The global economic downturn and political instability in Asia have hit the ports and shipping lines that service trans-Pacific trade particularly hard over the past year. As the Internet boom has collapsed, Asia's high-tech, export-driven economies have fallen through the floor. Meanwhile, turmoil in South Asia combined with heightened security requirements at many ports has driven up costs for companies and shippers.

Nevertheless, ports, leading multinational corporations, and shipping lines that ply Asian routes remain optimistic about the Pacific Rim over the long term. "The Pacific market is still going to have the strongest growth of any shipping routes over the next decade or so, so no one is pulling out of that market," says Clement Chin, manager of marketing and business development at the Port of Oakland.

'Bleeding Money'

The past sixteen months have been tough for Asian shipping. The downturn in the U.S. resulted in decreased American demand for electronics and other consumer goods manufactured on the Pacific Rim, pushing several Asian nations into recession. In fact, Drewry, a leading London-based shipping consulting group, believes the trans-Asia shipping route was the hardest-hit of the world's three main trading routes.

Several shipping lines that had focused their energies on the trans-Pacific route have filed for bankruptcy. The lines that have survived are offering deep discounts to customers, further undermining shipping companies' profitability. In fact, freight rates have fallen so low that some leading Asian exporters have asked shipping lines to keep their goods on board for several voyages, since it's cheaper for these exporters to pay the freight costs than to unload the goods to customers awash in Asian imports.

Several lines, such as Taiwanese giant Evergreen, have slashed capacity by replacing existing large-tonnage vessels with smaller ships. "Some of these companies are bleeding money and rates for trans-Pacific travel still haven't returned to early 2000 levels," Chin says.

Increased competition from Chinese ports has complicated Asian shipping to some extent. Able to offer some of the lowest labor costs in the world, Chinese terminals in Shenzhen, Shanghai, and other cities have begun taking some business away from other Pacific ports, though Hong Kong remains one of the most profitable harbors on the globe. Meanwhile, heightened security due to the war on terrorism has only added to everyone's woes.

"Every port is spending tons of money on security, and carriers are having to make major security expenditures ensuring that their crews are really who they say they are, and double-checking the goods they're carrying," Chin says.

Worries about tensions in Pakistan, India, and Indonesia also have prompted some companies to reduce shipping through and to those countries, and piracy remains a major cause of concern in the waters off Indonesia, which are known as one of the most dangerous shipping routes in the world.

China to Lead the Way

Despite the bad news, trade experts contend that the trans-Pacific route should grow faster than any other major trade routes in the coming decade. Trade between the U.S. and East Asia has seen steadily increasing volumes, says Laraine Moore, a spokeswoman for Samsung, one of the world's largest electronics companies. She notes that heightened security has only caused minor delays for companies like Samsung that have "low-risk importer" ratings from U.S. Customs.

Experts say this recovery from the current downturn in Pacific trade will be due largely to phenomenal growth in China.

"China will eventually develop powerful multinationals that will be major players all over the world," says Ming-jer Chen, a China business expert at the University of Virginia. Chin agrees, saying China is becoming the "manufacturing engine" of Asia and is already picking up the slack for shipping lines and ports that comes from Japan's slowdown. Already, Chinese container lines are reporting annual growth rates of more than 15 percent, and many Chinese ports are growing by more than 30 percent per year.

Although Chinese ports have stolen some thunder from other Asian anchorages, China's development already is benefiting American shipping lines and ports. Recently China Shipping, the mainland's largest shipping company, has signed a lease agreement with the Port of Los Angeles and begun direct service to Boston, thus becoming the first Chinese carrier to operate terminals in America. Welcoming the maiden call of COSCO's vessel to Boston, Massachusetts governor Jane Swift said that the direct service should benefit Boston's port, reduce prices for Chinese goods paid by Massachusetts's residents, and create new jobs.

Furthermore, ports and governments on both sides of the Pacific have been making huge investments in technology, labor, and terminal services that should pay off as trans-Pacific trade begins growing again--likely during the third or fourth quarters of this year--in terms of increased productivity. The Chinese government has begun streamlining customs regulations, reducing the amount of time that ships have to wait in mainland ports. Many Pacific Rim ports have invested in new overhead crane systems, Internet-based customs clearance systems, and expanded berths. American ports have opened labor negotiations with the International Longshore and Warehouse Union, the group that represents roughly 10,000 dockworkers at terminals along the U.S. West Coast. These talks appear to be going more smoothly than past efforts at collective bargaining, since the U.S. recession has softened both the ports and the dockworkers' negotiating leverage.

Asian and North American ports also are forging closer links, ties that will help make trans-Pacific cargo movement more seamless. Several ports are holding conferences this year that will examine Pacific Rim development; the Port of Oakland will host an event this fall that will focus on the trans-Pacific region and should feature representatives from American, Japanese, Chinese, and Australian harbors.

Meanwhile, mainland Chinese ports and Hong Kong are collaborating on a range of operations, and the Intra-Asian Discussion Agreement, an organization founded in 1993 that brings together Pacific Rim ocean carriers, is working to create regional guidelines for terminal handling fees and other knotty shipping issues.