Shipping Deals Turn the Tide for Cambodian Economy

Increased shipping to Sihanoukville port from China is expected to help turn the port into a regional player. Photo: Supplied Shipping

Khmer Times/Jack Laurenson

Wednesday, 29 July 2015

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SIHANOUKVILLE (Khmer Times) – New shipping agreements will soon be signed between companies in Cambodia and China that will see the Kingdom’s largest port continue its transformation into a regional hub, port officials say. 

China Ocean Shipping Company (Cosco) and China Shipping Container Lines (CSCL) are expected to sign deals with the Sihanoukville Autonomous Port (SAP) to increase direct shipping services between Cambodia and China within weeks. 

The deals are part of a process that will eventually see direct links between Sihanoukville and the United States and Europe – the two largest markets for the country’s exports, officials said.

Such a move would cut the cost of exports from Cambodia, according to the Garment Manufacturers Association in Cambodia. It will also reduce the time it takes to get garments and footwear from Cambodian factories into retail outlets in Europe and the US, said Kaing Monika, deputy secretary general of the association.

Garments and footwear – which comprise about 80 percent of the Kingdom’s exports – are usually shipped from Sihanoukville to Malaysia, Singapore or Hong Kong, where they are placed on larger ships before being sent on to Europe or the United States, Mr. Monika said. 

“Direct shipments to Europe and the US will save costs and time,” Mr. Monika said. 

Port Upgrades 

Details of the deals are not public yet, but they are expected to bring huge amounts of Chinese cargo into Sihanoukville’s port, which has seen massive upgrades in recent years.

Expansions and improvements of the port – including the addition of more berths, container terminals, tanker storage and an industrial effluent treatment plant – are making it increasingly popular. 

Further expansion and improvements funded by a loan from Japan are also expected to make the port an even more desirable destination for shipping firms, though security remains a concern that needs to be tackled, sources at Sihanoukville Autonomous Port said. 

With the new deal with China looming, pressure is on for port officials to demonstrate they can handle a massive increase in cargo traffic.

“They have a major challenge on their hands,” said Anders J. Andersen, an operations manager at Sihanoukville port. He said congestion of trucks and containers can already be seen around the port before and during weekends.

“Cargo-handling needs to improve, as does general management of the port and its operations, such as scheduling of arrivals and departures,” he said. “But these Chinese shipping companies know what they’re doing.” 

CS and COSCO are among the world’s largest freight transportation companies, shipping more than 1.2 million standard 20-foot containers, known as TEUs, each year. 

Once the deals are signed, the two companies are expected to rapidly expand direct links to ports in China and elsewhere. 

Cost Savings

The move by the Chinese shipping giants is primarily to save money. It allows them to avoid stopping at Vietnam’s Cai Mep Port, near Ho Chi Minh, port officials say. “Bypassing Vietnam will give them a significant edge on cost,” one executive explained. 

The two companies are expected to bring huge amounts of Chinese cargo into Sihanoukville’s port.

Previously, most shipments had been transported to Vietnamese ports and then on to customers in Cambodia or Thailand, according to reports in Vietnamese media, which have expressed nervousness about the developments in Sihanoukville. 

“No doubt this will be a big blow to the Vietnamese ports, not to mention the shipping lines bringing in transhipment cargo from China and elsewhere,” Mr. Andersen said. 

“They will not only loose out on the direct China cargo, but also on cargo being transhipped from overseas destinations through China.”   

Ripple Effects

Although the deal will bring a welcome boost to Sihanoukville, it is also another critical step for Cambodia’s surging economy, which continues to expand at a rate of more than 7 percent per year. 

Official data shows that more than one-fifth of Cambodia’s imports come from China, and that China is vying with Thailand and Vietnam for a greater share of the expanding market here. The deals will also allow more direct shipping of cargo from Cambodia to China, though China has been a relatively minor recipient of goods from the Kingdom, official data shows.  

Among Southeast Asian nations, Cambodia has the strongest political and economic ties with China, excluding Laos, analysts say.  

Last year, total trade between Cambodia and China was estimated at $4 billion, which officials hope to boost to $5 billion by 2017. China has also become one of Cambodia’s biggest contributors of military aid. 

The Chinese companies are also aiming to grab a larger slice of the shipments of Cambodian garments to Europe and the US, something direct routes will easily allow them to do, port officials said. (Additional Reporting  by Vincent MacIsaac)