A shift in global maritime trade lanes toward India will adversely impact ports in Asia, including Korea, but new opportunities exist for ports to adopt zero-emission fuels to create new market opportunities, according to maritime analysts Lars Jensen and Tim Power.
Power, Managing Director at Drewry, and Jensen, CEO Vespucci Maritime spoke to the Busan International Port Conference in Busan, South Korea on November 28th.
Jensen described the move of manufacturing away from China and towards India: “Over the past 18 months and to some degree actually even pre-pandemic, we see a shift in part of the sourcing away from especially China and increasingly to the Indian Ocean region where we see exports coming out of the Indian subcontinent. That does not mean that everybody's running rapidly away from China, but it does mean a slow exodus of manufacturing away from China. It moves to Southeast Asia, but increasingly also from the Indian subcontinent…. That also favors vessel routings that go through the Suez Canal and not through the Panama Canal.”
One effect of this could be added trade for U.S. East Coast ports and less imports coming into U.S. West Coast ports.
The move will also adversely impact the Korean Port of Busan: “This would …especially deprive …. a port like Busan of transshipment opportunities. It will take cargo opportunities away as more cargo is shifted. There is also a shortage of smaller feeder ships that will adversely impact Busan because of its role as a transshipment port “relying on feeder ships from other countries to offload into Busan for transport on larger ocean carriers headed for North America.
The impact of the European Union imposing a carbon tax on emissions of ships sailing to European ports means that owners will redeploy newer less polluting feeder ships in European waters and take them away from Asian routes leaving ports like Busan to contend with older feeder ships: “We have carbon taxation coming up in EU and you might say why do we care about that out here in Korea. You will to some degree be impacted. In the small feeder segment, we don't have enough vessels, and that will get worse with carbon taxation being assessed in the EU. That means that the newer, fuel-efficient (and lower emission) feeder vessels will … be redeployed to be used in the EU in order to save on tax, which means that the age …. of feeder vessels in the Asia area is going to get worse over the coming years. You will see older less fuel-efficient vessels deployed in this region as a consequence.”
While there has been a surge in orders for large container ships, there have been fewer orders for feeder ships: “Another element that's going to come up in the next couple of years …. there are not enough small feeder vessels…. You look specifically at the feeder segment, it's an under-ordered.”
Again, Korea will be adversely impacted: “This is going to create a particular challenge for the Korean regional carriers. Korea has a large number of relatively small regional carriers. Strategically that is going to be problematic because they will be faced with increasingly large consolidated competitors. If they insist on being as fragmented as they are today, chances are they will not all survive in the next five years.”
Jensen noted that the situation at the Panama Canal is likely to continue which he believes will increase traffic through the Suez Canal: “We have the low water situation in the Panama Canal, and it is going to get worse. The latest announcement from the Panama Canal is the number of vessel transits is basically going to be cut in half from February. From a carrier perspective, that means more cargo will have to be rerouted through Suez rather than Panama…. That swing will mean fewer transshipment opportunities in Busan. Busan is well located for cargo going across the ocean towards North America. It is not well located if cargo moves through the Suez Canal.”
Jensen predicts this problem will persist for “all of 2024 depending on how long the …weather phenomenon continues. That could also be a problem in 2025 but nobody can predict how long that will take.”
Jensen expects new alliances to emerge among ocean carriers, but he predicts problems for two ocean carriers HMM, the Korean carrier and Yang Ming, the Taiwanese carrier: “And then you have two carriers [HMM and Yang Ming] that strategically are in extremely vulnerable position(s). Both of those carriers are not strategically well positioned, and they are absolutely forced to find relevant new partners, or they will find themselves also facing an extremely difficult battle for the next five years.”
Tim Power echoed Jensen on the challenges facing HMM and Yang Ming: “Then you have …. the two small ones out there, HMM and Yang Ming … I see both of them being sort of caught in the middle. They're not quite large enough to really play up to the big ones … to be truly competitive in an Asian market. I …. believe in the long term …. that they will be absorbed …. For HMM that might not be a positive message to hear out here in Korea, but I do not see them being completely viable on their own… They need to either link up with somebody else or the Korean taxpayers will have to continue to bail them out.”
Jensen noted that in terms of digitalization and decarbonization, carriers are adopting more digitization in their operations including electronic bills of lading: “We see a speed up in digitalization. That was of course something that was going on already before the pandemic, but the speed up I'm seeing right now is there's a slight shift in the focus, especially from the container carriers. The focus is on digital tools that will demonstrably save costs. In the short term during the pandemic when there were massive profits all around, there was a lot of money diverted to digitalization projects that long term will generate value. We are now where container carriers are loss-making and the focus shifts to projects focused on ‘how can we save more money?”
Jensen says there has been progress made by ocean carriers in terms of decarbonization, but it has been slow: “We have decarbonization … where there has been a lot of talk and it is also gradually happening. The one thing everybody needs to realize is that …. nobody wants to pay. Can you find some shippers out there that are willing to pay more? Yes, you can. You have some carriers that are selling, for example, biofuel options that will cost you extra. And yes, they do have customers for that, but that amounts to a very tiny fraction of the customers out there.”
Tim Power noted that digitalization is helping ports improve operations and become more efficient in cargo handling. He noted progress at Chinese ports where there have been consolidations in port operations similar to the collaboration between the U.S. ports of Seattle and Tacoma forming the Northwest Seaport Alliance: “We are seeing steady progress in digitalization, and I must say, having visited China recently, seeing the development of digital tools in the management and efficiency of ports. I see huge progress being made there…. They do more than simply handle cargo. They provide trade zones and port-centric logistics that help to create more efficient, more responsive supply chains. So, this is how ports are actively engaging. They're expanding their scope …they're improving the supply chains that they serve and they're making more money through doing so.”
Power noted the success of merging port operations and cited the example of China: “When markets are particularly difficult and …. where there is excess capacity, cooperation among ports or even mergers among ports can be an effective way of managing the situation. In China, for example, every major city on the coast wanted to have its own port and this led to a massive overcapacity and destructive competition. The central government said, ‘this is a waste of public money, we must rationalize,’ and they created provincial port authorities that then managed the whole situation.”
Power noted a similar situation in Hong Kong “which has been losing volume and losing market share continuously. The terminal operators there formed the Hong Kong Seaport Alliance, and they operate together. And of course, we have (a similar example) at the ports of Seattle/Tacoma … it's very interesting to see the ports which historically were very independent are now cooperating more.”
For ports such as Los Angeles and Long Beach seeking to transition to zero emissions, Power’s analysis will be seen as vindication of their efforts which are more pronounced than at other ports in the United States. Both ports have been highly criticized for adopting goals that embrace zero-emission cargo handling and trucking, but the California ports appear to be following a competitive trend being developed at other ports around the world.
Power sees an opportunity for ports in decarbonization and an energy transition that will reduce costs in the long term.
“This is a huge challenge for ports, but it is also an opportunity for new business. The challenges are how are you going to cope with the cost of carbon in future? We all know that carbon is not properly priced now, at some point it will be, and that will mean that the price of your energy efficiency will have a big impact on your competitiveness. That means decarbonizing port activity. What does that mean? How could it be done? That's the challenge. But the opportunities are being a gateway [port] for new energy [such as] support for offshore wind which is another obvious example and the use of renewable energy generation in your own port can create new opportunities that in due course [include] the provision of new fuels for future ships.”
Power cites the Port of Rotterdam’s success in utilizing nearby offshore wind farms to help the port become a renewable energy generator for hydrogen: “Rotterdam is …. one of the great examples of planning, as a new energy gateway. And they're basically saying, ‘We want to be a hydrogen gateway for Europe.’ They're not the only ones, of course …. Basically, the idea is you connect to offshore wind that gives you renewable electricity to electrolyze water and create hydrogen. You also have berths that allow you to bring in hydrogen … And you connect that all to the European pipe pipeline so you can move these green fuels inland to the infrastructure. Shore power for ships is another key element of this. So that's Rotterdam. Antwerp is doing something similar.”
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