---- After surpassing other Asia sites as the No. 1 container port, Shanghai’s aspirations as a global maritime hub go beyond shipping volume

 
 
    May 9 -- Among the many major developments at the Port of Shanghai since the site became the world’s largest container port last year, one of the most interesting has been one of the least noticed.

 
 
    Amid the announcement that Shanghai would expand its Yangshan offshore deep-water port and the U.S.-based Blank Rome law firm was preparing to open its first mainland China office in Shanghai’s plush Pudong New District.
 
 
 
    “Obviously, it will be a vital new platform for our maritime litigation, transactional and regulatory practices in Shanghai and in the broader PRC market,” said Conor T. Wade, an attorney at the firm’s Hong Kong office.

 
 
    For Shanghai, the growing presence of maritime legal representative offices is an important piece of the larger, ambitious goal of making the city a fully integrated maritime hub by 2020, with shipping finance and international legal infrastructure that is just as important as the growing number of boxes moving on roads and on the Yangtze River to China’s anchor for exports.

 
 
    “Shanghai’s next step is to develop an international capacity to match the heft of its domestic services muscle,” said Matt Flynn, managing director of Flynn Consulting in Hong Kong. “Shanghai has a plentitude of companies serving Chinese clients. But the development of the ‘North Bund’ as an international services hub is still a blueprint and vacant lots.

 
 
    “There are cases of international companies using Shanghai as a ship management hub due to its manpower and the centrality to cover other markets with a short plane ride,” he said. “These are the first steps.”
 
 
 
    The Shanghai Shipping Exchange is a case in point. The government-run operation established its Shanghai Containerized Freight Index, which forms the settlement mechanism for the new derivatives. Shipping lines and shippers have not embraced the idea, but the SSE is moving ahead with Western partners in an effort that seeks to change the foundation of maritime shipper-carrier contracting while entrenching the SSE’s measure of the market.

 
 
    And in February, the city launched a $7.6 billion shipping fund that aims to invest in ports, shipbuilding, logistics and shipping services and plans to raise about $750 million in its first phase of operations. China Shipping Investment, Guotai Junan Securities, Shanghai State-Owned Assets Operation and Hongkou District State-Owned Assets Operation all hold stakes in the management company formed to oversee administration and fundraising.
 
 
 
    Those ambitions became clearer last month when Shanghai International Port Group announced plans to expand the offshore Yangshan deep-water port as part of China’s 12th five-year plan.
 
 
 
    Shanghai, which last year overtook Singapore to become the world’s largest container port, may handle throughput of 30 million 20-foot equivalent units this year, according to Chen Xuyuan, president of Shanghai International Port.
 
 
 
    The port handled 29.05 million TEUs in 2010, up 16.2 percent over the 25 million TEUs it handled in 2009 and about double the 14.55 million TEUs Shanghai handled in 2004. Volume was running about 12 percent ahead of last year in the first quarter of this year, according to port officials.

 
 
     But the growth hasn’t come without pain, and signs of the gap between the enormous volume moving through Shanghai and the legal and regulatory apparatus around the shipping business.

 
 
    Even as China has spent billions of dollars to improve the country’s roads, seaports and airports, the industry has remained fractured and disjointed. For all the infrastructure investment, goods still are carried around the country by countless small trucking companies with little uniformity in services and delivery standards.

 
 
     Some truck drivers at the port complained about the new fees and rising fuel costs amid falling container freight rates that left them unable to recover the higher costs.

 
 
     Because China is trying to foster more manufacturing at factories deeper inland, supply chains carrying finished goods for exports and raw materials for manufacture will only get longer and, shipping operators fear, more fragile, with the country’s many independent truck operators hard-pressed to keep up.

 
 
    “This obviously is not a healthy model,” Mark Millar, a China logistics industry expert at M Power Associates in Hong Kong, told The New York Times in the aftermath of the Shanghai port strike.
 
 
 
    The port trucking operations may not appear as far-reaching as the establishment of international financial structures, but the government showed in intervening that the basic service is essential to the port — and the country’s trade ambitions.

 
 
    “To promote the development of Shanghai’s container shipping routes, and relieve the pressure that rising costs and fees have placed on transportation businesses, the city government has researched and agreed to new regulations on the fee-collecting behavior of Shanghai’s container shipping companies, to clean up all kinds of unreasonable fees,” the port said.

 
 
     That development until now has been focused on the port’s container handling infrastructure. As early as 2004, when Shanghai was third in the global port rankings, the premises in Waigaoqiao were already heavily congested with little room to expand. With larger ships coming, concern about the shallow draft on the river port had become increasingly urgent.
 
 
 
    There was a compelling case for new premises, and SIPG chose to establish the $12 billion 50-berth Yangshan port, 20 miles offshore at Hangzhou Bay. The choice was not initially welcomed by the international lines and terminal operators at Waigaoqiao.
 
 
 
    Despite fears that the exposed location at Yangshan would lead to frequent port closures during the annual typhoon season and increased trucking costs between the port and the city center, SIPG ordered the transfer of trans-Pacific and Asia-Europe services to the new facilities. Waigaoqiao lost 3 million TEUs at a stroke as SIPG pressed its case by imposing a 10 percent increase on container-handling fees at the old port, making Yangshan 30 percent cheaper.
 
 
 
    Now, the new plan for Yangshan is not only to expand its basic handling capacity but to integrate port resources and build up the port as part of a network that connects inland waterways and ports to allow smooth cargo transportation. The city also will perform a feasibility study of ways to strengthen cooperation with neighboring ports in the Yangtze River delta region.
 
 
 
    Lingang New City, in Shanghai’s southeast where the Yangshan deep-water port sits, together with the Waigaoqiao free trade zone and the Lujiazui financial hub are expected to become the major driving forces in Shanghai’s trade development over the next 10 to 20 years.
 
 
 
    The Shanghai State Council mapped out guidelines at the end of March 2009 for Shanghai to become a major international financial center and shipping hub by the year 2020.
 
 
 
     Under the guidelines, the city has granted business tax exemption for shipping companies registered in the Yangshan deep-water port region and other incentives to boost shipping insurance and other service sectors related to trade.
 
 
 
    Still, the fact is Shanghai as a global maritime hub is a work in progress. It is only in the last half-decade that authorities have put in place rules covering private property, a bankruptcy code and antitrust regulations. It was only in 2010 that foreign ship brokers such as Clarksons and SSY were licensed to operate in the city.

 
 
    But Shanghai is working harder than ever to catch up to Hong Kong and Singapore in services now that it has overtaken the ports in throughput.

 
 
    Months ahead of the opening of the shipping fund, China broke cover on its intent to enter international ship finance when Chinese Premier Wen Jiabao visited Greece bearing gifts for Greek shipowners in the form of a $5 billion fund to finance Greek ships being built in China. The fund has since been increased to $10 billion. But China still accounts for only a small share of global shipping finance.
 
 
 
    Following regulatory approval last August, Shanghai saw the opening of two marine insurance centers by rival local insurers China Pacific Insurance and PICC Property and Casualty. Both insurers’ business lines have been dominated by auto insurance, with marine cover accounting for less than 5 percent of China’s total property insurance.
 
 
 
    A broad mission for a maritime services hub is to serve both domestic and foreign markets, and Shanghai isn’t yet a transshipment hub as is the case with Singapore or Hong Kong. It is a gateway without equal, but the ability to handle other countries’ traffic, as Singapore and Hong Kong do, has not developed fully. The challenge is that other Chinese ports want their own direct calls, and they have the volume to justify that full focus on export-import trade.
 
 
 
    “China has a population of more than 1.3 billion. It goes without saying that as such we need more than one maritime center,” said Arthur Bowring, managing director of the Hong Kong Shipowners Association.

 
 
    “Hong Kong still has strengths that Shanghai has yet to attain in terms of the legal framework, a mature financial center and plentiful service industries. On the other hand, the sheer size of Shanghai is a strength in itself,” he said.
 
 
 
    Flynn likens Shanghai’s strategy to the moves undertaken in Singapore. “My view is that the Singapore model has covered both the port and maritime sectors with heavy government involvement to create a cluster,” he said. “The Shanghai strategy is much the same. The shipowners in Hong Kong speak more of a community. But the Shanghai strategy has achieved its goal with the port through money and steel.”
 
 
 
    By 2020, the giant Yangshan port will be completed with 50 berths and a design capacity of more than 20 million TEUs. If Shanghai gets its way, the event will coincide with its emergence as the region’s premier shipping hub.
 
 
 

(Source: JoC)