05 January 2018

Belt and Road Will Affect Global Shipping and Forwarding for the Foreseeable Future  

Time to Consider the Breadth and Effect of Chinese Policy on Transport, Trade and Ports

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CHINA – WORLDWIDE – As the New Year creeps in, with staff in shipping and forwarding offices slowly getting back into the swing of things after the excesses of Christmas for many, it is a good time to take a look at what is likely to occur within the global freight industry in 2018. Whilst we saw piracy morph into cyber crime as the leading threat to the industry last year, 2017 proved to be when the sector started to really take note of China's avowed 'Belt and Road' policy.

So what exactly is Belt and Road? Not what it was originally thought of in the West, that much is certain. As with so many dealings in matters Chinese, language first clouded the very name. Belt and Road is the latest, and hopefully the last, version of the policy initially called ‘One Belt and One Road’ but changed at least twice to avoid confusion as ‘one’ can be re-translated three ways. The idea was first mooted by China's president Xi Jinping in 2013 as the direct construction of a cooperative transport network between his country and neighbouring Asian and Eurasian countries.

In its present form Belt and Road is a structural network of six main multimodal corridors which all, using China as the hub, feed out from all four compass points there to Russia, Turkey, Singapore, Myanmar, Pakistan and the Mediterranean picking up and dropping off trade on the way. This analysis does not however take into account the diversity of infrastructure nor the number of countries affected by the routes. States such as Kazakhstan lay on the route to Western Russia whilst Singapore is a multimodal hop with Malaysia, Laos, Vietnam and Thailand on possible routes to reach it.

Belt and Road isn’t just about transport however, it includes measures to improve, and control, telecommunications and energy, something many may view as an unwelcome escalation of Chinese influence. The Transport Corridor Europe-Caucasus-Asia (TRACECA) which focuses on developing multimodal transport connections is actively seeking more synergies with the Trans-European Networks (TEN-T) whilst the Central Asia Regional Economic Cooperation (CAREC) links China to 10 Asian and Eurasian neighbours all intent on improving their lot in every way possible.

According to international law firm Ince & Co, which works globally with many in the port industry, such Chinese policy will continue to have a growing influence on transport as time passes. Ton van den Bosch, head of Ince & Co’s global ports & maritime infrastructure practice says Belt and Road has already had a great effect on the shipping industry, particularly on East-West trade routes. There has already been around $150 billion a year in investment, covering roads, railways, pipelines and more. It is estimated that China has invested $20 billion in ports and terminals alone in the past 12 months. He comments:

“If 2017 was the year when the West woke up to the Belt and Road, 2018 will be the year that its impact will begin to become apparent. Indeed, we can already see the macroeconomic effects of Belt and Road beginning to manifest [themselves]. One of these is in consolidation of ownership. By 2020, the combined entity of COSCO and China Shipping is set to become the biggest container terminal operator by capacity. This will see them climb from fourth and eighth in the global rankings; a dramatic rebalancing of the operation of global trade.

“Smaller port operators may well be wondering what their place will be in this sector in the near future, given this pace of change. The most important thing to understand is that no-one is immune from these developments, but also that they offer commercial opportunities for operators who can take advantage of them. The rapid growth, expansion and modernisation of port facilities in emerging and frontier nations is a direct reflection of the opening up of new trade routes and the liberalisation of consumer markets.

“If small operators can secure funding, they have the potential to compete effectively with newer operations funded by large global players. The most successful operations will be those with a strategy for the long-term and one that is built to reflect wider economic trends.”

We have in fact already seen increased competition in the field of port management with investment coming in from outside sources, sometimes outbidding the regular round of global port management groups. We have seen governments divesting themselves of port facilities to private enterprise and a variety of new, long term management contracts. One area that Ince & Co sees as being of particular commercial value to operators planning for 2018 and beyond is a shift towards gateway operations, rather than transhipment. The firm points to changing trade flows in Asia and Africa creating captive markets ready to be tapped. Van den Bosch continues:

“When we look at countries like Congo or East Timor, we clearly see operators scrambling to establish gateway terminals to open up these markets to global trade. This is a pattern that is repeating all over the world, Belt and Road investment improves local infrastructure and transport links, and operators move in to build. Put bluntly, cargo volumes needing to reach localised geographies in these frontier markets have few other choices. Port operators that can lead this trend and get into these markets early will be able to build themselves as a lasting and indispensable presence to these nations.

“In emerging markets, financing will remain a challenge, as well as ongoing issues in terms of compliance, anti-bribery and corruption. But, fundamentally, we believe that the coming year will see an even greater pace and scale of investment for our global ports industry, creating opportunities across the supply chain.

“2018 will also see continued R&D in the use of emerging technologies in the ports world, including automation and blockchain. Although we don’t necessarily anticipate any of these breaking through as a true game-changer in the next 12 months, we do expect a clearer picture to emerge of the likely commercial applications and benefits of each of these technologies within port operations.”

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