A1 - Port City - Shanghai Port PDF

Preview

Summary

Got DI...

Description

RMIT International University Vietnam OMGT 2321 Global Trade Operations

A1

1

Shanghai port – The road of success, challenges, and opportunities

Executive summary

This report is going to analyze the comparative and competitive advantages, operational challenges, as well as delivering recommended business strategies and evaluating future business prospects of the port of Shanghai to develop a better understanding of the role, functions, and characteristics of Shanghai port city in the context of international trade. First of all, two comparative advantages of Shanghai port are advanced technology and infrastructure. The investment in port infrastructure and container terminals has helped to lower input cost, increase productivity, cargo handling efficiency, facilitate more throughput and reduce port congestion. Secondly, the port has three main competitive advantages: the geographical location, the flexible pricing strategy, and governmental supports. Owning a vast hinterland in the entire Yangtse River valley has facilitated it with extensive access to multi-modes of transportation. With a flexible pricing policy, it can attract more customers and with governmental supports, it can gain a strong backup to become an International Maritime Centre. The two operational challenges of Shanghai port are the vessel emissions and the competition with Ningbo-Zhoushan port. To help the Shanghai port overcome these challenges, two recommended strategies are green port strategy and developing core competencies. Lastly, Shanghai has the opportunity to become one of the world’s largest trans-shipment hubs thanks to the port expansion projects and adoption of new automation technology.

2

Table of Contents I.

Introduction

II.

Analysis 4

4

1) Historical evolution: 4 2) Comparative and competitive advantages: 4 a. Comparative advantages:

4

b. Competitive advantages:

5

3) Operational chanllenges:

6

4) Business Strategies - Recommendations:

7

c. Green port strategy 7 d. Developing core competencies

7

5) Future Business Prospects: 8 III.

Conclusion

8

IV.

Reference list

8

3

I.

Introduction:

Shanghai port comprises a deep-sea port and a river port with an annual container volume of 37.133 million TEU (2016). The port has currently been rated as the world's busiest port, the best-connected port, and the world's second-largest transshipment hub (2019). The purpose of this report is to develop a better understanding of the role, functions, and characteristics of Shanghai port city in the context of international trade by analyzing the historical evolution, comparative and competitive advantages, operational challenges, suggested business strategies and future business prospects. The report is going to utilize related materials and academic research work to examine how these advantages contribute to the development of Shanghai port. The outline of this report contains an introduction, an analysis, a conclusion, and a reference list. II.

Analysis:

1) Historical evolution: Shanghai Port began to develop during the Ming Dynasty. By 1735, the port became the most vital seaport in the Yangtze region. During the Qing Dynasty, Shanghai port was permitted to accept seagoing ships and it gained exclusive control over customs collections for all foreign trade transactions in Jiangsu Province. By the 19th century, Shanghai Port became one of the treaty ports that were open for international trading activities (World Port Sources n.d). During the 1950s and 1970s, under the government of the People's Republic of China, the country had very few direct transactions with the outside world except the former Soviet Union. At this time, Shanghai performed only in the domestic economy (Wang & Slack 2004, p.357-373). In 1991, the Chinese government implied the open-door policy and allowed economic reforms, the Shanghai port has grown significantly since then.

2) Comparative and competitive advantages:

a. Comparative advantages:

David Ricardo (1817) stated that comparative advantage refers to the situation when a country can produce and export goods and services at the lowest opportunity cost. In the context of international trade, a country has comparative advantages will be able to provide goods and services at a lower price

4

compared to its opponents due to having lower input costs by efficiently allocating domestic resources (Warr 1994, p.1-14).

One of the comparative advantages of Shanghai port is the investment in port infrastructure. The port of Shanghai owns 125 berths with a total quay length of about 20 kilometers. Of the total, 82 can accommodate vessels of 10 thousand DWT and above. The port has also been equipped with public bulk, breakbulk, specialized roll-on/roll-off, and cruise terminals. Additionally, the port has a total of 293 thousand square meters of warehouses, over 4.7 million square meters of storage yards and 5143 units of cargo-handling equipment. Moreover, Shanghai port also has three main container terminals including Yangshan deep water port, Waigaoqiao free trade zone and Wusong areas accounted for over 13km-long quay length, 43 berths, 156 quay cranes with 6,730,000m2 total area of container yards (World Port Source n.d).

Furthermore, Shanghai port also focuses on adopting innovative port technology. For example, the Intelligent Management System of Container Operation has lifted the level of container handling capacity and sharpened the core competitive edge of the container production in the port of Shanghai. Moreover, the Tally Wireless Control System has changed the tally production from simple manual labor to the use of information technology using the PDA equipment (Shanghai International Port Group n.d). These advantages have brought many benefits to Shanghai port including lower input cost, higher productivity, lower vessel turnaround times, higher cargo handling efficiency, more throughput and lower port congestion (Hong et al 2013).

b. Competitive advantages: Competitive advantage is defined as the ability of a firm to create superior value for its buyers that other competitors cannot easily imitate (Sigalas 2015, p.2004-2016). Competitive advantage helps firms to differentiate themselves in the market, especially in the context of globalization.

The major competitive advantage of the port of Shanghai is its geographical location, which helps to enhace its accessibility. Shanghai port is endowed with vast hinterland in the entire Yangtse River valley, which facilitated it with extensive access to multi-modes of transportation. Furthermore, it also ‘locates next to one of the world’s largest manufacturing regions – the Yangtze River Delta, which 5

concentrates a cluster of most thriving cities in China’ (eds Lee & Meng 2015). Shanghai port was rated as the world’s best-connected ports with 134.32 points of LSCI (United Nations Conference on Trade and Development 2019). The strategy of port of Shanghai is connecting its functions and services provided by the three main terminals ports. Yangshan Deepwater port area mainly accepts vessels destined for/from Europe, Africa, the Mediterranean, the East, and South America while Waigaoqiao Port area primarily deals with vessels on Japan, and South Korea, Australia, South East Asia, the Western and the Middle Eastern Americans. Finally, Wusong Port area is responsible for handling boxes serving in domestic trading (Shanghai International Port Group n.d).

Another competitive advantage of Shanghai port is the flexible pricing strategy, which assists it to compete with other ports. Port charges in China are based very closely on a regular rate specified by China’s Ministry of Communications, which incorporates separate charges for stevedoring, piloting and tugs accounting for 90% total direct cost of a vessel’s out in the port. Shanghai port, on the other hand, adopted a more flexible pricing policy than the centrally set standard rates based primarily on the differentiation of the size of customers, especially with the stevedoring charge, large mainline operators receive a 10% discount compared with coastal liner operators (Li & Oh 2010, p.67-91).

The competitive advantage of Shanghai port also arises from the Chinese government support. For instance, since China adopted its open-door policy in 1978, the Central Government aimed at turning Shanghai into the “Dragon’s Head” in the economic development of China and developing Shanghai into an international economic, financial and trade center by 2010. Also, after China joined the World Trade Organization (2001), it has provided Shanghai with the necessary foundation to become an International Maritime Centre. Besides, the Municipal Government has provided financial support for upgrading the infrastructure facilities in the Shanghai port (Lam & Cullinane 2003).

3) Operational challenges: Vessel emissions have been one of the major cause of environmental pollutants in Shanghai port, which are mainly caused by ocean-going vessels taking up 5% of the total number of ships that berth at Shanghai. Accordingly, engines of ocean-going ships are mostly driven by residual heavy fuel oil. Ships discharge substantial amounts of PM, NOX, and SOX, which can lead to respiratory diseases and increase ocean acidity (Wan et al. 2019). Air pollutants discharged by vessels equivalent to cargo 6

throughput. Therefore, the fact that Shanghai is the largest container port in the world has made air pollution become more severe and caused more negative impacts compared to other ports in the world (Hong et al 2013).

Shanghai port has also been facing competition for cargo from the aforementioned overlapped hinterlands of Zhejiang Province with the port of Ningbo-Zhoushan (Cullinane et al 2005; Comtois and Dong, 2007). In early 2004, Ningbo-Zhoushan took the initiative in attracting the supply of cargo from hinterland by setting up Ningbo Ship Company and launching the "No.1 Strategy” connecting international and coastal container shipping routes with channels along the Yangtze River. Compared to Shanghai port, Ningbo port has an advantage of nature deepwater berth and major bulk handling service (Li & Oh 2010, p.67-91). Besides, the establishment of the Hangzhou Bay Bridge resulted in a larger common hinterland of Shanghai and Ningbo-Zhoushan, and attracted more cargo from northern Zhejiang and southern Jiangsu, while the accelerated construction of dry ports in the hinterland has accelerated to reduce the cost of cargo owners, which has improved the competitiveness of NingboZhoushan port (Hong et al 2013).

4) Business strategies – Recommendations:

c. Green port strategy:

It was suggested that the port of Shanghai should install high-voltage Alternative Maritime Power system (AMP). A reseach from Hall (2010) found that AMP can eliminate CO2 emissions in most maritime countries, in which China observed a significant reduction with 38%. Using AMP can reduce the emission of harmful gases from berthed ships and protect the atmospheric environment at ports. However, AMP systems also have their weaknesses including causing grid overload, voltage fluctuation, and high harmonic wave. Therefore, the application of this system has to be sustainable and under control (Chen at el 2018). Some other methods were also suggested such as retrofitting equipment, using environmental-friendly materials, implementing onshore power, and operating a "container truck-and-trailer transport platform" (Hong et al 2013).

d. Developing Core Competencies:

7

Core competencies are defined as “main activities and skills within an organization that deliver the foundation of its competitive advantages which could be customer services, technical specialization, innovation and data handling (Edmund & Noon 2017). Understanding and improving core competencies can help a firm to differentiate itself from the opponents. In the context of international trade, Shanghai port can increase its competitiveness by enhancing the number of skilled laborers through education and training, embracing new technology in logistics such as Robotic Automation and IoT (Internet of Things). 5) Future business prospects:

Shanghai has the opportunity to become one of the world’s leading trans-shipment hubs. Compared to Shanghai, Singapore and Hongkong are more central and considered as global port hubs. This is due to the limitation of ship-to-ship trans-shipment in Shanghai (Organisation For Economic Co-Operation And Development 2014). However, it is expected that by 2030, technology will transform the shipping industry (Ship-technology 2016). Anticipating the future prospects, the SIPG aimed at creating “smart, green, hi-tech and efficient terminals” to make Shanghai become an international shipping center by 2020 (Ren 2017). In coordination with a port expansion project in Yangshan deep seaport, which is currently in phase IV, is the largest fully automated terminal in the world. It is expected that the port will support the Shanghai port to compete with Singapore port and become the most important international transshipment hub in Asia (Luo 2019, p.457-462).

III.

Conclusion:

In conclusion, Shanghai port is currently the world’s busiest port, the world’s best-connected port, and the world’s second-largest transshipment hub thanks to its comparative and competitive advantages which are advanced technology and infrastructure, geography location, flexible pricing strategy, and governmental supports. However, its position is also under threat if it could not deal with the operational challenges including environmental sustainability and competition with Ningbo-Zhoushan port. By applying the recommended strategies, it is posible for Shanghai to become the world's largest transshipment hub.

IV.

Reference list: 8

Chen, J, Zheng, T, Garg, A, Xu, L, Li, S & Fei, Y 2019, 'Alternative Maritime Power application as a green port strategy: Barriers in China', Journal of Cleaner Production, March, vol. 213, pp. 825-837, viewed 16 April 2020, Elsevier ScienceDirect Journals Complete database. Comtois, C & Dong, J 2007, 'Port competition in the Yangtze River Delta', Asia Pacific Viewpoint, December, vol. 3, no. 48, pp. 299-311, viewed 8 April 2020, Wiley Online Library Journals database. Cullinane, K, Teng, Y & Wang, TF 2005, 'Port competition between Shanghai and Ningbo', Maritime Policy & Management, October, vol. 32, no. 4, pp. 331-346, viewed 14 April 2020, Taylor & Francis Online Journals Collection database. Edmund, H & Noon, M (eds) 2017, A Dictionary of Human Resource Management, 3rd edn, Oxford University Press, online, viewed 18 April 2020, Oxford Reference database, . Hall, W 2010, 'Assessment of CO2 and priority pollutant reduction by installation of shoreside power', Resources Conservation And Recycling, May, vol. 54, no. 7, pp. 462-467, viewed 16 April 2020, Elsevier ScienceDirect Journals Complete database. Lam, SJ & Cullinane, K 2003, Shanghai as an International Maritime Centre: Implications for the East Asian Regional Economy. , viewed 15 April 2020, . Lee, PT & Lam, JS 2015, 'Container port competition and competitiveness analysis: Asian major ports', CY Lee & Q Meng (eds), International Series in Operations Research and Management Science, Springer New York LLC, pp. 97-136. Li, JB & Oh, YS 2010, 'A Research on Competition and Cooperation Between Shanghai Port and Ningbo-Zhoushan Port', The Asian Journal of Shipping and Logistics, vol. 26, no. 1, pp. 67-91, viewed 17 April 2020, ScienceDirect database. Organisation For Economic Co-Operation And Development 2014, The Competitiveness of Global Port-Cities, OECD Publishing, Paris, viewed 12 April 2020, . Ren, D 2017, ‘Shanghai port embraces new technology in arms race to defend global shipping hub status’, South China Morning Post, 11 December, viewed 18 April 2020, < https://www.scmp.com/business/china-business/article/2123862/shanghai-port-embraces-newtechnology-arms-race-defend> Ricardo, D 1817, On The Principles of Political Economy, and Taxation, Project Gutenberg, London, JOHN MURRAY, ALBEMARLE-STREET, viewed 12 April 2020, . Sigalas, C 2015, 'Competitive advantage: the known unknown concept', Management Decision, October, vol. 53, no. 9, pp. 2004-2016, viewed 16 2020, ProQuest Central database. Shanghai International Port Group n.d, About Port of Shanghai, Shanghai International Port Group, viewed 12th Apirl 2020,< http://www.portshanghai.com.cn/en/channel1/channel11.html>

Shanghai International Port Group n.d, Port Technology - Intelligent Management System of Container Operation, Shanghai International Port Group, viewed 12th Apirl 2020,< http://www.portshanghai.com.cn/en/channel5/channel52.html>

Shanghai International Port Group n.d, Port Technology - Tally Wireless Control System, Shanghai International Port Group, viewed 12th Apirl 2020,< http://www.portshanghai.com.cn/en/channel5/channel53.html>

Ship-technology 2016, Shipping 2030: technologies that will transform the industry, Ship Technology, viewed 18 April 2020, < https://www.ship-technology.com/features/featureshipping-2030-technologiesthat-will-transform-the-industry-4716366/>

UNCTAD 2019, Port liner shipping connectivity index, annual – Table, United Nations Conference on Trade and Development viewed 9th April 2020,

10

Wan, Z, Zhang, Q, Xu, Z & Chen, J 2019, 'Impact of emission control areas on atmospheric pollutant emissions from major ocean-going ships entering the Shanghai Port, China', Marine Pollution Bulletin, May, vol. 142, pp. 525-532, viewed 18 April 2020, Elsevier ScienceDirect Journals Complete database. Wang, JJ & Slack, B 2004, 'Regional governance of port development in China: a case study of Shanghai International Shipping Center', Maritime Policy & Management, October, vol. 31, no. 4, pp. 357-373, viewed 15 April 2020, Taylor & Francis Online Journals Collection database. Warr, PG 1994, 'Comparative and Competitive Advantage', Asian‐ Pacific Economic Literature, November, vol. Vol.8, no. 2, pp. 1-14, viewed 16 April 2020, Wiley Online Library Journals database. World Port Source n.d, World Map - Eastern Asia - China - Port of Shanghai, World Port Source, viewed 13th April 2020,

11...