How will China’s Coastal Carriage Impact the Global Shipping Market?
Staff Content Writer
November 24, 2021 • 3 minutes read
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2. Advantages of the opening of China’s coastal carriage
3. Disvantages of the opening of China’s coastal carriage
The Port of Shanghai will be an international transit port for the coastal carriage business
On November 19, the State Council of China issued an approval document, agreeing to temporarily adjust the regulation of its coastal carriages shipping. From now until December 31, 2024, eligible foreign countries, Hong Kong and Macau are allowed to utilize their fully-owned or holding international vessels to develop the foreign coastal carriage trade between Dalian Port, Tianjin Port, Qingdao Port, and Yangshan Port Area of Shanghai Port.
“Foreign Coastal Carriage” refers to foreign container vessels engaged in the domestic sector transportation along China’s coastal ports. The new policy that came into effect specifically refers to the coastal carriage business along Dalian Port, Tianjin Port, Qingdao Port, and Yangshan Port Area of Shanghai Port.
For example, if a shipper wants to export a container from Dalian to Europe, the shipper must unload the container at Shanghai Port and then transfer it to Europe. Maritime transportation from Dalian to Shanghai was previously only allowed by domestic carriers, but now eligible foreign countries, Hong Kong, and Macau are also allowed to operate this type of business.
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The policy will significantly reduce transportation costs and increase route options
According to a survey of 11 major global container liners, the potential demand for coastal carriage business is huge. Based on the current data of transiting vessels in Busan Port, it is estimated that the annual demand for coastal carriage in Shanghai Port will reach up to 1 million TEUs. After the opening of China’s domestic coastal carriage business, container vessels no longer need to transit at Busan Port, Hong Kong Port and other ports. The cost of transit will decline along as efficiency improves, and a price advantage will consequently emerge.
- For carriers, the primary benefit is a significant reduction in transportation costs. Container liners can collect containers in Shanghai Port, consolidate containers from all over the world, and eventually optimize route allocation based on purpose and time. In this way, existing routes can be more effectively utilized, Shanghai Port’s transfer efficiency can be fully exploited, and cabin utilization can be improved.
- For shippers, the updated regulation will greatly broaden the scope of their route options, eliminating the need to transit through Singapore, Busan and other ports, and thus reducing logistics costs.
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Opening to foreign carriers will prejudice Chinese container liners
- From a national perspective, coastal transportation rights are closely related to national sovereignty and security. Retaining coastal transportation rights and restricting foreight entities from entering the market is conducive to maintaining sovereign integrity.
- From the domestic suppliers’ perspective, the coastal carriage market can be seen as the competition between international liner companies and Chinese liner companies. The prohibition of coastal carriage for foreign companies is a kind of protection for Chinese enterprises. If domestic shipping can be taken over by foreign carriers, the consequences will be disastrous.
- From the whole market’s perspective, shipping companies and ports are facing shocks. As container volumes and routes are further concentrated in hub ports, their status will be improved, intensifying the “Matthew Effect”. The opening of China’s domestic coastal transportation will expose China’s shipping companies to international giant container liners, putting them under enormous pressure.
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This policy is a double-edged sword. Large hub ports are able to receive more profits and increase their ability to compete with international hub ports such as the Busan Port, Hong Kong Port, and Singapore Port. On the other hand, the resources of small and medium-sized ports will be absorbed by large ports with stronger international transit capability, resulting in a new impact on the pattern of Chinese ports.
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