Given the slowdown in global trade and the relative sluggishness of the Chinese economy, it is easy to understand why economists, investors, traders and those involved in shipping and logistics ventures get excited by China’s ‘One Belt, One Road’ (OBOR) project.

Also known as the New Silk Road, it offers hope and opportunity in a shipping world that, since the 2008 global financial crisis, has posted slower rates of growth, especially when it  comes to annual increases in cargo volumes.

In addition to the link between economic output and trade declining, the container sector has been affected by slower than expected rates of growth in emerging markets and  weakening levels of unitisation.

Against this backdrop, the OBOR offers the promise of a new wave of investment, the scope and ramifications of which are huge:

• ? It represents estimated investment of US$5T in infrastructure in the 2016-2020 period alone.
• ? It spans 65 countries in Asia, the Middle East, parts of Africa and Europe, encompasses about 70% of the globe’s population, 55% of world economic output and 75% of energy   reserves.
• ? It involves massive investment in transport infrastructure, especially highways, rail networks, ports and shipping corridors.
• ? It shifts the focus of global trade further east.
• ? It helps secure China’s energy supply chain. 80% of the country’s energy needs (coal, oil and gas) pass through the Malacca Straits.
• ? It transforms the economies of countries such as Pakistan, and regions like the Central Asia Republics and Horn of Africa.
• ? It increases China’s political, social and economic influence in the world.

Speaking at the Asian Logistics and Maritime Conference held in Hong Kong during late November, Joseph Phi, president of LF logistics, was enthusiastic about OBOR, believing it  would be fundamental to what he referred to as “Globalisation 2”.

He said: “Over the past 30 years, basically, a group of OECD countries have globalised their production to lower-cost countries, and this [Globalisation 1] has led to the rise of  emerging powers, such as China, India and Vietnam. Globalisation 2 will not be anchored on the OECD countries, and it will be the emerging economies and the middle classes in  those countries that will spearhead the next wave of global growth.” 

He explained: “The planned investment by China in infrastructure and energy projects in OBOR countries, such as Pakistan, should allow sustainable development and economic  growth to take place.”

China-led growth

China-based construction/engineering, shipping, port and logistics groups are expected to benefit enormously from OBOR, and this is already apparent. According to China’s Ministry  of Commerce, in the first 10 months of 2016, a total of US$84B has been invested/pledged for projects in OBOR countries. This was up almost 31% on the corresponding period of  2015.

International terminal operating companies, such as China Merchants Port Holdings Company (CMPHC) and Cosco Shipping Ports Ltd (CSP), have been very active. While both groups have focused their investments on locations viewed as being strategic to the maritime Silk Road part of the initiative, they have not ruled out acquisitions and developments in inland ports, rail hubs and warehousing.

To date, CMPHC has opened and/or committed capital to large-scale container handling facilities in Colombo (Sri Lanka), Istanbul (Kumport) and Bagamoyo (Tanzania), while CSP’s main projects have included:

• ? The acquisition of 51% of the Port of Piraeus, rising to 67% within five years.
• ? A deal with Abu Dhabi Ports to develop a second box handling facility at Khalifa. The two-phase development will raise the port’s container handling capacity by 1.2M TEU by       the  end of 2020. It represents an investment of close to US$740M.
• ? Majority control of Kumport, Istanbul. CSP is in a consortium with CMPHC and CIC Investment, and its share of the investment is in excess of US$310M.

Strategic deals 

All of the  above deals are strategic, in that the three ports are gateways for Greece/Balkans, the Middle East and the Black Sea, respectively, and serve as key transport nodes in  their greater regions. In this regard, they each have the potential to control increasingly large volumes of cargo, and to offer a wide range of value-added freight processing,  distribution and logistics services for their customers. 

The desire of China to invest in such assets is the reason why other ports in a region do not want to be left out. This is especially true in the energy-rich Middle East. The DP World- controlled Jebel Ali and Sohar Port & Free Zone are, therefore, keen to participate in OBOR.

In the case of DP World, one of its approaches has been to help improve infrastructure in the Central Asia Republics (CAR) and specifically in projects associated with rail freight  services, including inland ports, intermodal transfer centres/rail yards and/or logistics/distribution centres.

Currently, DP World is active in both Georgia and Kazakhstan, with several additional plans understood to be under evaluation (see box story, below).

Recently, Sohar signed a sister port arrangement with the port of Shenzhen in southern China. The two ports will now work closely to stimulate trade between them while cooperating  in areas such as training, port planning, technical supervision, environmental management and use of information/ communications systems.

“The Middle East plays a critical role in the Chinese One Belt, One Road initiatives to develop modern land and maritime silk routes, that will stretch from Shanghai all the way to  Hamburg, and, thanks to our prime location outside the Strait of Hormuz, we are ideally placed to act as an important nodal hub on these maritime routes,” said Mark Geilenkirchen, CEO of Sohar Industrial Port Company.

“From here [Sohar], cargo can be directed through the Suez Canal or around the Cape of Good Hope, depending on vessel size and final destination. We are naturally delighted that Shenzhen Port has recognised this, and we will be working closely with them and the other main ports in China to develop closer ties and more business.”

New gateways

Three other port developments closely linked to the New Silk Road initiative and with possible far-reaching implications for China’s future international trade are Gwadar in Pakistan,  Hambantota in Sri Lanka, and Melaka Gateway, Malaysia.

The latter project involves investment of an estimated MYR43B (approximately US$10B) to build a new port and maritime services complex at Pulau Melaka, about 180 km south east  of Port Klang. The plan involves reclaiming three offshore islands, and is being spearheaded by locally based KAJ Developments and PowerChina International under what WorldCargo News understands to be a 99- year operating concession.

It is envisaged that cargo handling activities will commence in 2018/19, and that docks and facilities for shipbuilding repair and associated businesses will be finished by 2025.

The Chinese Government is keen to cut its reliance on the port of Singapore, and sees Malaysia as offering it both transport and defence options. On this basis, Beijing has been  providing Malaysia with attractive loans to upgrade its infrastructure, and is encouraging Chinese companies to invest in the country.

A new cross-peninsula rail line linking Port Klang with Kuantan, Terengganu and Kelantan is to be financed through MYR55B of Chinese loans, for instance. Meanwhile, Guangxi Beibu  International Port Group has a 40% interest in Kuantan Port, and the Chinese navy has special access rights to Kota Kinabalu in the state of Sabah, east Malaysia.

At Hambantota,  CMPHC has, in principle, agreed a 99-year concession deal worth over US$1.1B with the Sri Lanka Government to further develop the port. It is expected to be  signed in early January. A 6,000-ha investment zone is also planned for the area, with Chinese companies and financiers actively involved.

The control and development of such large ports along the Maritime Silk Road by the Chinese are of some concern to local and third-party traders. They fear that China is creating a  logistics platform that will ultimately freeze out competition, potentially dictate the pace of growth in the domestic market, and have repercussions when it comes to national security.

On the rails

OBOR has been something of a catalyst for the launch of rail-based container services linking China with CAS and Europe, and these developments will continue as they offer viable  alternatives to traditional shipping services.

In particular, freight can be moved in a third of the time – just 14/15 days between China and inland Germany in most cases, a significant advantage for high-value goods.

New corridors are being opened up, and many additional rail, logistics and freight forwarding companies are investing. This is especially the case in the CAR, as in addition to national  governments receiving income from transiting cargoes, OBOR is viewed as a catalyst for their own economic development programmes and larger roles in global trade. 

Hugely significant is the creation of the Trans-Caspian International Transport Route (TITR), which offers an alternative and essentially land-based routing for Asia/Europe/Asia cargo  to other more northerly rail corridors, notably the TSR, via Russia, and China landbridge via Mongolia. 

TITR comprises an integrated 4,766 km-long rail and sea corridor connecting China with Europe via Kazakhstan, Azerbaijan, Georgia and Turkey. When fully developed, it will allow operators to move a potential 27.5 Mtpa of containerised cargo approximately 3M TEU). 

As just over 500 km of the journey involves a passage across the Caspian Sea, considerable investments are being made in the ports of Aktau in Kazakhstan and Alyat, near Baku,  Azerbaijan, and in rail ferry vessels.

“Caspian Sea ports are being expanded and modernised, with the throughput capacity of those in Azerbaijan and Kazakhstan being increased from 51 Mtpa now to 62 Mtpa in 2020,”  said Sergey Anashkin, vice-president of KTZ Express. “In addition, the sea’s bulk and ferry fleet will increase 1.5 times to 51 ships.”

He added: “In addition, modern warehouse facilities, including for the storage and distribution of perishable products, are being built in Astana and Shymkent, and the new Baku- Tbilisi-Kars rail connection should open in Q1 2017.”

Further west, in Georgia, the port of Poti is being expanded, and a new general-purpose port, with significant container handling capacity is being built at Anaklia. Both ports will have roles to play in the TITR initiative.

To date, several trains have been run on the network to evaluate and test the system, including the Nomad Express. It travelled over 4,000 km from Shihezi (northern China) to  Alyat (Azerbaijan) in July/August, and was followed by another train, which finished its journey in Georgia two months later. DHL has also run a number of test trains between  Lianyungang and Chengdu in China and Istanbul, with targeted transit times of 14 days.

Based on the success of these trials, in October, the governments of Azerbaijan, Georgia and Kazakhstan set up the Trans-Caspian Transport Consortium (TCTC) to coordinate future developments and plan for full-scale commercial operations on the route.

TCTC is made up of KTZ Express Multimodal Company (Kazakhstan) ADY Express, a subsidiary of Azerbaijan Railways, GR Logistics and Terminals (Georgia) and Azerbaijan Caspian  Shipping Company.

Professor Hercules Haralambides, a professor at Erasmus University, Rotterdam, believes OBOR is driven as much by politics as by trade.

Watchful China

Addressing an audience at the Intermodal Europe 2016 conference held in Rotterdam in November, he said: “With their port and free trade investments in Port Sais, Oman and  Djibouti, China keeps an eye at the doors to the Strait of Hormuz, Red Sea and the Mediterranean Sea. Meanwhile, the country’s presence in Sri Lanka and Myanmar fences the Bay of Bengal.”

He added: “And with investments in Australia (Darwin) and a continuing interest in the Nicaraguan Canal, China will soon be looking at the Pacific Ocean. OBOR will compete with the  Trans-Pacific Partnership, and it will become global in its scope.”

He argued that Russia was “feeling particularly squeezed by China’s Silk Road initiatives, and its response was its own OBOR, that of the North-South Transport Corridor”. It is  proposed to link Russia with Iran and India, two of the country’s traditional and bigger trading partners, via Azerbaijan.

In the professor’s view, such a corridor would be at least 30% cheaper and 40% shorter for traders than having to use ships sailing from the Baltic via the Mediterranean basin and Suez Canal to the Middle East and India. “The route would also be less vulnerable to possible NATO and US interference,” he said. 

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This complete item is approximately 2000 words in length, and appeared in the December 2016 issue of WorldCargo News, on page 22. To access this issue download the PDF here.