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ZNR UUUUU ZZH
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INFO RUEHOO/CHINA POSTS COLLECTIVE 0424
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RUEHKO/AMEMBASSY TOKYO 0051
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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