One Hundred Ports: Changing port calls — incarnation of an evolving global trade landscape
Analysis of Lloyd’s List Intelligence data has led to some interesting discoveries about shipping traffic between global container ports in 2021-2022
‘Reglobalisation’ is evidenced by the sharp decline in US port calls from China, while more boxships have arrived in Vietnam, Mexico and Russia
THE shift of supply chains and trade flows is today’s buzz phrase. The changes in port calls represent a manifestation of this abstract concept.
Yet it may also provide some basis for investment opportunities for those looking to capitalise on this trend.
Analysis of Lloyd’s List Intelligence data has led to some interesting discoveries surrounding shipping traffic between global container ports in 2021-2022.
The year-on-year changes inevitably include a knee-jerk reaction by the market to short-term supply and demand disruptions — but it is evident that some of the changes are part of a long-term evolution.
While certain findings have already been brought into the spotlight, others may be undercurrents stirring beneath the surface.
Port call changes against the backdrop of supply chain reconfiguration
The number of direct calls into the US from China decreased 17% in 2022 compared to 2021. Multiple factors are behind this situation.
It partly reflects the contraction in transpacific trade volumes during the period, after the Covid pandemic-led online shopping frenzy among US consumers peaked in 2021, and then demand waned as lockdown measures eased, while inflation began to surge.
The supply side also plays a big role. China’s zero-Covid strategy was highly successful in controlling domestic outbreaks in 2021, leading to the return of a swathe of overseas orders to its factories; meanwhile, other manufacturing countries were struggling with a rising number of infection cases.
At the time, there were even views that the pandemic was helping China to reverse the industrial chain migration caused by rising labour costs and a trade war waged by former US president Donald Trump.
However, the emergence of the Omicron variant of Covid the following year undid that reversal.
China was still adhering to its much less effective zero-tolerance policy across the country — whereas other countries, such as Vietnam, had begun to choose to coexist with the virus and had their factories back in operation.
The nearly three-month-long draconian lockdown — partly or full-scale in Shanghai — that ended in June 2022, had sent ripples throughout the global supply chain network.
“The impact of the pandemic has been significant, causing everyone to rethink whether relying their supply chains solely on China is the right choice, and the answer is ‘no’,” said Han Ning, principal consultant at Drewry Shipping Consultants.
“As more start to opt for the ‘China plus one’ strategy, China's market share as the world’s factory will gradually decrease from 100% to, say, 90% — and perhaps further down to 70% in future.”
This may partly explain why direct port calls from China to Vietnam increased by 23% in 2022, which Han considers “a spillover effect” of Vietnam’s growing exports to the West.
“Vietnam can complete more and more finished product assembly and exports, but it still need to import raw materials and intermediate goods from China — most of which need to be transported by sea,” said Han.
Moreover, goods of Chinese origin relabelled 'Made in Vietnam' by exporters seeking to sidestep US tariffs could also play a role in the increased number of port calls, she added.
An additional reason could be the Southeast Asian country buying more consumer goods from China as its purchasing power improves. “But this is a relatively slow and steady process,” said Han.
Meanwhile, the number of direct calls from Vietnam to the US also jumped by 41% from 44 to 62, mainly driven by smaller ships of less than 4,000 teu, according to Lloyd’s List Intelligence.
This was thought to be part of the pandemic-driven market boom, during which smaller carriers and freight forwarders flocked to the transpacific trade amid skyrocketing freight rates.
It remains to be seen whether such moves will last. Most of Vietnam’s exports to North America still have to be transhipped via Hong Kong, Singapore, Kaohsiung or other ports.
And, as the rates fall and congestion disappears, the operation of small ships on longhaul routes is also decreasing.
Elsewhere, Mexico offers another intriguing — yet perhaps less pronounced — example of a beneficiary from the escalating China-US rivalry, ranging from the computer chip industry to 5G-related technologies.
China’s direct calls to the Latin American nation increased 14% in 2022 over 2021.
“It’s a very similar story to Vietnam,” said Han.
Perhaps it is no coincidence that the port of Lázaro Cárdenas in Mexico saw a 20.5% increase in its 2022 throughput and returned to the Lloyd’s List Top 100 Ports list.
In fact, the country has once again strengthened its position as the neighbouring US’ top trading partner, with $263bn worth of goods exchanging between the two sides in the first four months of this year.
Mexico is not only a holy land for American companies to expand production capacity; it is also now seen as a crucial path for the ‘Made in China’ products to bypass tariffs and sanctions to penetrate the US market, driven by the nearshoring strategy and freetrade accords.
The foreign direct investment in Mexico has provided an important thread to this emerging trend.
Government statistics show that China FDI flows into Mexico grew on a nominal basis from $38m in 2011 to $386m in 2021, before correcting to $282m in 2022, which remains well above its historical average.
According to a report by the Federal Reserve Bank of Dallas: “While China represents only about 1% of Mexico's FDI, the country has significantly expanded its investments and is the fastest-growing source of foreign investment in Mexico.”
This investment is focused on industries and locations that mainly export to the US, and it seems to be related to the relatively higher tariffs imposed on Chinese imports, said the report.
It added that China’s previous stubbornness in cracking down on domestic Covid infections may have led to global companies redirecting their investments.
“Reliability, resilience and security of production locations and supply chains have become more important due to the pandemic and concurrent geopolitical tensions.”
The increased investment alongside port calls from China into Mexico comes as no surprise, said Jayendu Krishna, deputy head of Drewry Maritime Advisors.
“Certainly, if you want to connect all the dots, you will find that essentially the Chinese money is relocating from China to Mexico — and then eventually, Mexico is exporting it to the US in a very big way.”
The momentum has gained further pace, driving Chinese freight forwarders to go overseas and set up logistics facilities, such as warehouses, in this country in southern North America, according to Zhong Zhechao, founder of One Shipping, a Shenzhen-based logistics services consulting company.
“That is because more cargo volumes are being moved into Mexico, but the domestic logistics services cannot catch up with the demand.”
Meanwhile, Russia represents one of the very few positive recent developments for Chinese manufacturers that have been struggling with getting direct access to foreign consumers.
China exported goods worth $76.1bn to Russia in 2022, up 12.8% compared to 2021, before the war with Ukraine started.
Lloyd’s List Intelligence data indicates that the number of China-Russia direct port calls surged to 342, up 88% over the same period in 2021.
Vladivostok was given access to China’s domestic transhipment trade in May 2023.
Since June, Beijing has allowed domestic-trading cargo from Jilin province — a key agricultural and industrial region in the country’s northeast — to transit through the Russian port before reaching large Chinese cities, such as Shanghai and Ningbo, in the south.
China is expected to remain a key manufacturing hub — but what about Chinese ports?
However, it is widely anticipated that China will remain as a large and indispensable manufacturing hub, despite the gradual losses of its market share.
“Just because you have the US CHIPS and Science Act and tariffs and bans on multiple dimensions, it does not mean that you would relocate everything out of China,” said Mads Lauritzen, a strategist at EY who offers transformation advice to Asia-Pacific companies.
Lauritzen said China has spent decades building an extremely solid supply network and deep capabilities — hence the need for businesses seeking to recalibrate supply chains to take what he described as a “segmented or clustered relocation” strategy.
“You relocate what makes sense,” he added.
The semiconductor sector and other high-tech companies in China will bear the brunt when it comes to lost ground, while those traditional businesses not under the stranglehold of US restrictions will hang in there longer, said Han from Drewry.
Industries such as lithium-ion batteries, new energy vehicles, photovoltaics and wind-power equipment will remain China's strengths and exports of those shipments will likely continue to surge, she added.
Seven of the top 10 container ports globally are located in China. If these predictions come true, no significant ranking changes should be expected in the foreseeable future.
However, compared to a decade ago, Chinese ports are no longer the darling of investors — at least not in the eyes of foreign interest.
“Not many foreign investors are expected to have a great appetite for China, mainly because of the geopolitical risks,” said Krishna from Drewry.
The unsettling sentiment is already evident from the reduced stake that Cosco Shipping managed to acquire in the container terminal in Hamburg port, following a long debate that ensued for many years over the national security risks of the deal.
“Investors getting into the Chinese market will probably be restricted to the friendly countries, such as Singapore, in the future,” said Krishna.
Opportunities are coming from emerging markets in Southeast Asia, Latin America and Africa, he added.
“Vietnam, for example, presents some interesting opportunities, as the country has a major role to play in this whole ‘reglobalisation’ process. There are a few terminals where people are investing.
“Terminal Investment Ltd, owned by MSC Mediterranean Shipping Company, is investing in a transhipment port in Can Gao; PSA International and Adani have also invested in ports and logistics in the recent past.”
The MSC port arm is reportedly involved in a plan to develop a colossal new transhipment hub in Ho Chi Minh City, which is envisaged to become the country’s largest port complex.
The proposals put forward include $6bn of investment over an 18-year period for a facility capable of handling 24,000 teu ships and an annual throughput of between 10m teu and 15m teu.
The term ‘reglobalisation’ has been used to describe the current reconfiguration of the world economy and trade patterns, as the West increasingly realises that a full-scale decoupling from China is not feasible — but a derisking is imperative.