Zhang Chengliang / China Daily

It has been a good decade for Chinese ports. Having focused on capacity expansion, productivity improvement and investment in equipment, they now account for five of the world's top 10 container ports by volume, with Shanghai recently taking Singapore's top spot.

But this dominance could come under threat if these ports fail to prepare for a wave of change that has started to sweep the region. Like other players in the industry across Asia, Chinese ports will soon be forced to reassess their business models at a time when they need to make further investments in infrastructure.

Over the next five years the uncertainty generated by the pace of US economic recovery and the recent Europe credit crisis will continue to have an impact. This will take place against the backdrop of China's policy of reducing the GDP reliance on international trade, while a continuing rise in wages in coastal areas will drive the manufacturing base inland.

All of this creates a challenge for port operators as they deal with new cargo flow and redefined catchment areas. In addition, customers' financial positions are under huge pressure and they will begin to drive down the charges terminal operators levy. China's ports, despite their size, are not immune to these risks.

These factors will force port operators to focus on management capability, rather than on just expanding capacity, if they are to consolidate their position and even capture new volume. This could drive the adoption of analytics, shared services and newer technologies in order to consolidate their leadership positions and fight off more nimble rivals.

The shift in global manufacturing and trade to the region is already building a thriving intra-Asia trade. Ports across the region will have to respond by expanding their infrastructure to ensure they can handle increased volumes, particularly from China. That is the only way to ensure they can cope with the increasing size of container vessels using the region's ports. Having doubled in size in the past 10 years, container vessels are set to grow again, by up to one third in the next year alone and soon beyond that. The only way ports will be able to handle the larger ships is by expanding berthing capacity, drafts, cranes and rail/truck access. Nowhere will this pressure be felt more than at Chinese ports, as they represent the primary gateway to the rest of the world for this increased wave of manufacturing trade.

While the ports are working out how to cope with this expansion, terminal operators are under pressure from customers who have seen their margins under attack as additional capacity comes on line in an uncertain macroeconomic environment. Shipping lines are reassessing port calls and looking to renegotiate contracts with terminal operators to cut their own costs.

Perversely, it is the larger ports like those in China that will feel the impact more because they have multiple operators all vying for the same work, particularly as shipping lines are forming operating alliances to drive efficiencies.

Accenture believes that the large ports in China, Shanghai, Shenzhen, Ningbo, Guangzhou and Qingdao, must balance investment in new capacity and equipment with the promotion of geographic advantages and focus on core competencies to stay ahead of the pack. This will create a new focus on capabilities such as analytics and shared services. Historical high margins have made these nice to have, but they are about to become vital for success as the industry overhauls what some have regarded as acceptable inefficiencies when compared with other sectors.

China's ports have already started down the road to differentiation. Shanghai is positioning itself as a transshipment hub for Northeast Asia, Guangzhou is emphasizing its cost advantages and Shenzhen is promoting its logistics capabilities. This approach will spread to other ports as they seek a position of competitive advantage.

But however they choose to differentiate, the days of competing without a quarter being given will soon be over. In China, as in other ports with multiple operators, more of them will be looking to find ways to collaborate as well as compete. This is the new reality as larger vessels will increasingly carry containers from multiple liners, each with a separate contract with a different terminal operator. The operators must find a way to collaborate on the removal of the containers at a single berth or risk being shut out of the increase in shipping volumes.

Accenture believes that this will drive the emergence of resource sharing in order for ports to achieve efficiencies and scale. Even the largest ports will need to collaborate with each other. But their size will also allow them to create a new hierarchy as they collaborate with medium and smaller ports to canvass the cargo and reach the newly defined catchment area. Not only will they collaborate with inland ports, they will team with logistics operators to offer end-to-end services to customers. This will compel operators to turn to collaboration and even to mergers and acquisitions.

One of the ways port operators in China can mitigate these changes in demand is to consider adopting capabilities such as shared services. The efficiency gains could be felt not only among business units within a company, but also across terminals within ports, as well as among port operators. Organizations in industries that have already adopted a shared services approach are realizing that shared services go beyond cost savings. The ports industry could also realize the improvements in management information and analysis that it can bring, both of which can drive productivity. Areas such as procurement, resources and back-office functions will be the first in line for this.

But it will not stop there. As ports in China seek competitive advantage beyond productivity gains, they need to better understand their customers and operations. Port authorities and terminal operators produce a lot of data but as an industry, they fail to realize the great potential the use of the data can provide. For the big Chinese players this is particularly pertinent. Big volumes equal large amounts of data. Accenture expects to see the most forward-thinking port operators adopting analytical capabilities to drive out actionable insight from this data and better serve customers. Analytics can go further, by improving operations as well as productivity and utilization.

While port operators in China need to change their business models to defend their industry position, they may also look at aggressive overseas expansion activity, showing that attack can be the best form of defense. Accenture expects port operators in China to become more active in port investment projects in Africa, Eastern Europe, the Middle East and other developing areas. This is set to be one of the most challenging periods the sector will face but, with the right management approach, China's port operators could turn these challenges to their advantage.

The author is managing director for Accenture's Infrastructure and Transportation Practice in Asia Pacific. The views expressed do not reflect those of China Daily.