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
3China Port Conference 2014_v5.pptx
-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
1 Latest economic trends and developments
4China Port Conference 2014_v5.pptx
70
80
90
100
110
120
130
Jan-14Jan-12Jan-10Jan-08Jan-06
70
75
80
85
90
95
100
105
110
115
120
Jan-14Jan-12Jan-10Jan-08Jan-06
70
80
90
100
110
120
130
140
Jan-14Jan-12Jan-10Jan-08Jan-06
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
1 Latest economic trends and developments
5China Port Conference 2014_v5.pptx
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
1 Latest economic trends and developments
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
7China Port Conference 2014_v5.pptx
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
8China Port Conference 2014_v5.pptx
-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
9China Port Conference 2014_v5.pptx
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]
3 China's economy and ports in 20 years
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)
Annual growth (’09-’12)
Annual growth (’05-’08)
3 China's economy and ports in 20 years
11China Port Conference 2014_v5.pptx
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
3 China's economy and ports in 20 years
Real GDP growth rate forecasts, 2013-2040 [%]
10
11
GDP per Capita (PPP) forecasts, 2013-2040 [USD]
39,914
12China Port Conference 2014_v5.pptx
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
3 China's economy and ports in 20 years
13China Port Conference 2014_v5.pptx
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
3 China's economy and ports in 20 years
China industrial & agricultural output [bn tons] China total port throughput [bn tons]
25.2
21.315.5
High scenario
Low scenario
Base case
14China Port Conference 2014_v5.pptx
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]
3 China's economy and ports in 20 years
Large trade volume…… but low Trade Dependency Index… … and still low trade per capita
15China Port Conference 2014_v5.pptx
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
16China Port Conference 2014_v5.pptx
> 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
4 Throughput forecast methodologies
17China Port Conference 2014_v5.pptx
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)
4 Throughput forecast methodologies
28
200
12250
30022
18
Dry bulk via Qingdao Port Container via Yantai Port Liquid bulk via Weifang Port
35
200
18China Port Conference 2014_v5.pptx
> 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
19China Port Conference 2014_v5.pptx
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
20China Port Conference 2014_v5.pptx
> 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?