NEW YORK — China’s rising manufacturing prowess has ignited a frenzy of port development among the country’s coastal cities.

In a bid to maintain their position as two of the world’s largest ports, Hong Kong and Shanghai are scrambling to improve infrastructure and terminal facilities.

Hong Kong is feeling the heat of increased competition, and, as the world’s largest port, it has the most to lose. According to the Hong Kong Port Development Council, the number of 20-foot-equivalent units, or TEU — the standard maritime industry measurement used to count cargo containers — the port handled in 2005 reached 22.6 million, a 26.8 percent increase from the 17.8 million TEU that were reported for 2001. In comparison, Los Angeles and Long Beach, Calif., the two largest U.S. ports, handled a combined 14.2 million TEU in 2005.

However, a study conducted by Hong Kong’s Bureau of Economic Development & Labor and released in November 2004 warned that Hong Kong was already losing its competitive advantage to rapidly emerging ports on mainland China. The “Study on Hong Kong Port — Master Plan 2020” illustrates the extent to which the port has become a pillar of Hong Kong’s economy, representing about 4 percent of its gross domestic product in 2002 and 3.4 percent of total employment, or 110,000 jobs. The study estimated that container traffic at the port will expand exponentially in the coming years, predicting 27.9 million TEU by 2010 and 40.2 million TEU by 2020.

“While Hong Kong Port has a leading position in the world, competition from neighboring ports has progressively reduced our market share of the cargo base,” read the report.

Those neighboring ports, such as Shenzhen, are located on the mainland and have invested in deepening sections of the Pearl River Delta to accommodate larger ships — ships that previously could only dock in Hong Kong. For shippers, that translates into savings.

“In some places, there was only one or two times a day you could get a big, 5,000-TEU container ship through a channel,” said Bob Sappio, senior vice president of trans-Pacific trade for APL Lines, which handles shipping for companies such as Levi Strauss and Limited Brands. “That situation has been rectified. There’s other development going on up the river that is even closer to factories, and that’s going to facilitate more growth.”

This story first appeared in the March 21, 2006 issue of WWD. Subscribe Today.

Mainland ports provide shippers with a more direct route to move their goods, saving time and money.

“You’re saving on a handling of the container,” said Sappio, noting that use of mainland ports eliminates the need to offload containers onto trucks and barges for a trip to Hong Kong. “There’s money and time benefits there, along with security implications that are all very positive.”

APL is making adjustments to exploit the advantages of newly expanded inland ports. On May 1, APL’s PS 2 service will begin making a stop at the port of Chiwan.

“It’s a direct call up the Pearl River Delta,” said Sappio. The change in the PS 2 line port rotation allows goods to be sailed from Asia to Los Angeles in 11 days. Containers are then loaded onto trains for a seven-day trip to the East Coast, for a total travel time of 18 to 19 days.

This is comparable to APL’s PS 1 service, an 18- to 19-day service where goods sail from Hong Kong to Seattle before being loaded onto trains for New York.

“That’s where the preponderance of wearing apparel goes right now,” said Sappio.

Hong Kong’s regional government recognizes that the key to the port’s survival lies not in frantically building more port facilities, but in becoming more price-competitive.

“Building new facilities without first addressing [Hong Kong’s] connectivity weakness is risky and unlikely to bring additional cargo and related benefits to Hong Kong,” reads the 2020 report. “Indeed, it may damage the position of Hong Kong’s existing facilities by generating a significant surplus of capacity and triggering a potential ‘chase to the bottom’ for cargo.”

Improving the system of moving goods to and from the mainland is a priority that has been dubbed the Super-Connectivity Initiative, and its focus is to improve the efficiency of boundary crossings and reduce trucking fees.

More than 27,500 trucks travel between Hong Kong and mainland China on a daily basis. Another 320 cargo-carrying ships or barges arrive daily, on average. To accommodate the increasing flow of goods, two bridges have been opened since January 2005, and a third bridge is under construction.

The increased connectivity, however, does not resolve the issue of shipping costs. According to the port study, shippers that moved goods through the port of Shenzhen saved not only time but also as much as $333 per container. Most of that savings comes from the cost of transporting containers to and from the mainland when shipping through Hong Kong.

“Cross-boundary transport costs to and from Hong Kong are far greater than the comparable costs in South China, and this is the primary factor causing Hong Kong’s port to lose the all-important deep-sea export cargo,” read the report.

Officials of Hong Kong’s regional government are heeding the call to control costs.

“We have proposed a series of measures to attract more vessels to use our port facilities,” said Henry Tang, Hong Kong’s financial secretary, in his budget speech to the legislative council on Feb. 22. “Such measures include simplifying vessel entry procedures, lowering port charges, and establishing more service anchorages to increase midstream cargo-handling capacity.”

Tang said efforts were under way to make terminal handling charges more transparent.

Unlike Hong Kong, Shanghai had significant amounts of land at its disposal when it decided to undertake a massive port development project in 2002. Construction of the Yangshan Deepwater port began in 2002, turning a group of islands south of Shanghai into a 52-berth container terminal capable of handling more than two million TEU; the project is expected to cost $16 billion to $18 billion.

Connecting the island port to Shanghai required another feat of large-scale industrial engineering: the building of a 20-mile-long bridge. The Donghai Bridge was completed in 2005 and includes a six-lane highway and a raised span that container ships can pass under.

“The capacity in Shanghai is going to increase exponentially as a result of Yangshan,” said Sappio, noting that the only concern about the new port is weather. “Is the port going to be open and operating 365 days a year? No. There will be some days when it’s going to be limited, but that was understood when they built it.”

Sappio acknowledged that larger ports such as Hong Kong and Shanghai will face mounting challenges from competitors in the coming years, but he contends that the rising economic tide will float all boats.

“Asian industry recognizes that their lifeblood is exports of consumer goods,” said Sappio. “From our perspective, we see no losers. We see the growth of trade and foreign direct investment, and don’t see anyone coming out on the short end. There’s nothing that we see that says that growth from Asia will be anything less than remarkable.”

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