The slowdown in cargo traffic and the lack of adequate bank support due to the financial crisis has forced China''s terminal operators to put investment in expansion projects on hold.

Cosco Pacific''s deputy managing director Ken Chan told the TOC Asia conference in Shenzhen that terminal operators had frozen investments for at least the next six months. He added that those projects not yet launched and those in the planning stage had been shelved.
The drop in throughput at the start of this year following a disastrous last quarter in 2008 is one of the major reasons for the change in strategy. There was a major drop in both container and general cargo throughput in China in the fourth quarter of 2008, with December seeing a 0.8 percent year-on-year decline in the number of containers handled by coastal ports, the first drop in decades.
In January, cargo throughput at China''s coastal ports continued to decline. Total throughput at China''s ports in January was down 13.9 percent to 8.99 million TEUs compared with 10.24 million TEUs for the same month last year.
China''s terminals had contributed strongly in the development of world trade over the past decade with five mainland China ports being among the world''s top 10 in container throughput in 2008. Throughput at China''s two main ports, Shanghai and Shenzhen, which stood second and fourth in the top ten ranking, declined 18 percent and 21 percent respectively in February.
The moratorium on port investment was not just because the operators had decided to halt capital expenditure, but because it was getting more difficult to get loans from banks due to the global financial crisis, Chan said.
He explained that banks have not stopped providing financing for port operators, but are taking much longer to evaluate projects. "They are also becoming more conservative when it comes to investment in this sector.''''
"Small and medium-size terminals are finding it difficult to secure bank loans while for big port operators the cost of financing is increasing," Chan said.
Chan also noted a fundamental shift in the kind of companies that are getting involved in terminal investment. "An interesting phenomenon we are seeing is that terminal operators as well as shipping lines are the only companies expressing an interest in investing in China terminals. In the past two or three years we saw many non-conventional investors, such as private equity funds, infrastructure funds and construction firms, playing a substantial role in the sector. But now with the cash crunch, such investors have vanished.''''
Chan added that most companies for whom terminal investment is not their main business are now looking to exit from such operations to raise cash to improve their core businesses.
The decline in cargo traffic has also hit the share prices of port companies. "There was a 60 to 70 percent decline in share prices of terminal operators in 2008 and the stock prices have continued to decline since the start of this year.
"The sharp decrease in share prices provides a unique opportunity for cash-rich companies to buy into terminals cheaply, which was not possible during the boom period,'''' Chan noted.
Despite the downturn and the difficulty in getting financing for projects, Chan believes port owners should try to upgrade their facilities now. "Many terminals have out-dated equipment and in boom times there is no window to replace the equipment. We don''t know when the next boom time will come, so it is best to expand now."
Chan also urged terminals to upgrade their services as shipping lines are looking for better value for their money. "If terminal operators want to weather the crisis, they have to increase their service offerings.''''
However, many terminal operators are being conservative with capital expenditure as revenues are falling sharply with the slump in container volumes.
Shipping lines are not faring any better in the downturn. They have been cutting routes, laying up vessels and tightening belts, to weather the storm. They have also been pressuring terminals to cut costs.
"We know shipping lines are suffering and terminal fees are their main cost. So terminal operators should try to find a balance, whereby costs for customers are lowered as well as the bottom line for shareholders is maintained," Chan said.