial & agricultural share of GDP [%]

GDP Contribution of Industry and Agriculture vs GDP per Capita, 2013



0%

10%

20%

30%

40%

50%

0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000

ArgentinaAustralia

Brazil

China

Germany

HungaryIndia

Iran

Japan

Luxembourg

Malaysia

Mozambique

Poland

Russia

Singapore

Korea

UK USA

Venezuela

China in 2040

GDP per Capita (PPP) [USD]

Source: IMF WEO Database, CIA World Factbook, RB analysis

When countries become more developed, their economies become more dependent on the services sector, with a stagnating GDP share of industry & agriculture (and stagnating output in tons)

China's industrial & agricultural output is expected to grow to 25 bntons by 2040, and the total port throughput would rise to 15 bn tons


China industrial & agricultural output [bn tons] China total port throughput [bn tons]

25.2

21.315.5

High scenario

Low scenario

Base case


18.2

15.1

12.310.9

20352030202520202015 2040

15.5

12.7

10.5

8.4

20402035203020252020

6.6

2015

5.6

Source: China Statistical Yearbook, China Port Yearbook, RB analysis

Port dependency

ratio analysis

When compared to other economies, despite enjoying large trade volumes, China still has a lot of potential to grow even further

4,000

4,500

5,000

350

400

450

150

200

Total exports and imports, 2012 [USD bn] Trade dependency index1), 2012 [%] Trade per capita, 2012 [USD '000]


Large trade volume…… but low Trade Dependency Index… … and still low trade per capita


0

500

1,000

1,500

2,000

2,500

3,000

3,500

Mal

aysi

aT

haila

ndB

razi

lS

inga

pore

Rus

sia

Indi

aN

ethe

rland

sF

ranc

eJa

pan

Ger

man

yC

hin

aU

SA

1) Total trade/GDP

0

50

100

150

200

250

300

350

Bra

zil

US

A

Japa

n

Indi

a

Rus

sia

Ch

ina

Fra

nce

Ger

man

y

Tha

iland

Net

herla

nds

Mal

aysi

a

Sin

gapo

re

0

50

100

150

Indi

a

Bra

zil

Ch

ina

Rus

sia

Tha

iland

Japa

n

US

A

Mal

aysi

a

Fra

nce

Ger

man

y

Net

herla

nds

Sin

gapo

re

Source: World Trade Organization

We have a well-defined methodology for forecasting port throughputs that has been successfully deployed in various projects

> Assess the existing production base of the various regions within the port's hinterland

> Secondary research on statistics of the various regions

> Regional reports

Existing production capabilities

3

> Analyze the performance and determine outlook of the various industries within the region

> Assess impact (if any) of national economic development plans on the growth of these industries

Industrial sub-sector trends2

> Achieve deep understanding of the region's macroeconomic situation and outlook

> Achieve deep understanding of the national/provincial development plans

> Achieve deep understanding of current

Macro-economic outlook & trade analysis

1

4 Throughput forecast methodologies


> Regional reports

> Conduct inter-modal and competitive analysis for the throughput demand

– For each hinterland region

– Vis-à-vis competing ports

> Determine the port's market share by cargo type for each region

> Determine total port throughput demand for the port

Port throughput demand forecast for the port

6

growth of these industries

> Determine total throughput demand associated with the industrial production

– Raw materials / Products

– Imports / Exports

> Agglomerate throughput demand by cargo types (dry bulk, containers, etc)

Hinterland total port throughput demand

5

> Achieve deep understanding of current trends in logistics and maritime trade in the country

> Apply macroeconomic and individual sub-sector trends to the respective industries within the port's hinterlands

> Determine future hinterland production

Future hinterland production

4

Analysis based on transportation economics shows ports of preference for shippers

Intermodal linkages and cost analysis to determine preferred port

Port X

Destination D

> Total transportation cost are determined by:

– Overland transport cost: Distances between ports and origin/destination

– Port cost: Cargo handling charges & other fees at each port

– Sea-leg transport cost: Vessel and voyage related costs (incl time losses)

> Factors, variables:

– Origin/destination: Location of source & destination markets, distance to ports

– Port of call: Ports used at both origin and destination ends



Port A

Port B

Port Y

Origin O

– Port of call: Ports used at both origin and destination ends

– Cargo types: Container, dry bulk, liquid bulk, break bulk, RORO

– Vessel size: 2,000 DWT, 10,000 DWT, 20,000 DWT, 50,000 DWT etc.

Sample : Dry bulk from O to D on a 20,000 DWT vessel

Route Overland

cost

Origin Port

costs

Sea-borne

cost

Destination

Port costs

Overland

cost

Total cost

O-A-X-D 45.6 (O-A) 25.0 (A) 5.1 (A-X) 20.9 (X) 53.2 (X-D) 149.9

O-A-Y-D 45.6 (O-A) 25.0 (A) 3.9 (A-Y) 28.4 (Y) 68.4 (Y-D) 171.4

O-B-X-D 38.0 (O-B) 19.2 (B) 6.1 (B-X) 20.9 (X) 53.2 (X-D) 137.4

O-B-Y-D 38.0 (O-B) 19.2 (B) 4.6 (B-Y) 28.4 (Y) 68.4 (Y-D) 158.7

Costs in RMB per tonLeast cost route

Sample analysis

Total transportation costs (RMB/tonne) Total transportation costs (RMB/tonne) Total transportation costs (RMB/tonne)

Ports in Bohai Bay – What is their future?

Distance to port is the key consideration to determine port of choice, as overland transportation costs account for 70-90% of total costs

Total transportation costs from Jinan to Shanghai (selected example)


28

200

12250

30022

18

Dry bulk via Qingdao Port Container via Yantai Port Liquid bulk via Weifang Port

35

200


> Overland transportation costs strongly overshadows other cost factors – port costs, length of sea-leg, shipping costs

– Geographical location of hinterland viz. the port is the key consideration to determine demand side forecasts

173145145

185

28

0

50

100

150

TotalShippingPort costsOverland

277259298

259

0

50

100

150

200

250

Port costsOverland Shipping Total

156140 140

16

190

0

50

100

150

Shipping TotalPort costsOverland

87% 73%79%

xx% % Overland transportation costs

Possible long term winners and losers in the Bohai Bay

Ports closer to key hinterland areas will have sustainable long-term competitive advantage; other ports will see more constrained growth

Hinterland C

For ports towards the north of the bay

Hinterland B Yingkou

Ports with high competitive advantage

> Yingkou, Qinhuangdao, Tianjin, Weifang

– Close to their hinterlands

– Cost advantages to shippers

– Hinterland growth leaders – Shandong, Beijing, etc

5 Implications for investors


Hinterland A

For ports towards the south and south-east of the bay

For ports towards the west of the bay

Qinhuangdao

Tianjin

Weifang

Qingdao

Rizhao

– Hinterland growth leaders – Shandong, Beijing, etc

> Qingdao, Rizhao

– Along main shipping lanes

– Transhipment business

– Immediate local hinterlands

Ports with high competitive advantage

> All other ports further from promising hinterlands

> More expensive for shippers

> May still be able to sustain

– Specific port-dependent industries (e.g. refineries)

– Focus on narrow niches

Source: Roland Berger analysis

Note: Hinterland bubbles are for illustrative purposes only, and do not convey any market size information

Investor's looking to invest in the ports in China need to validate the proposal against a set of key internal and external criteria

5 Implications for investors

Key decision factors in port investment

Location and outlook

> Proximity to industrial / agricultural hinterland

> Proximity to population, population trends

> What are the cargo drivers?

Competition

> Who are the competitors

> Could new ones emerge nearby?

> Trends, developments, scenarios, impacts


> What are the cargo drivers?

> What is the development outlook by driver?

> Trends, developments, scenarios, impacts

> How can we compete successfully?

Regulatory environment

> Terms of concession

> Termination and transfer clauses

> Land ownership

> Pricing regulations & constraints

> Investment commitments of regulator

Other considerations

> Terminal vs port operator? What am I?

> Project vs program approach?

> Expandability? Demand-supply balancing

> How much physical flexibility?

> Financial returns?

Investing in ports?

long term outlook for port development in china · total cargo throughput, 2012 [m mt] 3...

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