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Cablegate: Container Shippers in Guangdong Suffer a Tumultous 2009

VZCZCXRO1497
RR RUEHCN RUEHGH
DE RUEHGZ #0009/01 0060925
ZNR UUUUU ZZH
R 060925Z JAN 10
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 1248
INFO RUEHOO/CHINA POSTS COLLECTIVE 0424
RUEHGP/AMEMBASSY SINGAPORE 0020
RUEHKO/AMEMBASSY TOKYO 0051
RUEHLO/AMEMBASSY LONDON 0012
RUEHIN/AIT TAIPEI 0306
RUEAIIA/CIA WASHDC 0394
RUEKJCS/DIA WASHDC 0390
RUCPDOC/DEPT OF COMMERCE WASHDC
RULSDMK/DEPT OF TRANSPORTATION WASHINGTON DC 0028
RUEATRS/DEPT OF TREASURY WASHINGTON DC 0229
RUEKJCS/SECDEF WASHDC 0037

UNCLAS SECTION 01 OF 02 GUANGZHOU 000009

SENSITIVE
SIPDIS

STATE FOR EAP/CM, INR/EAP, EEB/TRA/OTP AND EEB/TRA/AN
DEPT OF TRANSPORTATION PASS TO SMCDERMOTT, JSZABAT, KGLATZ
LONDON FOR U.S. IMO REP

E.O. 12958: N/A
TAGS: EWWT ETRD ECON PGOV CH
SUBJECT: CONTAINER SHIPPERS IN GUANGDONG SUFFER A TUMULTOUS 2009

Ref A) 08 Beijing 4679, B) Shanghai 111, C) Guangzhou 218, D)
Guangzhou 009, E) Guangzhou 643

(U) THIS DOCUMENT IS SENSITIVE BUT UNCLASSIFIED. IT SHOULD NOT BE
DISSEMINATED OUTSIDE U.S. GOVERNMENT CHANNELS OR IN ANY PUBLIC FORUM
WITHOUT THE WRITTEN CONCURRENCE OF THE ORIGINATOR. IT SHOULD NOT BE
POSTED ON THE INTERNET.

1. (SBU) Summary: Serving the heart of China's export market,
container terminal operators and carriers in Guangdong Province did
not escape the damaging effects of the latest global economic
downturn. Volumes dropped precipitously in the first half of 2009
and showed only modest signs of recovery in the second half.
Pressure to maintain growth despite the downturn has prompted
Guangdong's port cities to provide incentives to shipping lines in
an effort to bring more traffic to the region. However, these
enticements are poorly targeted to effectively attract international
carriers, according to industry experts in south China. Guangdong's
container shipping industry hopes to have a better year in 2010, but
the optimism expressed by terminal and shipping operators alike is
measured and provisional. End summary.

Guangdong's Container Shipping Business Takes a Dive
--------------------------------------------- -------

2. (SBU) In terms of container shipping traffic, Guangdong Province
was the worst-hit region in all of China as a result of the global
economic crisis, according to local industry experts. Container
terminals operating in Shenzhen and Dongguan saw a significant drop
in volume, particularly between March and June 2009 when volumes
plummeted 30% to 40% year-on-year. There was some improvement
beginning in late summer, said managers at Chiwan Container
Terminal, Co. and PSA Dongguan Container Terminal, and the holiday
season leading into the New Year has helped bring the industry out
of the trough, but it was nowhere close to being back on track.
Overall, they estimated volume for 2009 would be 20% lower than
2008. Container terminals also felt a great deal of downward
pressure on fees charged to the shipping lines as carriers cut their
rates with shippers in 2009, but the terminal operators maintained
that terminal fees were kept at a sustainable level.

3. (SBU) Shipping lines operating in south China have been hit
particularly hard. Maersk, one of the largest foreign-invested
shipping companies in the region, estimated a loss of US$500 million
globally in the first half of 2009, according to a senior executive.
The company is looking at reducing its south China operations as a
result. Representatives of smaller carriers attending the 2009
Trans-Pacific Maritime Asia Conference in Shenzhen (ref E) also
privately reported losses to ConGenOff, though specific figures were
not provided.

4. (SBU) The economic slowdown has affected the development and
expansion of newer container terminals. Da Chan Bay (DCB) Terminal
One CEO Andrew Milliken told ConGenOff that his company's expansion
would have been much quicker if not for the global recession. The
company, which has several foreign investors, had planned to put
into operation additional berths in 2009, but has pushed back the
commission dates. Similarly, the Shenzhen government's plan to
further develop terminal facilities at Da Chan Bay this year have
been postponed to 2011, given current trends, said Milliken.

Local Government Incentives
---------------------------

5. (SBU) In light of the slowdown in container shipping, port cities
in Guangdong have been offering incentives to shipping lines in an
attempt to increase traffic in their ports. The competition among
cities like Guangzhou, Shenzhen, Dongguan and Zhuhai is quite
fierce, said one container terminal executive in Dongguan.
According to him, Dongguan city gives each carrier passing through
Dongguan on an international trade route RMB30,000 to RMB90,000
(about US$4,400 to US$13,000) per port call. The Shenzhen
government offers a similar reward and also awards a one-time bonus
of RMB1 million (about US$150,000) for each new international
service coming to Shenzhen. Additionally, further bonuses are
available if a shipping line establishes a regional office in
Shenzhen. The government also gives a bonus of RMB5 for each

GUANGZHOU 00000009 002 OF 002


twenty-foot equivalent container passing through a Shenzhen port,
according to another executive in a separate meeting. He also said
that the Shenzhen government had been supportive of his terminal by
introducing customers to his company from time to time.

6. (SBU) However, the executive argued that these government
strategies were not well targeted because the incentives were too
low to effectively attract new business to the region. He
speculated that the local governments simply wanted to have the
biggest ports and to be able to compete on the national level with
cities like Shanghai. Other container terminal operators suggested
that instead of bonuses, local governments should focus on factors
that really drive business such as improving the local business
environment and infrastructure.

South China Terminals In Danger of Overcapacity?
--------------------------------------------- ---

7. (SBU) Container terminal operators haven't faced the same
dramatic fluctuations in their business environment that carriers
have seen over the last five years, according to Wu Zhimin, deputy
manager of Chiwan Container Terminal, which has a 15-year history in
Shenzhen. However, he noted that overall supply of terminals in
south China had grown and there weare signs of overcapacity. With
new terminals in western Shenzhen, Humen, Zhuhai, Nansha, and
Dongguan all taking a piece of the market, he believes that the good
days are gone for south China terminals. According to Charles de
Trenck of Transport Trackers, a Hong Kong-based research firm,
Shenzhen's largest port, Yantian, has been losing market share to
ports in west Shenzhen as new terminals there offer cheaper services
for the European route. Milliken of DBC Terminal One, which opened
on Shenzhen's west side in 2007, however, contended that there was
no overcapacity as the market is large enough to accommodate the
current number of terminals, a point he said would be evident once
the global economy recovers.

Intra-Asia Traffic Positive
---------------------------

8. (SBU) While losses appear universal for international services in
2009, particularly the trans-Pacific and European routes, the
intra-Asia market has been performing well, according to industry
experts. At Chiwan Container Terminal and its sister company,
Shekou Container Terminals, the total number of intra-Asia services
exceeded that of trans-Pacific and Europe combined, said Wu.
Executives at Maersk and DCB Terminal One also acknowledged this
trend, saying that the intra-Asian market looked quite good.

Nowhere To Go But Up
--------------------

9. (SBU) Believing that the worst of the global economic recession
has passed, container shipping businesses in south China are
forecasting growth for 2010, with a few caveats. Maersk, estimating
a 2% growth, does not expect to "bounce back" in 2010, but hopes
that it will come close to breakeven, said one of its senior
executives, who added that the company will need more than growth to
come back. He was optimistic that the European route would break
even, but said that the Pacific route would likely show no growth
next year.

10. (SBU) Working under the assumption that foreign trade would
remain south China's focus, Wu of Chiwan said that Guangdong
continued to be a booming area. He projects that container volume
will be up 10% in 2010 compared to 2009. Milliken of DCB Terminal
One said that his customers were quite convinced that the market
would not be as depressed as it was a year ago and there would be
growth in 2010, albeit slow. He anticipates that the first half of
2010 will still be very tough with only 3% to 4% growth compared to
2009. However, if the U.S. and European economies continue to show
signs of recovery, he surmised that there would be significant
growth in the second half of 2010 for all ports in Shenzhen.

JACOBSEN

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