China’s National Development and Reform Commission (NDRC) has announced that from the start of 2018, the import and export handling tariff for non-transhipment containers at the Port of Shanghai will be lowered by 19.4% to RMB480 (US$72) per teu.
The NDRC also ordered tariff cuts of between 11% and 21% at several other ports — including Tianjin, Ningbo-Zhoushan and Qingdao — that enjoyed dominant market positions in their respective servicing regions.
The tariff adjustment was prompted by the Chinese government’s antitrust review on the business operations of coastal ports, with the aim of reducing overall logistics costs and promoting a fairer operating environment for shipping companies.
Other announced measures included a further opening of tugboat, tallying and shipping agency markets, and cancellation of unreasonable contract clauses.
The cut in the handling tariff for import and export containers is credit negative for Shanghai International Port Group (SIPG), noted a statement from ratings agency Moody’s.
Moody’s estimates that, as a result of the tariff reduction, SIPG’s container handling revenue will fall by RMB1-RMB1.5bn (US$150m-226m) in 2018, resulting in a lower gross profit margin of 52%-53% for this business segment during the same year when compared with the 57% achieved during the six months between January and June 2017.
Osbert Tang, the Moody’s local market analyst for SIPG, said: “The reduction in tariff will negatively impact SIPG’s profitability and cash flow generation capability from 2018 onwards, and reduce the financial headroom for its standalone credit profile.”
The ratings agency noted that the tariff reduction will not immediately affect SIPG’s A1 issuer rating or the A2 backed senior unsecured bond ratings of Shanghai Port Group (BVI) Holding.
SIPG is the dominant player in the Port of Shanghai, the world’s busiest container port, handling 29.9m teu between January and September 2017.