The Port of Shanghai has a problem: it can’t handle the fully loaded 8,000-TEU vessels that are entering service in increasing numbers.

Shanghai is China’s largest container port – and, with more than 14.5 million TEUs last year, third globally behind Hong Kong and Singapore – but it “has a draft problem,” said M.K. Wong, director of refrigerated trade at Orient Overseas Container Line.

However, help is on the way in the form of a new deepwater port at Yangshan Island, about 17 miles downriver from Shanghai. The new port, under construction since June 2002, is scheduled to open late this month.

The first phase of what will eventually be a 50-berth container complex will feature five berths and will have an annual throughput capacity of 2.2 million TEUs.

Yangshan will give Shanghai – already a major gateway in the North American trade – the ability to handle fully loaded mega-ships for direct service to the U.S. West Coast. This is significant because it will shorten transit times for exports from the booming Yangtze River valley in central China.

Draft restrictions at the old port limited the number of containers that could be loaded on vessels. Ships with exports from central China had to make at least one additional call at a deep-water port in China or another Asian country to fill the ships. This lengthened the transit times from Shanghai to the U.S. West Coast.

The opening of Yangshan also is timely because Shanghai is reaching capacity. The port has registered consistent growth in container volume of 25 to 30 percent each year for the past decade, Lu Hai Hu, chairman of Shanghai Port Group, told a meeting of the International Association of Ports and Harbors in mid-October in Los Angeles.

Shanghai’s impressive growth is expected to continue because of rapid development along the Yangtze River corridor. This is in line with China’s “Go West” policy of developing the interior and stemming the flow of job seekers to the country’s crowded coastal cities.

Developers are building manufacturing plants and logistics parks at a breakneck speed along the 900-mile stretch of the Yangtze from Shanghai to the industrial center of Chongqing, a metropolitan area with a population of 30 million.

With the opening of the Three Gorges dam, water depths along the Yangtze can now accommodate large barges that carry containers from more than a dozen river port cities to Shanghai for transshipment to North America and Europe.

The opening of Yangshan places Shanghai in a pivotal role in China’s export trade, said Jon Monroe, a logistics consultant in San Francisco who has led a number of trade missions to the region. Shanghai has solidified its position as the load center for central China. It is also the transshipment port for the entire Yangtze River corridor, reaching deep into the interior. With the opening of Yangshan, Shanghai will regain the Chinese transshipment cargoes that previously moved through ports in South Korea and Taiwan because Shanghai could not accommodate the largest vessels, Monroe said.

Exporters in China’s interior will have a choice of transportation modes, which should serve to keep a lid on inland rates. Because rail and highway development have accompanied improvements in river commerce, exporters can opt for cost-effective barge transportation, quicker transit times via rail or more rapid but costlier transit by truck.

The development at Yangshan Island will continue for 15 years. Phase 2 is scheduled to open in 2006, adding four more berths and increasing annual capacity to 4.2 million TEUs. After full build-out in 2020, Yangshan will have a capacity of 20 million TEUs per year.

Yangshan will result in lower ocean-transportation costs with the arrival of larger vessels. However, there will be a trade-off for local shippers. They’ll pay more for transportation from factories in the Shanghai area, because truckers must transport containers over a new 20-mile bridge from the city to Yangshan Island, Monroe said.

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