EUR 850.00 For Business Accounts Only

Morningstar | SIPG's Monopoly Port Operations in Shanghai Underpin Its Wide Economic Moat

Shanghai International Port Group’s annual container throughput of 40.2 million 20-foot equivalent units in 2017 made it the world's busiest container port for eight consecutive years. Located between the Yangtze River and the East China Sea, Shanghai Port is central China's gateway for foreign trade. It enjoys an advantageous geographical location, favourable natural conditions, vast economically developed surroundings, and complete inland distribution infrastructure and facilities, underpinning our view of its wide economic moat.Shanghai Port is the sole port for the city of Shanghai and serves as the main port for Jiangsu and Zhejiang provinces. Strong local industrial and consumer demand drive demand, as do bustling manufacturing sectors geared toward exports. We like the port's position as the gateway to Shanghai, a world shipping and financial centre. The port’s heft allows it to benefit from favourable government policies and facilitates trade and other value-added services for customers, such as shipping finance, which we believe sets the company apart from its competitors in China’s second-tier cities. Limited depth of fairways used to be an obstacle for Shanghai Port, as it was unable to accommodate the newest mega-size container ships. However, the acquisition of Yangshan Port in 2010, a deepwater port connecting to Shanghai via the East Sea Bridge, significantly increased the maximum draft the company can accommodate, and greatly boosted Shanghai Port's throughput capacity. The acquisition consolidated SIPG’s position as a global transshipment port. This acquisition also marks the start of SIPG's plan to compete with Pacific ports, such as Busan in South Korea. Shanghai Port is favourably positioned to benefit from the continued development of the Shanghai Free Trade Zone and the Yangtze River economic belt, which serve to connect China's east coast with its central and western regions and help to accelerate ongoing industry transfer and urbanisation. These will support sustainable throughput volume growth, in our view.