Commentary

Field of Dreams

By David Bennett
Vice President, Sales & Development, Globe Express Services

Remember the movie Field of Dreams? This is one of my favorite movies ever, and after a recent trip to China, I was reminded of this movie and its theme — build it, and they will come.

It seems terminal developers in South China used this “build it, and they will come” theme for the enormous expansion that has taken place in the region. In the movie, Kevin Costner turned his revenue-producing cornfield into a beautiful baseball field. As I look at the doom and gloom reports coming out of the shipping industry, I wonder whether the excess terminal capacity we are seeing develop will turn the revenue producing field into a non-revenue “field of dreams.”

No Scaling Back

It wasn’t that long ago, about 15 years, that we watched Maersk Lines find an alternative to Hong Kong by endorsing the use of a smaller, deep water facility that everyone now knows as “YICT,” or Yantian International Container Terminals. I guess they knew something the rest of the industry didn’t because in less than 20 years, YICT has managed to develop into the major gateway for trade in the region, taking cargo away from its friendly neighbors in Hong Kong.

Each time I visit the Guangdong region, I am amazed by the continued growth and expansion. The region has had some challenges as it has developed from a small, coastal fishing village that I visited in 1988 to the metropolis of trade it is today. We know regional labor costs and raw material costs have increased, which has forced some factories to seek alternative regions to set up shop. In spite of these issues that would force most economic models to scale back, we continue to see major expansion by terminal operators!

The region is no longer dominated by YICT. We have other port players such as Chiwan, DaChan Bay, and Shekou that are rapidly coming on line with new facilities that are deep water and extremely modern in terms of technology. The thru put per acre will be three to four times what we see in Long Beach/Los Angles facilities. (Try to develop new capacity in California and see how long that will take.) Why are we seeing this “field of dreams” develop at such a volatile time in terms of trade demand on the key head haul lanes in the Transpacific and Europe routes?

The Rationale behind the Capacity

Let’s think about this for a moment. The TPS trade will experience a downturn in volumes moving on the key head haul Eastbound Trade for the first time since 2001, when new capacity was coming on line as fast as the rates would drop to support the new tonnage! I recall a meeting in 2001 where the comment was made, “additional lift equates to additional losses.” Novel concept isn’t it? Build it, drop the rates, and the cargo flows. So we build more capacity, shift it to Europe, and watch as carriers trip over each other to shift tonnage into a trade that was very balanced and profitable. (Wait until we see the trend forecasts for 2009 for this trade.)

Either the developers who are investing billions of dollars in terminal capacity throughout China have a forecasting model that hasn’t been shared with others in the industry, or we are missing something more complex than someone like me can explain. It seems to me that we are about to turn a “revenue producing cornfield” like YICT and HIT (Hong Kong International Terminal) into a potential “field of dreams” in a region that is absolutely laden with terminal capacity.

While there are significant consequences, there are some positives, such as lower terminal handling cost and fluid terminals that should never, and I mean NEVER, suffer through terminal congestion surcharges! The developers’ crystal ball should have been shared with these so called financial “gurus” that almost destroyed our global economy through irresponsible speculation and greedy “short” positions taken on our banking systems!

Let’s not forget the happy ending from the movie where a dad and his son got to finally play catch together, and it all made sense. I think I will go play some catch with my kids now, and hopefully this will help me understand the complexity of these volatile times we face in the industry.