A Logjam for Transportation in China
nytimes.com
By KEITH BRADSHER
March 5, 2004
HONG KONG, March 4 - Strained by rapid economic growth, China's transportation system has bogged down, especially in the last six weeks, causing delays in deliveries of raw materials and raising a serious risk of higher inflation.
Railroads are so overburdened that power plants in southern China are having trouble getting coal from the north. That and shortages of generating capacity have contributed to brownouts that have forced factories to operate on limited schedules or in the middle of the night.
Heavy-duty trucks have also become an impediment, as Beijing, alarmed at road damage caused by overloaded trucks, has suddenly clamped down on enforcing cargo weight limits. This forces each truck to make more trips to carry the same amount of cargo.
The logjam appears to be most acute in China's ports, where shortages of trucks and railcars are preventing the distribution of shipments arriving from overseas. Mountains of imported iron ore and steel now clog the docks in many of China's biggest ports, forcing ships to wait at anchor as long as a month to make deliveries, at a cost of up to $100,000 a day per vessel just in ship charter fees.
Notably, even as China seems to be choking on imported commodities like iron ore, steel, coal, aluminum and soybeans, its exports of everything from shoes to furniture to the United States and other foreign markets have been remarkably little affected. That is because such goods move mostly in steel containers on different kinds of trucks, and they pass through special ports that have received considerable investment in recent years.
Rising freight rates have hurt the competitiveness of some American exports to China, especially agricultural commodities. Shipping rates for grain moving from the Gulf Coast of the United States to China, for example, have climbed to $70 a ton from $18 in the last two years.
China's boom has also pushed up global commodity prices and freight rates all over the world, including those for American imports -a combination that economists expect to increase inflation slightly in the United States, but not as much as in China because the American economy is more dependent on services.
Harry Banga, the vice chairman of the Noble Group here, which is one of Asia's largest commodity shipping companies, said his company's vessels were having to wait 4 to 20 days to unload commodities at deepwater Chinese ports.
A senior executive at a shipping company with extensive Asian operations said that one of his company's vessels had just waited 33 days to unload at a Chinese port. "It's a logistical nightmare in China," he said.
The backlog, which had been mounting, has been acute since late January, when the railroads switched to hauling mostly passengers instead of freight for two weeks before, during and after Chinese New Year, the nation's biggest holiday.
Many factories continued operating through the holiday this year, struggling to keep up with demand, and the resulting backlogs have not been cleared.
In many ways, the problem represents a collision between China's booming private sector, which is benefiting from heavy foreign and domestic investment, and the older and less prosperous planned economy. China's bulk commodities ports are mostly owned by municipal governments, which have made limited investments, although some factories also have their own docks.
"Bulk terminals have generally not been that sexy," said Tim Huxley, the managing director of Clarkson Asia, a big ship broker here.
By contrast, multinational companies have built most of China's modern and highly efficient container ports, which handle the 40-foot steel boxes that carry most of China's exports - from shoes and clothing to furniture and consumer electronics.
While these container ports are not equipped to handle commodities like coal, they have enough capacity that they actually compete with one another for shippers' container business, said James Thompson, the chairman of Crown Worldwide Holdings, one of Asia's largest logistics and household moving companies.
Another problem is that China's heavy spending recently on transportation links has gone mostly to highways instead of rail routes. Trains are more efficient than trucks for hauling commodities except for short distances. But China's rail system is a national monopoly that has not received the same investment lavished on highways by municipal and provincial governments.
Transportation delays, together with rising raw material prices in world markets, are driving up costs for Chinese industry. This has fed inflation, which rose to 3.2 percent in the 12 months ended Jan. 31 for consumer goods, but has started climbing much faster for many industrial goods that factories need to assemble cars and refrigerators and that construction workers need to erect buildings.
China's National Bureau of Statistics said last month that prices for some types of steel rose by a third in the 12 months through the end of January, while aluminum prices climbed 35.7 percent.
Complicating the backlogs at the Chinese ports are speculators who have ordered extra supplies of steel and have been slow to pick it up from the docks after ships are unloaded. Their hope, Mr. Banga said, is that prices will continue increasing and they will be able to sell the steel for more the longer they wait.
Under standard shipping industry contracts, the importer that contracted a ship to carry a cargo must pay the costs for port delays. Those expenses are soaring because of a global shortage of bulk freighters.
The big question in China is how much worse the problem will become. Shipping and power industry executives say that a lot of routine maintenance on ports, railroads and power stations has been postponed in the last two years in a frantic effort to meet production schedules, making mechanical breakdowns much more likely.
At the same time, China is planning huge increases in its commodities imports.
Chinese iron ore imports tripled from 1999 to 2003, hitting 148 million tons last year, as China overtook Japan and the European Union to become the world's largest importer of iron ore. Imports are scheduled to rise another 33 million tons this year, according to the China Iron and Steel Association, and even further in the next several years as many new steel mills come into production.
In the latest sign of the growth, BHP Billiton of Australia announced on Monday a $9 billion contract to sell 12 million tons of iron ore a year to four Chinese steel companies.
The scale of the boom is enriching many transportation companies, but worries some. "Nobody has ever seen this before," said the senior shipping executive. "This is a typical bubble scenario."
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