Contributions to 'Port Technology International'

ITMMA Paper Series – Offprint 5/2005

Contributions to ‘Port Technology International’ 2002-2014 Theo Notteboom

Contributions to ‘Port Technology International’ 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20.

21. 22. 23.

GRUSHEVSKA, K., NOTTEBOOM, T., 2014, The Ukrainian crisis: impact on the regional port system, Port Technology International, issue 63, ISSN 1358 1759 (NOT INCLUDED) WANG, S., NOTTEBOOM, T., 2014, The development of LNG bunkering facilities in North-European ports, Port Technology International, issue 62, ISSN 1358 1759, p. 23-25 FENG, L., NOTTEBOOM, T., 2014, The port system in northern China, Port Technology International, issue 61, ISSN 1358 1759, p. 21-22 GRUSHEVSKA, K., NOTTEBOOM, T., 2014, Dry bulk cargo in Ukrainian ports, Port Technology International, issue 61, ISSN 1358 1759, p. 66-69 WANG, S., NOTTEBOOM, T., 2013, LNG as a Ship Fuel: Perspectives and Challenges, Port Technology International, issue 60, ISSN 1358 1759, p. 15-17 NOTTEBOOM, T., 2013, Cargo volumes in the European port system: are we back at pre-crisis traffic levels and should we care?, Port Technology International, issue 59, ISSN 1358 1759, p. 11-14 NOTTEBOOM, T., 2013, Recent traffic dynamics in the European container port system, Port Technology International, issue 58, ISSN 1358 1759, p. 14-18 DE LANGEN, P., NOTTEBOOM, T., PALLIS, A., 2012, The Quality of Port Infrastructure ranking: Some insights, Port Technology International, issue 56, ISSN 1358 1759, p. 9-10 RODRIGUE, J.-P., NOTTEBOOM, T., 2012, North American maritime gateways logistics, Port Technology International, issue 55, ISSN 1358 1759, p. 50-53 KASELIMI, V., NOTTEBOOM, T., 2012, The value of opening terminals to private operators, Port Technology International, issue 55, ISSN 1358 1759, p. 14-15 RODRIGUE, J.-P., NOTTEBOOM, T., 2012, Itineraries, not destinations: cruise capacity deployment and ports of call in cruise shipping, Port Technology International, issue 54, ISSN 1358 1759, p. 13-16 KASELIMI, V., NOTTEBOOM, T., 2012, The preferred scale of container terminals, Port Technology International, issue 53, ISSN 1358 1759, p. 23-24 RODRIGUE, J.-P., NOTTEBOOM, T., 2011, Port regionalization: improving port competitiveness by reaching beyond the port perimeter, Port Technology International, issue 52, ISSN 1358 1759, p. 11-17 RODRIGUE, J.-P., NOTTEBOOM, T., 2011, The Panama Canal Expansion: Business as Usual or Game Changer?, Port Technology International, issue 51, ISSN 1358 1759, p. 10-12 NOTTEBOOM, T., RODRIGUE, J.-P., 2011, Challenges to and challengers of the Suez Canal, Port Technology International, issue 51, ISSN 1358 1759, p. 14-17 RODRIGUE, J.-P., NOTTEBOOM, T., 2011, Dry Ports and the Maritime Hinterland: Gaining Momentum, Port Technology International, issue 50, ISSN 1358 1759, p. 21-24 NOTTEBOOM, T., RODRIGUE, J.-P., 2011, Global networks in the container terminal operating industry. Part 2: The future direction of terminal networks, Port Technology International, issue 50, ISSN 1358 1759, p. 13-16 RODRIGUE, J.-P., NOTTEBOOM, T., 2011, Global networks in the container terminal operating industry. Part 1: How global are global terminal operators?, Port Technology International, issue 49, ISSN 1358 1759, p. 10-14 NOTTEBOOM, T., 2010, Liner service design and port selection by container shipping lines, Port Technology International, issue 47, Autumn 2010, ISSN 1358 1759, p. 14-16 NOTTEBOOM, T., 2010, Green concession agreements: how can port authorities integrate environmental issues in the terminal awarding process?, Port Technology International, issue 47, Autumn 2010, ISSN 1358 1759, p. 36-38 NOTTEBOOM, T., NARAYANA MURTHY, T.R., 2002, Private-financed port investments in Asia, Port Technology International, edition 17, Autumn 2002, p. 175-177 NOTTEBOOM, T., 2002, Government intervention in European seaports, Port Technology International, edition 17, Autumn 2002, p. 183-185 WINKELMANS, W., NOTTEBOOM, T., 2002, Dealing with uncertainty in port capacity planning, Port Technology International, edition 16, Summer 2002, p. 187-189

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PORT FOCUS

Effective liner service design and port selection by container shipping lines Dr. Theo Notteboom, President of ITMMA, University of Antwerp, Antwerp, Belgium

The asset-based nature of the container liner shipping Container shipping is a very capital-intensive industry where some assets are owned and others leased. Container shipping lines are particularly challenged to develop an effective asset management program for the fleet they own or operate. Fleet capacity management is complex given the inflexible nature of vessel capacity in the short-term, due to fixed timetables, the seasonality effects in the shipping business and cargo imbalances on trade routes. Lines vie for market share, and capacity tends to be added as additional loops to existing liner services. Lines incur high fixed costs in this process. For example, eight to ten ships are needed to operate one regular liner service on the Europe-Far East trade. Once the large and expensive liner services are set up, the pressure is on to fill the ships with freight.

Liner service design: balancing operational and commercial considerations Shipping lines design their liner services and networks in order to optimize ship utilization, and benefit the most from scale

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economies in vessel size. Their objective is to optimize shipping networks by rationalizing coverage of ports, shipping routes and transit time. Shippers demand direct services between their preferred ports of loading and discharge. They exert a strong pressure on the service schedules, port rotations and feeder linkages. When designing their networks, shipping lines thus implicitly have to make a trade-off between the requirements of the customers and operational cost considerations. A higher demand for service segmentation adds to the growing complexity of the networks. As a result, liner shipping networks feature a great diversity in types of liner services, and a great complexity in the way end-to-end services, line-bundling services and pendulum services are connected to form extensive shipping networks.

The diversity in liner service networks Profound differences exist in service network design among shipping lines. Some carriers have clearly opted for a true global coverage, others are somewhat stuck in a triad-based service network. The networks of Maersk Line, CMA-CGM and MSC are characterized by a network of specific hubs and a selective serving

www.porttechnology.org

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of secondary markets such as Africa, the Caribbean and the East Mediterranean. Asian carriers such as APL, Hanjin, NYK, China Shipping and HMM mainly focus on intra-Asian trade, trans-Pacific trade and the Europe-Far East route, partly because of their huge dependence on export flows generated by the respective Asian home bases. MOL and Everg reen are among the few exceptions frequenting secondary routes such as Africa and South America. Shipping lines rarely opt for the same port hierarchy in the sense that a terminal can be a regional hub for one shipping line and a secondary feeder port for another operator. Since the 1990s, the establishment of global networks has given rise to hub port development at the crossing points of trade lanes: Freeport (Bahamas); Salalah (Oman), Tanjung Pelepas (Malaysia), Gioia Tauro, Algeciras, Taranto, Cagliari, Damietta and Malta in the Mediterranean, to name but a few. The hubs have a range of common characteristics in terms of nautical accessibility, proximity to main shipping lanes and ownership, in whole or in part, by carriers or multinational terminal operators. These nodes allowed shipping lines to multiply shipping options and improve connectivity within the global liner networks.

PORT FOCUS

The three tiers in liner service design are highly interrelated.

Selecting ports of call Port selection takes place at the second tier in the planning process. When deciding on a port-calling pattern, shipping lines explicitly or implicitly follow a two-stage process. Firstly, they identify a group of ports that can potentially serve a particular geographical market. For example, a shipping line might conclude that Rotterdam, Zeebrugge, Antwerp, Hamburg and Bremerhaven can all be used as entry points for serving the German Ruhr area. In the second step, service planners will select one or more ports of call among each set of ports.

Key design variables in liner shipping Liner service design is highly complex. The first step in the design of a regular container service consists in the identification of the markets to be served. Once the trade route for the (new) liner service has been identified, the service planner will have to make decisions at three operational tiers. The first tier includes the service frequency (including the fixed days/hours of the week for departure or arrival); the unit capacity of the vessels, the fleet mix and the vessel speed (slowsteaming or not). The second tier relates to decisions on the number and order of port calls per roundtrip. The last tier consists of the required number of vessels, derived from the desired frequency and the vessel roundtrip time (function of route length, vessel speed and total port time). P o rt T e c h n o l o g y I n t e r n at i o n a l

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PORT FOCUS

In both stages, service planners will compare ports on a wide range of factors and criteria. Three distinctive groups of factors can be distinguished: • F irst of all, there is the demand profile of the port, which includes factors such as the flow orientation of the port towards the foreland and the hinterland, the scale and growth of the port and the connectivity of the port in wider maritime networks. • Secondly, the supply profile of the port concerns the availability, cost, quality and reliability of the nautical access, container terminals and hinterland access. • Thirdly, shipping lines consider the market profile of the port. This group of factors includes factors such as the cargo control characteristics (dominated by forwarders or shipping lines); the structure of the terminal operating business within the port, the presence of logistics activities in the port, the logistics focus of the port and port reputation. In theory, shipping lines could base their final decision on a (weighted) combination of scores on each of the selection factors. In practice, the interplay of factors contributing to the final port choice is not transparent to outsiders. ABOUT THE COMPANY

A rational port choice? Even in case a shipping line would possess a decision support system for rational port choice, the final outcome might not always correspond to a modeled optimum solution. Port choice is influenced by factors that go beyond the traditional port selection criteria. If a shipping line is part of a strategic alliance, port choice is subject to negotiations among the alliance members and can deviate from the choice of one particular member. Important shippers might impose a certain port of call on a shipping line leading to bound rationality in port choice. A shipping line might possess a dedicated terminal facility in one of the load centers and might be urged to send more ships to that facility, in view of optimal terminal use. A last example relates to the role of inertia and local embeddedness in port choice. Carriers might stick to a specific port as they assume that the mental efforts and costs linked to changes in the network design will not outweigh the costs associated with the current non-optimal solution.

ABOUT THE ORGANISATION

ENQUIRIES

Dr. Theo Notteboom is president of

ITMMA (Institute of Transport and Maritime

Prof. Dr. Theo Notteboom

ITMMA (an institute of the University

Management Antwerp) of the University of Antwerp

ITMMA – University of Antwerp

of Antwerp), professor at the University

is one of the world’s premier suppliers of highly

Keizerstraat 64, 2000

of Antwerp, a part-time professor

specialized academic and practice-based maritime

Antwerp

at the Antwerp Maritime Academy

and logistics education and research. ITMMA’s

Belgium

and a visiting professor at Dalian Maritime University

activities include M.Sc. programs; a Ph.D. program,

in China and World Maritime University in Sweden. He

short-term courses and tailor-made post-experience

Tel: +32 3 2655152

published widely on port and maritime economics.

programs, research and publications and trend-

Fax: +32 3 2655150

He is also chairman of the Board of Directors of the

setting events and conferences.

Email: [email protected]

Belgian Institute of Transport Organizers (BITO), an

Web: www.itmma.ua.ac.be

institute of the Belgian Federal Government.


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23/08/2010 12:22:41

PORT PLANNING, DESIGN AND CONSTRUCTION

Green concession agreements How can port authorities integrate environmental issues in the terminal awarding process? Dr. Theo Notteboom, President of ITMMA, University of Antwerp, Antwerp, Belgium

Making port management ‘green’

Phases in the terminal awarding process

Environmental concerns about port activity are mounting. The process of making port management ‘green’ affects port authorities around the world in terms of safeguarding their ‘license to operate’ and increasing their economic and environmental competitiveness. In Europe, the growing green reflex is mirrored in the many green initiatives of individual ports and the coordinated actions of the wider port community, as exemplified by the Ecoports foundation (embedded in the European Sea Ports Organisation – ESPO) and the annual GreenPort conferences. One of the most interesting fields of action for landlord port authorities relates to the inclusion of green factors when awarding terminals to private terminal operators. Land for port development is scarce, making terminal concessions to private stevedoring companies a prime task of landlord port authorities. Key issues in the process include the allocation of mechanisms used for granting seaport concessions, the determination of the concession term and concessions fees, and the inclusion of special clauses in the concession contract aimed at assuring that the terminal operator will act in the interest of the port authority and the wider community (cf. throughput guarantees). A well-designed concession policy allows port authorities to retain some control on the organization and structure of the supply side of the port market, while optimizing the use of scarce resources such as land.

A typical terminal awarding procedure consists of three phases, as depicted in Figure 1 (see also: [1] and [2]). In the pre-bidding phase, the port authority makes the necessary preparations for the awarding, taking into account prevailing regulatory conditions. This includes decisions on the rules of the game, such as criteria related to the qualification and selection of candidates, and the desirable concession duration. In the awarding phase, candidates are screened, bids are evaluated and the most appropriate candidate is selected. In the post-bidding phase, a legally binding concession agreement is signed with the selected candidate and the company’s performance is monitored during the contract term. If necessary, correcting measures are taken and disputes are settled. Making terminal awarding procedures ‘green’ requires initiatives in each of the three phases of the process. Remarkably, a recent survey performed by ITMMA and ESPO, which included 43 recent terminal awarding cases across Europe, showed that environmental issues today do not play an important role in terminal awarding processes across European ports.

Green actions in the three phases When deciding what site to award, port authorities could more explicitly look at the environmental quality of the port site. Brownfields might be more expensive to redevelop, but often

Figure 1. How environmental targets can be integrated when awarding seaport terminal contracts.


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lead to a higher spatial quality and regeneration of older port sites. Port authorities could also include more stringent construction guidelines for port infrastructure and superstructure. Such measures could include the use of a minimum percentage of green energy or the installation of coldironing facilities. In the awarding phase, port authorities often include a qualification stage in which the number of candidates is narrowed down. Candidates are qualified based on minimum requirements related to their financial strength and relevant experience in operating facilities for similar cargo in the same or other ports. Environmental performance can constitute a new additional element in this qualification phase. By doing so, possible candidates are not only rewarded for their market scale and financial potential, but also for having taken initiatives previously to develop a green policy at other terminals in their portfolio. In about 70 percent of today’s European terminal projects, candidates have to present studies of environmental and territorial impact, covering aspects such as the impact of the terminal operations on the environment and the alternatives to eliminate, reduce or mitigate certain effects. While this proves that port authorities are very much interested in the environmental strategy of candidates, it remains remarkable that environmental criteria are rarely included in the final selection round. There is scope here to more explicitly integrate environmental performance into the selection process, next to more traditional criteria such as throughput expectations, financial performance, the price bid and socio-economic impacts in terms of value-added, created and employment effects. Port authorities should also consider the inclusion of green elements in the post-bidding phase. Environmental clauses appear in 85 percent of all recent terminal contracts. In most cases, however, the clauses simply stipulate that the terminal operator will have to comply with local, national and supranational environmental legislation. In about 30 percent of these cases, the environmental clauses refer to the compulsory use of some sort of environmental management reporting system, while stipulations on emission levels are included in 18 percent of the contracts. About 9 percent of the contracts refer to specific technical equipment being used to limit emissions. About one fourth of all contracts combine several of the above environmental clauses. Occasionally, ports include clauses on existing or future contamination of the terminal site. Looking at the multi-year trend, not on a year-to-year basis, is the best way to evaluate the environmental performance of a terminal.

Towards an environment-friendly modal split: the carrot or the stick? A small number of recent terminal contracts include modal split specifications, particularly in a container terminal context. In about half of these cases, the contract elaborates on some technical specifications and compulsory investments to be made by the terminal operator in hinterland transport infrastructures on the terminal site. In only 21 percent of these cases, the modal split clauses explicitly impose a specific modal split on the terminal operator to be reached by a certain year (for example: 40 percent road, 40 percent barge and shortsea, and 20 percent rail by 2015). The modal split target is often formulated as a soft objective (an intention). Soft targets are, however, best kept outside the contractual setting, as they cannot be legally imposed on the terminal operator. The port authority can encourage terminal operators to reach the soft targets by positive pricing or awarding systems (the ‘carrot’ approach). The setting of hard targets in the concession agreement implies a ‘stick’ approach, with binding clauses and enforcement (penalties in case of non-compliance). In following such a stick approach, port authorities often face the problem of posing credible threats.

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For example, terminal operators who are confronted with ‘hard’ modal split clauses will argue that the distribution of cargo over the various inland transport modes is largely affected by exogenous factors. These factors might include, for instance, the supply chain practices of their customers, the pricing and quality of rail and barge services and the infrastructure policy outside the port area (by government). Terminal operators can, however, positively influence the modal split on their terminal through pricing (for instance a dwell time fee system or pricing of moves to inland transport modes), actions to increase the transparency of information flows (which makes cargo bundling towards rail and barge easier) and extended gate solutions in the hinterland (for instance by setting up satellite terminals in the hinterland).

Low hanging fruits? Environmental factors are not yet widespread criteria in bidding procedures. Port authorities should (continue to) have the possibility to work out terminal awarding procedures, taking into ABOUT THE AUTHOR

account environmental objectives and the need for a sustainable and highly competitive port context. While each port is unique, there is some scope for joint action and convergence among seaports with respect to these aspects. Port authorities and terminal operators are only able to fully benefit from green concession procedure initiatives if these actions are embedded in a chain approach towards the environment (ship, port, terminal, warehouse, inland transport, and so on). Green concession agreements miss their effect when treated in isolation. REFERENCES

[1] N otteboom, T., (2007): “Concession agreements as port governance tools”, Research in Transportation Economics, 17, p. 449-467. [2] Theys, C., Notteboom, T., Pallis, A., De Langen, P., (2010): “The economics behind the awarding of terminals in seaports: towards a research agenda”, Research in Transportation Economics, 27(1), p. 37-50.

ABOUT THE COMPANY

ENQUIRIES

Dr. Theo Notteboom is President of ITMMA (an



institute of the University of Antwerp), professor



at the University of Antwerp, a part-time professor

is one of the world's premier suppliers of highly


at the Antwerp Maritime Academy and a visiting


Antwerp

professor at Dalian Maritime University in China and


Belgium

World Maritime University in Sweden. He published

activities include M.Sc. programs, a Ph.D. program,

Tel: +32 3 2655152

widely on port and maritime economics. He is also


Fax: +32 3 2655150

chairman of the Board of Directors of the Belgian



Institute of Transport Organizers (BITO), an institute



of the Belgian Federal Government.


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23/08/2010 18:23:15

GLOBAL ISSUES

LNG as a ship fuel: perspectives and challenges Siyuan Wang and Professor Theo Notteboom, ITMMA, University of Antwerp, Belgium

The upcoming stringent environmental regulations enacted by the International Maritime Organisation (IMO), particularly at the level of the emission control areas (ECA), serve as a catalyst for exploring the use of Liquefied Natural Gas (LNG) as a marine fuel. LNG promises a good environmental performance compared to conventional ship fuels. It emits nearly no sulphur oxide (SOx) or particle matter (PM) emissions, 90 percent less nitrogen oxide (NOx) and 20-25 percent less carbon dioxide (CO2). Research into LNG as a marine fuel saw a strong growth in recent years, but no study has analysed in a structured way, the level of convergence among the findings presented in the wide range of studies conducted by research

centres, classification societies, ship engine manufacturers and consultancy firms. In order to fill this gap, we performed a systematic review to synthesise the findings of 33 published studies on the use of LNG as a ship fuel. The aim is to obtain a much broader understanding of the current perspectives and challenges for applying LNG as a bunker for ship propulsion.

divergence between earlier and later studies might be attributed to the ongoing technological innovation and economic and regulatory advances to support LNG as a ship fuel. Some of the most crucial challenges are discussed in the following sections.

Factors supporting or obstructing the adoption of LNG

There are some existing regulatory gaps regarding the application of LNG as a ship fuel. In recent years, the regulatory framework for onshore LNG installations and the maritime transport of LNG cargo have been established at international levels in line with the fast growth of the world LNG trade. These include the international

Figure 1 provides an evaluation for 17 factors affecting the large-scale adoption possibilities for LNG. Not all of the 33 studies considered refer to all 17 factors. The figure shows the consistency and/ or divergence in existing literature. Some

Availability of a regulatory framework

Figure 1: Positive and negative factors in the adoption of LNG as a ship fuel. The percentages refer to the share on a total of 33 studies.

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GLOBAL ISSUES

code for the construction and equipment of ships carrying liquefied gases in bulk (IGC code); The Society of International Gas Tanker and Terminal operators (SIGTTO) and the Oil Companies International Marine Forum (OCIMF). There is no international rule recognising that LNG can be used as a marine fuel, apart from the IGC code which allows LNG carriers to use boil-off gas as a part of the ship’s propulsion. In order to fill this gap, the IMO has started to draft the international code of safety for ships using gases or other low flashpoint fuels (IGF code) which will cover safety and operational issues for gas-fuelled seagoing vessels. The code is expected to be finalised by 2014. In addition, the lack of a set of comprehensive LNG bunkering regulations is one of the key barriers to the new application. So far, no international standards have been established which incorporate minimum requirements for the bunkering procedures, training and equipment necessary to ensure safe LNG handling for gas-fuelled ships via both shore-based and ship-to-ship bunkering operations. In 2011, ISO established a working group to develop such international g u i d e l i n e s f o r h a r m o n i s i n g LN G bunkering standards. This working group delivered its first draft in June 2013. At the time of writing, the document was being subjected to an international hearing round before it should be published as an ISO document by 2014. Another regulatory barrier is related to the use of LNG on inland vessels in Europe. In line with the relevant European agreement concerning inland shipping e.g. the international carriage of dangerous goods by inland waterways (ADN) and the Rhine vessel inspection regulations (RVIR); the regimes prohibit the installation on inland ships of combustion engines that use a fuel with a flashpoint below 55C. This means LNG is restricted to be used as a fuel since its flashpoint is -180C. To close this regulatory gap, the competent EU authority has started to establish a specific permit process for LNG-powered inland vessels and later may develop appendices under the existing regulatory framework.

Economic viability

Sophisticated LNG engines and the cryogenic double-walled fuel tanks require significant capital investments, certainly when compared to oil fuelled ships. The observed cost range is partly linked to the ship design, the engine type (dual-fuel or single LNG engine), and the size of fuel tank (i.e. dependent on the frequency of refilling) etc. Overall, the estimated cost for an LNG fuelled ship is between 20

Figure 2: Comparison between three alternative solutions to meet IMO ECA regulations.

to 25 percent higher compared to an oil equivalent vessel. In addition, it is noted that the cost for a newly built LNG fuelled vessel is less than the cost to convert a similar existing vessel. LNG is therefore more feasible for new ships. The LNG price lies at the core of the economic discussion on the use of LNG as a ship fuel. It is widely recognised that the current low natural gas price compared to the conventional oil fuel is a main economic driver for this new application. However, the various estimates of the future LNG price presented in the different studies make it hard to bring widely supported forecasts on the future energy prices. Moreover, the LNG bunker price to end users also includes the infrastructure cost of the LNG refuelling terminals, the distribution cost of LNG to the bunkering terminal and the cost of the bunkering operation. The current lack of LNG bunkering infrastructure and supply chain networks presents a far more

uncertain picture for the LNG fuel price. This leads to uncertainty for ship operators on whether they could benefit from the offset between fuel cost savings and large capital investments. Nevertheless, LNG engine de velopments highlight the lower maintenance cost in comparison to oil engines due to a more clean and efficient system and a long lifetime of the machinery. Furthermore, the possible environmental cost (e.g. taxation or emission trading scheme) charged to shipping by governments will make the LNG cost savings more attractive than other options. To date, there is only a NOx taxation system in Norway, but it is believed that the environmental cost regime for marine transport will develop in many countries in the coming years.

Technological feasibility

The use of LNG as a ship fuel is not new. The technology is well-established as Edition 60: No vember 2013

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GLOBAL ISSUES

LNG carrier operators can look back on 40 years of experience in powering their ships using LNG. Moreover, the technology has also been tested on some 35 non-LNG carrier gas-fuelled vessels mostly sailing in Northern Europe. The space-consuming LNG fuel tanks affect ship productivity and freight earnings. LNG has a 1.8 times larger volume than diesel oil, and of one includes the whole system of LNG engine and cylindrical-shaped fuel tank onboard, the space needed is even three to four times larger than the conventional oil system. Another technical challenge is the unburned methane (CH4) emitted from LNG or dual-fuel engines, which reduces the overall environmental performance of LNG-fuelled ships. Considering the safety risks associated with the bunkering operation of LNG-powered vessels, it is necessary to establish common safety risk assessment approaches and risk acceptance criteria for LNG fuelled ships and bunkering procedures.

Infrastructure availability

Almost all reviewed studies show a consensus that a critical challenge to the development of LNG as a ship fuel is the current lack of established bunkering infrastructure and distribution networks for delivering LNG to the ships. This significant barrier currently represents a ‘chicken-and-egg’ problem. Bunker suppliers are unwilling to invest in the infrastructure necessary until there is sufficient demand to supply commercial shipping with LNG fuel. On the other hand, ship owners are unwilling to invest in LNG-fuelled ships if supplies of LNG bunkers are difficult to obtain. Currently, there are four LNG bunkering methods. They are truck-to-ship, ship-to-ship, terminal (loading arm)-to-ship and LNG portable tank. A minimal bunkering infrastructure is needed to kick-start the market development. The European C o m m i s s i o n p r o p o s e d t h a t LN G refuelling stations should be installed in all maritime and inland ports of the transEuropean core network by 2020 (2025 for inland ports). This aim includes a total of 139 ports which account for about 10 percent of all EU ports in number.

Public-social awareness

Many of the reviewed studies agree that the ‘chicken-and-egg’ dilemma can best be mitigated through government involvement. The approach for such involvement can be subsidies, funding or reduced taxes etc. The EU has started to develop financial instruments to support the introduction of LNG bunkering infrastructure, such as the funding from the Trans-European Transport Network 3 E d i t i on 6 0 : No ve m b e r 2 0 1 3

(TEN-T). In addition, some leading public port authorities in Europe, like Rotterdam and Antwerp, have already e s t a b l i s h e d p o r t - s p e c i fi c e m i s s i on regulations that give a discount in port dues to ship owners who use clean fuels for their vessels (i.e. the environmental ship index (ESI) programme). Another concern is the public acceptance of the use of LNG as a ship fuel. In order to increase public acceptance, better communication between the project developers, the authorities and the general public needs to be developed.

Options available to ship operators

In order to comply with the forthcoming ECA’s SOx limits in 2015 and NOx Tier III standard in 2016 (may have five-year delay to 2021); ship operators have three compliance strategies standing out as realistic options. Apart from switching to LNG, they can change to low sulphur fuel oil e.g. marine gas oil (MGO), or use scrubbers. Figure 2 shows the current advantages and challenges with each of the three alternatives. Using low sulphur fuels (e.g. MGO) is the most immediate compliant solution, due to minor modifications to ships with limited up-front costs and the established supply chain and bunkering facilities. Nevertheless, the growing demand for distillate oils would cause the fuel price to rise. The use of scrubbers is considered a viable method for removing sulphur and particulate matter from exhaust gas emissions. However, at present, ship owners lack confidence about this solution due to high uncertainty over its technical performance, e.g. system reliability, the risk of non-compliance, etc. Also, in order to remove NOx to meet Tier III standards, the scrubber must be operated in conjunction with selective catalytic reduction (SCR), but the combination of these two technologies remains problematic. LNG as a clear fuel can reach all environmental targets without any abatement technology. However, the current lack of bunkering infrastructure and operation standards imply that the use of LNG as a ship fuel is expected to first gain momentum in niche markets, like small ferry routes and regional liner traffic. In the longer run (perhaps from 2020) the adoption of LNG as a ship fuel on a global scale rests on three main factors: the price difference between LNG and low sulphur fuel oil; the global emission regulations e.g. the global SOx limits enforced in 2020 or 2025; the availability of LNG bunkering facilities in a global context.

About the authors Siyuan Wang joined ITMMA (an institute of the University of Antwerp) as a PhD student under the CONNEC scholarship programme of the European Commission in 2010. She holds an MSc in Transport and Maritime Management from ITMMA and a masters in Maritime L aw from S hanghai Mar itime University. Her research activities at ITMMA focus particularly on the LNG market. Theo Notteboom is president of ITMMA, professor at the University of Antwerp, a part-time professor at the Antwerp Maritime Academy and a visiting prof essor at Dalian Maritime University in China and Wor ld Mar itime Universit y in Sweden. He publishes widely on port and maritime economics. He is also president of the Inter national Association of Maritime Economists (IAME), chairman of the board of directors of the Belgian Institute of Transport Organisers (BITO - an institute of the Belgian Federal Government) and co-director of PortEconomics.eu.

About the organisation

Po r t E c o n o m i c s i s a w e b based initiative aiming at generating and disseminating knowledge about seaports. It is developed and empowered by the members of the PortEconomics group, who are actively involved in academic and contract research in port economics, management, and policy. Since October 2012, Port Technology International and PortEconomics have been engaged in a partnership. www.porteconomics.eu.

Enquiries ITMMA – University of Antwerp Kipdorp 59, 2000 Antwerp, Belgium Email: [email protected] or [email protected] Website: www.itmma.ua.ac.be


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Private-financed Port Investments in Asia T H E O N O T T E B O O M, Institute of Tr a n s p o rt and Maritime Management, Antwerp, Belgium N A R AYA N A M U RT H Y, S ATS (Singapore Airport Te rminal Services), Singapore

A BSTRACT n order to cope with the costs of modernisation, there has been a move from the traditional public ownership and operation of ports in Asia, towards opening up developments to mechanisms involving the full range of private participation. The options available are discussed fully, with examples fro m across the region.

I

TA B L E 1. P R I VAT E I N V E S T M E N T I N P O RT I N F R A S T R U C T U R E P R O J E C T S PER R EGION – P ERIOD 1986–2000 Regions

Private Investment in Port Infrastructure Projects (millions $US)

Share

East Asia

5482

55.2%

South Asia

1752

17.6%

Middle East

248

2.5%

Africa

372

3.7%

Latin America

2016

20.3%

INTRODUCTION

ECA

68

0.7%

Over the past two decades the private sector has come to recognise the importance of their participation and long term commitment in port infrastructure works. World Bank data reveals that the private financing of port infrastructure projects in the world has increased sharply. Indeed, Asia is in receipt of healthy private financing for port infrastructure works (72.8%), see Table 1. Asia has witnessed structural changes in trade and industry which have resulted in rising cargo volumes, and increased pressure on the maritime and the intermodal transport systems. The need for investment in port infrastructure has increased considerably, in particular as a result of fast growing containerisation, the scale increases in vessel size, the emergence of maritime hub-and-spoke networks, and the related realignment of traffic flows. Asian countries have always recognised the strategic role seaports have to play with regard to supporting and enhancing regional economic development. The developing countries realised that the poor infrastructure provided by the national ports, and their high costs, would hamper trade development. As the costs of port infrastructure have increased tremendously since the golden sixties, many Asian ports are facing a twofold problem of how and where to obtain the required capital, and how and when to recover these investments. To attract private investment, a large number have opened facilities to commercially profitable activity.

TOTAL

9938

100%

Source: World Bank, PPI Database (1999) & (2000), Washington D.C

projects by opening up to private financing, and they are now looking further towards private ownership and operations. There are four major types of combination: • Public/government ownership, and public participation in operations; • Public/government ownership, and private participation in port/terminal construction, operations and management; • Public/government ownership, and private participation in superstructure installation (e.g. cranes) and operations; and • Private ownership, and operations. A distinction can be made between two basic models in private financed port infrastructure projects, i.e. Public Ownership and Private Operations (POPO) and Private Ownership and Operations (POO), with a number of specific mechanisms and financing techniques available for each (see Figure 1).

PUBLIC OWNERSHIP AND PRIVATE OPERATIONS (POPO) MECHANI SMS IN THE PR IVATE FINA NCING OF PO RT I NFRASTRU CTURE PROJEC TS Historically, Asian ports were operated by the public sector, and relied heavily on government funding. Since the early 1980s, the constraints related to public ownership have led the ports to introduce new mechanisms for infrastructure

In the Management Contracts (MC) system, the port authority/government contracts out the management of all, or parts, of the port to a specialised private operator for a given period of time, and under specified conditions, such as performance criteria, economic incentives, and maintenance and infrastructure commitments. Only a few private financed port infrastructure projects in Asia

P O R T T E C H N O L O G Y I N T E R N AT I O N A L

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Figure 1 Mechanisms in the private financing of port infrastructur e projects

have used this mechanism. The Laem Container Terminals B2, of Laem Chabang Port in Thailand, awarded the management contact to Evergreen Container Terminal (Thailand) Co. in 1997. Under the Lease-Operate (LO) mechanism a longterm concession is granted to a private company on an existing facility. The government, or a public authority, retains the property rights, and receives rent. It is widely used in Asia. A typical example is Kaohsiung Port in Taiwan, the third largest container port in the world. In 1997, the Kaohsiung Port Bureau granted 22 private operators the right to operate within the port, covering containers, general cargo, and bulk. At present, 19 dedicated berths have been leased out to companies such as Evergreen, OOCL, and NYK at an exclusive operating rate. The Build-Lease-Operate (BLO) option implies that the company constructs and operates the facilities through a long-term lease. The port authority, in turn, controls the rights, and receives the lease payment annually. It is commonly used in China where, for example, PSA Corporation contracted a BLO in 1998 for a period of twenty years for Fuzhou Qingzhou Container Terminals, in Fuzhou Port. Build-Operate-Transfer (BOT) is where a public authority grants a concession, or a franchise, to a private company to finance and build, or modernise, a specific port facility. The company operates the facility, and obtains revenue from the specified operations for a designated period. The private sector takes all commercial risks during the concession, at the end of which the government retakes ownership of the improved assets. A major BOT project is a concession to develop a second port at Tanjung Pelapas, Malaysia. Pelabuhan Tanjung Pelapas Sdn Bhd (PTP) is a joint venture between Seaport Terminal Sdn Bhd, Indra Cita Sdn Bhd, and Koperasi Permodalan Nageri Johor, and was developed with total project costs of about US$1000 million. The port started its operations in July 1999, and has become a major competitor of Singapore. Build-Operate-Share-Transfer (BOST) is similar to BOT, but in this case the revenue obtained from terminal operations is shared with a designated public authority throughout the concession period. The government/public authority should assure a specific quantity of throughput for revenue, and the commercial risks are shared. An example of BOST is the proposal of BCC Shipping & Shipbuilding Ltd, and its UK partners, for developing Tadri Mini Seaport in Karnataka State in India.

P R I VATE OWNERSHIP A ND OPERATIONS (P OO) The Build-Own-Operate (BOO) model means that a private company makes a contractual agreement with the government for the construction, operation, maintenance, and ownership of a port/terminal for a specific period of time,

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with renewable options. The title of the land is transferred to the private company for that period. The private company acquires a lot of flexibility to develop the port or terminal. An example, is Tan Thuan Dong Container Terminals at Tan Thuan Dong port, Vietnam. First Logistics Development Co. (a joint venture company of Vietnam Southern Waterborne Transport Co 35%, and Mitsui & Co and Neptune Orient 65%) signed a BOO with the government in 1997. The Build-Own-Operate-Transfer (BOOT) mechanism is a combination of BOO and BOT, i.e. a private company, or consortium, takes the property title of the facility during construction. This title is transferred to the government at the end of the long-term concession. One of the first BOOT projects was in India, in1997, when the Mormugao Port Trust brought in a private consortium headed by Dredging International (a Belgian dredging company) to finance, construct, own, and operate two bulk berths, and to deepen the current draft of 3.5m to 13.5m. The ownership is shared by the two private entities: Dredging International 74% and Jindal Vijaynagar Steel Ltd. (JVSL) 26%. The land ownership was retained by the Mormugao Port Trust. Build-Own-Operate-Share-Transfer (BOOST) is similar to BOOT, with the difference that the revenue related to terminal operations is shared with the designated government throughout the concession period. L & T signed a contract with the Orissa government in 1997 to develop a greenfield port at the mouth of the river Dhamora. The port is a fully mechanised bulk cargo terminal. Initially for 30 years, the concessionaire has exclusive rights over the project, with no restrictions on operations, or tariffs.

R E L ATIVE IMPORTANCE OF THE MECH ANISMS IN AS IA Based on World Bank data, see Figure 2, about three quarters of projects relied on the POPO-model, whereas 23.9% were based on the POO. Most Asian ports, 59%, follow BOT and LO. The LO mechanism is widely used in China, South Korea, Taiwan, Thailand, Philippines, Malaysia, and Indonesia, whereas the BOT is used in Vietnam, Myanmar, Malaysia, Indonesia, India, and Pakistan. The BOO mechanism, which accounts for 12.1% of all projects, has been mainly adopted in China, India, Vietnam, and Indonesia. BOST, BOOST and BOOT are mostly used in India.

THE DEGREE OF PRIVATE PA RT I C I PATIO N IN ASIA N P O RT INF RA STRUCTUR E PRO JECTS In Asia, private participation in the financing and the development of port infrastructure facilities ranges from very limited to full responsibility (see Table 2). The degree of private participation can be limited (under 25 percent) either because of government regulations, or by the company’s intention to move slowly. In this situation the controlling power is with either party. Only a few projects in Asia are characterised by a limited initial degree of private participation, eg Klang in Malaysia, and Laem Chabang in Thailand. In the semi-private participation model, participation is restricted either by government regulation, or by the limited interest of the private sector. Private involvement is relatively moderate, and the assets usually remain under public ownership. The model is typically characterised by contractually based relationships, rather than wholesale regulatory participation. The disadvantage of this model is the poor capability to acquire the majority share if the government restricts private investor’s equity. This was shown when Hong Kong International Terminals (HIT), a subsidiary of Hutchison Whampoa,

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signed a deal with the Ministry of Communication in 1990, asking for terminal operation in anticipation that the government would restrict foreign investors’ equity to 50 % or less. About 22 Asian ports have chosen this model recently, for example, Kuantan in Malaysia, Pulan Laut in Indonesia, Shanghai in China, and Qasim in Pakistan. The high (extensive) private participation model usually involves a long-term commitment, where a private company, or group, will have acquired a majority shareholding and effectively control the project. In most cases, this strong position is linked to limited restrictions on foreign investor’s equity, and is a gateway for the private sector to maximise their revenue. Table 2 shows that the model was chosen in 27% of cases. The main positive outcomes are: (a) de-monopolising of the public port market, (b) more opportunities for the private capital market, and (c) greater commitment of the private sector towards port infrastructure projects. In a typical example, Lumut Maritime Terminal Sdn Bhd (LMTSB) developed Lumut Port in Malaysia, and the adjacent industrial park under a BOOT concept for a concession period of 25 years. LMTSB is a joint venture between a public company, Perbadanan Kemajuan Nageri Perak (PKNP) 30%; Halim Rasip Holdings Sdn Bhd (HRH) 30%; and, the construction contractor, Ipco International Ltd. 40%. Other examples are: Zhuhi in China, Mundra in India, Port Raysult in Oman, and Pusan in South Korea. The full private participation model – 27% of private projects- is where the port/terminal is (almost fully) in private hands for construction, maintenance, management, and operation, and is unrestricted for expansion and maximum profit orientation. The private sector has exclusive rights over the port/terminal, and freedom to fix tariffs, for 30 to 40 years, and they can be extended by mutual consent. A typical example is Cuddalore South in India, a multiuser port to the south of the existing port of Cuddalore. International Seaport India Ltd, a wholly owned subsidiary of the Singapore-based International Seaport Pte Ltd (ISPL), has been constructing this port on a BOOT basis. ISPL is a joint venture between Precious Shipping PCL Singapore and SSA International Inc. USA. Other examples are: Tan Thuan Dong in Vietnam, Thilawa in Myanmar, Xiamen in China, and Balikpapan in Indonesia.

CONCLUSION The mechanisms used in the private financing of port infrastructure projects have evolved, from fairly simple leasing structures, to more complex and sophisticated mechanisms, with a long-run focus and with a marginal cost-sharing structure. The POPO-model dominates in Asia. In India, the POO-model is gaining some ground, now occupying one-third of the market. The common mechanisms used by China, South Korea, Philippines, and Thailand are LO and BLO, but India, Malaysia and Indonesia are more eager to opt for BOT and BOOT. The common lesson from the above is that a lot of Asian ports have opted for coherent integrated mechanisms, with reduced political interference. Asia wanted to promote a long-term private sector involvement in the infrastructure development of its ports. There clearly is some relationship between the mechanisms used, and the degree of private participation in port infrastructure projects. In general, Asian ports retain the ownership and allow the private sector to participate in port operations and management with full freedom i.e. the semi participation model (45%). On the other hand 55% of all port projects willingly adopted the high or full participation model. Nearly 25% of all port infrastructure projects are under private ownership and operations, and those projects are mostly situated in India, Vietnam, Malaysia, and Indonesia.

TA B L E 2. T H E D E G R E E OF P R I VAT E PA RT I C I PAT I O N – N U M B E R & P E R C E N TA G E O F PA RT I C I PA N T S I N P O RT I N F R A S T R U C T U R E P R O J E C T S I N A S I A Model

Degree of private participation (%)

No. of port projects

Share

Limited participation

1%–25%

3

5.5%

Semi participation

26%–50%

22

40%

High (extensive) participation

51%–75%

15

27.3%

Full participation

76%–100%

15

27.3%

55

100%

All models

Source: PPI-Database, (1999) & (2000), World Bank and Authors Analysis

Figure 2 The use of a set of mechanisms in private financed port infrastructure works in Asia (year 2000 – 55 projects were considered)

ABOUT THE AUTHORS Dr Theo E Notteboom is associate professor at ITMMA (Institute of Transport and Maritime Management Antwerp) and Department of Transport and Regional Economics of the University of Antwerp. He is currently involved in academic courses on transport and research and port economics at the University of Antwerp, ITMMA and some other universities and institutions.

Narayana Murthy T.R. received a scholarship from the Asian Development Bank (ADB), a Japanese Scholarship as well as a Flemish Government Scholarship.

He started his career at

Singapore Engineers Private Ltd. and is currently attached to SATS (Singapore Airport Terminal Services) as SATS co-ordinator. Narayana specialises in airport and seaport terminal operations.

I F Y O U H AV E A N Y E N Q U I R I E S R E G A R D I N G T H E C O N T E N T O F T H I S A RT I C L E , P L E A S E C O N TA C T: Theo Notteboom ITMMA University of Antwerp Keizerstraat 64, B-2000, Antwerp Belgium Tel: +32 3 275 51 49 Fax: +32 3 275 51 50 E-mail: [email protected] Web site: www.itmma.com


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Government Intervention in European Seaports T H E O N O T T E B O O M , Institute of Tr a n s p o rt and Maritime Management, University of Antwerp, Antwerp, Belgium

A BSTRACT o rt ownership, almost without exception, universally has historically been the prerogative of the public sector, as ports were and still are considered as being of strategic value for both trade and defence. Structural changes in inter-port relations, port-hinterland relationships and logistics have created a competitive market environment that has forced ports to become more market-oriented. Ports, which have traditionally been run like a government department, are becoming a normal industry thanks to the infusion of private money that promises greater competition, higher productivity and eventually lower costs that will be passed on to importers and exporters. In this new environment, the public sector is forced to reassess its role in the port industry. The public sector can alter its involvement in the ports industry in many ways, ranging from the transfer of assets to changes in the corporate culture. Whatever method of port reform is applied the challenge remains the same, i.e. efficiency. This article addresses some current port re f o rm issues in Europe and their relationship to efficiency in the port industry.

P

P O RT PR IVAT I S AT I O N Privatisation is the transfer of public assets, i.e. the transfer of ownership of state assets from the public to the private sector or the transfer of provision of services from public bodies to private enterprise. Some of the most commonly used methods of port privatisation are: public offering of shares, private sale of shares, new private investment in state owned enterprise (SOE), sale of government or SOE assets, management/employee buy-out and increased use of private sector financing of new activities (e.g. BOT – built, operate and transfer). The reduction of public sector expenditure is often put forward as a key objective associated with port privatisation, in addition to more legitimate objectives of efficiency improvement and trade facilitation. However, the transfer of public assets is only feasible when the state-owned port

or port activity is marketable and thus attractive to private companies. Fierce competition for limited international investment funds can leave a number of privatisation programmes short of capital whilst causing the failure of some other privatisation schemes. In some cases rather profitable port operations and services were privatised while less profitable operations kept strong links with public authorities, e.g. through subsidisation schemes. Before central governments can proceed with privatisation schemes they are often forced to take over substantial financial commitments of past public port organisations, to deal with the issue of port labour, to improve port installations and to deal with opposition within their own administration. These preconditions have restrained many governments from choosing full privatisation schemes. The UK ports industry is Europe’s example of privatisation. In the 1980s, UK ports were either government-owned or run by local authorities. The Transport Law of 1981 and with it the foundation of the Associated British Ports (ABP) was the first step in the privatisation process. ABP took over nearly 20 state-owned ports, which formerly belonged mostly to the so-called BTDB (the British Transport and Docks Board). Mersey Docks and Harbour Company, the operator of the port of Liverpool, was rescued from bankruptcy by the government, but now makes profits and is looking for cargohandling acquisitions in Europe. The port authorities have

Figure 1 ABP’s Port of Immingham UK (Photo courtesy of Vismedia)


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wide responsibilities for what the exploitation and maintenance of the maritime access routes are concerned. In most cases these port authorities act as port operator.

C O R P O R AT I S ATION AND CO MMERCIALI SAT I O N The retreat of government flourishes in the belief that an enterprise-based economy would allow for greater flexibility and efficiency in the market and a better response to consumers’ demands. However, many socalled privatisation schemes are in fact some form of commercialisation or corporatisation of a port authority. Corporatisation basically comes down to a shift from public sector organisations to autonomous companies owned by the public sector but with accounting procedures and legal requirements similar to the private sector and with very limited direct government control. In the case of commercialisation the government retains control and ownership of the port organisation, but in a business-like environment with some management autonomy and accountability. The private sector undertakes many commercial activities through performance agreements, management contracts, service contracts, lease systems and/or concession agreements with the public port organisation. Mainland Europe is following the path of public sector retreat via corporatisation and commercialisation, as most governments, with the notable exception of the French, loosen their grip on ports which are becoming landlords, leasing facilities to private companies. In 1992, Spanish ports were given more (financial) independence via the Law of Ports of the State and the Merchant Navy. However, co-ordination still remains with the national holding Puertos del Estado. It co-ordinates the activities of the most important ports in the state’s network. In Portugal, port reforms similar to those in Spain were carried out. In Italy, the Tesini decree of 1992 aimed at harmonisation of port management structures. In Belgium, a commercialisation process has transformed port authorities towards a more autonomous status. Port authorities still have strong ties with their respective municipalities through the ownership structure, but decisions are made on a rather independent basis and port managers are accountable for these decisions. The Harbour Decree that has been approved by the Flemish

TA B L E 1. T E C H N O C R AT I C A N D P O L I T I C A L M A N A G E M E N T S Y S T E M S Technocratic

Political

Main objective

Efficiency, effectiveness

Distributional equity

Operational objectives

Relatively clear goals Clear criteria

Diffuse goals (slogans)

Quality control and performance management

No clear criteria for allocating resources Output difficult to measure and control

Organisation structure

Clear organisation structure based on the division of responsibilities and objectives

Based on administrative heritage and structural shocks by individuals or pressure groups

Manager profile

Professionally educated, Lateral career path, carefully recruited, less experienced clear career path

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government in 1999 will move the Flemish ports further towards full corporatisation. The decree covers the rules and conditions for a higher managerial autonomy for each Flemish port, via a shift towards an independent legal status. The objectives are equal working conditions for the Flemish ports and the creation of clear and transparent relationships among Flemish ports and some general guidelines with respect to investments in port infrastructure and maritime access routes. The final aim is the creation of an independent port management system with a sound commercial strategy – including the possibility to diversify in other ports or activities via financial participation – and full accountability for the results of administrative and operational activities. Many European public-owned ports are becoming more commercially minded. For example, the port authority of Rotterdam established a wholly owned private company, which manages the port’s ‘outside’ interests, including a minority stake in the container terminal operator European Combined Terminals and shareholdings in rail terminals in the Czech Republic and Slovakia. Further changes will most likely take place in the way seaports are organised and controlled.

MANAGE MEN T STYLE A successful port organisation – in terms of efficiency criteria – requires the adoption of a market-oriented management system based on clear goals, managerial skills and accountability. Corporatisation and commercialisation schemes to some extent allow for a change towards such a market-oriented management style and corporate culture, whilst at the same time public ownership is retained. Two management systems can be distinguished: a political and a technocratic approach (see Table 1). Although both management systems in principle can be found in public and private organisations, the public port sector in the past has often adopted a political management system. For instance, an environment of elected or politically appointed controlling boards in ports implies little business competence. This lack of commercial competence in turn suffocates any chance of adequate management talent to develop and leads to limited market-oriented response. Privatisation, corporatisation and commercialisation are to be considered as possible options for a management shift from political to technocratic. But in-house improvement of the public administration can also constitute an important step towards more efficient and market-driven port structures. If a port gradually adopts a technocratic management style, it has to deal with a real danger of market-based port organisations becoming dependent on political organisations for their survival. Such a politicisation of an efficiency-driven management system will make it less efficient. Politicisation of technocratic organisations is especially felt in the port industry, as ports are often considered as strategic assets in the process of community welfare creation and as appropriate tools for achieving a higher distributional equity. The challenge is for technocratic port organisations to work constructively with political managers by forming alliances of effective operating organisations. Much of the port policy debate in European countries is directed toward the establishment of effective relationships between the private port industry, public or private port authorities and central government. For example, the Harbour Decree of the Flemish government includes paragraphs on the role of the Flemish Port Commission as an interface between public administration, port authorities and (trans)port industry in the renewed policy framework and the changing market environment.

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Figure 2 In a turbulent market environment, efficiency is a key determinant to success (Photo courtesy: ITMMA/ADH Communications)

WHY IS GOVERNMENT IN TERVENTION STILL NEEDED ? Practical evidence in the European port industry shows that even in the case of quite extensive privatisation schemes, the public sector has not withdrawn entirely form the port industry. Economic literature supports the idea that the public sector has its role to play in a market-oriented port industry. A rationale for central authority intervention emerges when, in certain circumstances, the competitive market mechanism ‘fails’. Three important circumstances in which the market will fail are when increasing returns to scale exist in the production of goods and services and when externalities and public goods exist. Increasing returns to scale lead to ‘natural’ monopoly. The debate in Europe on government intervention in an efficiency-oriented port industry focuses especially on the monopoly issue, the public goods issue and the port-financing issue. Public goods A keen distinction in port operations should be made between (a) specific port services, such as pilotage, towage, berthing, cargo-handling and warehousing for which the cost of providing these services can easily be covered by the revenues from appropriately fixed charges and (b) general port services, such as navigational aid and safety systems, locks and dredging channels for which often joint cost exists and for which a common use must be guaranteed. The latter services are often considered as public goods, which implies their provision should fall under the responsibility of a (public) port authority or central government. There are good reasons to accept a kind of subsidisation of maritime access channels and sea locks provided they meet the basic conditions of a public good. Programmes to improve the maritime access channels (including sea locks) can comply to the characteristics of a public good, when they generate time benefits to all deep-sea vessels and or all categories of merchandise to be loaded and unloaded in the seaport (in a certain sense they are the maritime equivalent of investments in hinterland transport connections). In such cases no cost recovery is required: it concerns a public investment in a public good. Nevertheless, there is quite some disagreement in European policy and port circles on the question whether the dredging of maritime access channels falls within the domain of public goods and consequently qualifies for 100% government financing. For upstream seaports in Europe, such as Antwerp and Hamburg, a negative outcome of this port policy issue could, however, have tremendous financial implications, certainly when port management becomes fully responsible for all relevant port-related investments. Port investments In the past, most European governments have predominantly funded the majority of large infrastructure works in European container ports. This creates a risk of excess investments, surely in cases where it is fairly easy to get the necessary funding from the government. These governments now want to curb their financial participation in terminal development projects as they face declining available funds. Moreover, this development is enhanced by the European Commission’s policy. One of the points made by the EU is that the assumed high level of distortions in European inter-port competition results from public interventions (including subsidies for port infrastructures) at the national and sub-national levels in various EU Member States. The danger of politicisation remains a major drawback of government investment in seaports. As pointed out earlier, the technocratic management system is focused on economically optimal outcomes (i.e. efficiency), whereas the political approach largely focuses on socially desirable

outcomes (i.e. distributional equity). Public port investment policies are quite often more influenced by political factors (i.e. by pressure groups) than by micro- or macro-economic criteria. The political aspect easily becomes the main determining factor in investment policies, in cases where policy objectives in the field of port investment remain rather vague (e.g. investments in seaports must improve national welfare) and no policy structures and tools exist to guide investment behaviour.

CONCLUSIONS The general belief that public port organisations are less responsive to demand and supply conditions than private companies is not always confirmed. It is more a matter of management style and objectives (cf. efficiency versus distributional equity). A port management that operates in highly competitive markets should be guided by technocratic elements. In practice, commercialised and corporatised ports find difficulties in avoiding politicisation of their technocratic port organisations, as they often rely on external political decisions, e.g. in the case of government-funded port investments. Even full privatisation schemes can not completely exclude the danger for politicisation. The establishment of an appropriate legislative framework that guarantees an efficiency-oriented approach is one of the main challenges to port policy makers. National and supranational governments in Europe have adopted the role of facilitator, e.g. via the harmonisation of port working conditions, via incentives to stimulate accountability and autonomy of port authorities and via investment programmes directed towards the provision of public goods.

ABOUT THE AUTHOR Dr Theo E Notteboom is associate professor at ITMMA (Institute of Transport and Maritime Management Antwerp) and Department of Transport and Regional Economics of the University of Antwerp. He is currently involved in academic courses and research on transport and port economics at the University of Antwerp, ITMMA and other universities and institutions.

I F Y O U H AV E A N Y E N Q U I R I E S R E G A R D I N G T H E C O N T E N T O F T H I S A RT I C L E , P L E A S E C O N TA C T: ITMMA University of Antwerp Keizerstraat 64, B-2000 Antwerp, Belgium Tel: + 32 3 275 51 49 Fax: + 32 3 275 51 50 E-mail: [email protected] Web site: www.itmma.com


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Effective liner service design and port selection by container shipping lines Dr. Theo Notteboom, President of ITMMA, University of Antwerp, Antwerp, Belgium

The asset-based nature of the container liner shipping Container shipping is a very capital-intensive industry where some assets are owned and others leased. Container shipping lines are particularly challenged to develop an effective asset management program for the fleet they own or operate. Fleet capacity management is complex given the inflexible nature of vessel capacity in the short-term, due to fixed timetables, the seasonality effects in the shipping business and cargo imbalances on trade routes. Lines vie for market share, and capacity tends to be added as additional loops to existing liner services. Lines incur high fixed costs in this process. For example, eight to ten ships are needed to operate one regular liner service on the Europe-Far East trade. Once the large and expensive liner services are set up, the pressure is on to fill the ships with freight.

Liner service design: balancing operational and commercial considerations Shipping lines design their liner services and networks in order to optimize ship utilization, and benefit the most from scale


economies in vessel size. Their objective is to optimize shipping networks by rationalizing coverage of ports, shipping routes and transit time. Shippers demand direct services between their preferred ports of loading and discharge. They exert a strong pressure on the service schedules, port rotations and feeder linkages. When designing their networks, shipping lines thus implicitly have to make a trade-off between the requirements of the customers and operational cost considerations. A higher demand for service segmentation adds to the growing complexity of the networks. As a result, liner shipping networks feature a great diversity in types of liner services, and a great complexity in the way end-to-end services, line-bundling services and pendulum services are connected to form extensive shipping networks.

The diversity in liner service networks Profound differences exist in service network design among shipping lines. Some carriers have clearly opted for a true global coverage, others are somewhat stuck in a triad-based service network. The networks of Maersk Line, CMA-CGM and MSC are characterized by a network of specific hubs and a selective serving


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of secondary markets such as Africa, the Caribbean and the East Mediterranean. Asian carriers such as APL, Hanjin, NYK, China Shipping and HMM mainly focus on intra-Asian trade, trans-Pacific trade and the Europe-Far East route, partly because of their huge dependence on export flows generated by the respective Asian home bases. MOL and Everg reen are among the few exceptions frequenting secondary routes such as Africa and South America. Shipping lines rarely opt for the same port hierarchy in the sense that a terminal can be a regional hub for one shipping line and a secondary feeder port for another operator. Since the 1990s, the establishment of global networks has given rise to hub port development at the crossing points of trade lanes: Freeport (Bahamas); Salalah (Oman), Tanjung Pelepas (Malaysia), Gioia Tauro, Algeciras, Taranto, Cagliari, Damietta and Malta in the Mediterranean, to name but a few. The hubs have a range of common characteristics in terms of nautical accessibility, proximity to main shipping lanes and ownership, in whole or in part, by carriers or multinational terminal operators. These nodes allowed shipping lines to multiply shipping options and improve connectivity within the global liner networks.

The three tiers in liner service design are highly interrelated.

Selecting ports of call Port selection takes place at the second tier in the planning process. When deciding on a port-calling pattern, shipping lines explicitly or implicitly follow a two-stage process. Firstly, they identify a group of ports that can potentially serve a particular geographical market. For example, a shipping line might conclude that Rotterdam, Zeebrugge, Antwerp, Hamburg and Bremerhaven can all be used as entry points for serving the German Ruhr area. In the second step, service planners will select one or more ports of call among each set of ports.

Key design variables in liner shipping Liner service design is highly complex. The first step in the design of a regular container service consists in the identification of the markets to be served. Once the trade route for the (new) liner service has been identified, the service planner will have to make decisions at three operational tiers. The first tier includes the service frequency (including the fixed days/hours of the week for departure or arrival); the unit capacity of the vessels, the fleet mix and the vessel speed (slowsteaming or not). The second tier relates to decisions on the number and order of port calls per roundtrip. The last tier consists of the required number of vessels, derived from the desired frequency and the vessel roundtrip time (function of route length, vessel speed and total port time). P o rt T e c h n o l o g y I n t e r n at i o n a l

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PORT FOCUS

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In both stages, service planners will compare ports on a wide range of factors and criteria. Three distinctive groups of factors can be distinguished: • F irst of all, there is the demand profile of the port, which includes factors such as the flow orientation of the port towards the foreland and the hinterland, the scale and growth of the port and the connectivity of the port in wider maritime networks. • Secondly, the supply profile of the port concerns the availability, cost, quality and reliability of the nautical access, container terminals and hinterland access. • Thirdly, shipping lines consider the market profile of the port. This group of factors includes factors such as the cargo control characteristics (dominated by forwarders or shipping lines); the structure of the terminal operating business within the port, the presence of logistics activities in the port, the logistics focus of the port and port reputation. In theory, shipping lines could base their final decision on a (weighted) combination of scores on each of the selection factors. In practice, the interplay of factors contributing to the final port choice is not transparent to outsiders.

A rational port choice? Even in case a shipping line would possess a decision support system for rational port choice, the final outcome might not always correspond to a modeled optimum solution. Port choice is influenced by factors that go beyond the traditional port selection criteria. If a shipping line is part of a strategic alliance, port choice is subject to negotiations among the alliance members and can deviate from the choice of one particular member. Important shippers might impose a certain port of call on a shipping line leading to bound rationality in port choice. A shipping line might possess a dedicated terminal facility in one of the load centers and might be urged to send more ships to that facility, in view of optimal terminal use. A last example relates to the role of inertia and local embeddedness in port choice. Carriers might stick to a specific port as they assume that the mental efforts and costs linked to changes in the network design will not outweigh the costs associated with the current non-optimal solution.

ABOUT THE company about the organisation

Enquiries

Dr. Theo Notteboom is president of






of Antwerp), professor at the University

is one of the world’s premier suppliers of highly


of Antwerp, a part-time professor


Antwerp

at the Antwerp Maritime Academy


Belgium

and a visiting professor at Dalian Maritime University

activities include M.Sc. programs; a Ph.D. program,

in China and World Maritime University in Sweden. He


Tel: +32 3 2655152

published widely on port and maritime economics.


Fax: +32 3 2655150

He is also chairman of the Board of Directors of the








PT47–01_1

ENVIRONMENT, HEALTH AND SAFETY

Green concession agreements How can port authorities integrate environmental issues in the terminal awarding process? Dr. Theo Notteboom, President of ITMMA, University of Antwerp, Antwerp, Belgium

Making port management ‘green’

Phases in the terminal awarding process

Environmental concerns about port activity are mounting. The process of making port management ‘green’ affects port authorities around the world in terms of safeguarding their ‘license to operate’ and increasing their economic and environmental competitiveness. In Europe, the growing green reflex is mirrored in the many green initiatives of individual ports and the coordinated actions of the wider port community, as exemplified by the Ecoports foundation (embedded in the European Sea Ports Organisation – ESPO) and the annual GreenPort conferences. One of the most interesting fields of action for landlord port authorities relates to the inclusion of green factors when awarding terminals to private terminal operators. Land for port development is scarce, making terminal concessions to private stevedoring companies a prime task of landlord port authorities. Key issues in the process include the allocation of mechanisms used for granting seaport concessions, the determination of the concession term and concessions fees, and the inclusion of special clauses in the concession contract aimed at assuring that the terminal operator will act in the interest of the port authority and the wider community (cf. throughput guarantees). A well-designed concession policy allows port authorities to retain some control on the organization and structure of the supply side of the port market, while optimizing the use of scarce resources such as land.

A typical terminal awarding procedure consists of three phases, as depicted in Figure 1 (see also: [1] and [2]). In the pre-bidding phase, the port authority makes the necessary preparations for the awarding, taking into account prevailing regulatory conditions. This includes decisions on the rules of the game, such as criteria related to the qualification and selection of candidates, and the desirable concession duration. In the awarding phase, candidates are screened, bids are evaluated and the most appropriate candidate is selected. In the post-bidding phase, a legally binding concession agreement is signed with the selected candidate and the company’s performance is monitored during the contract term. If necessary, correcting measures are taken and disputes are settled. Making terminal awarding procedures ‘green’ requires initiatives in each of the three phases of the process. Remarkably, a recent survey performed by ITMMA and ESPO, which included 43 recent terminal awarding cases across Europe, showed that environmental issues today do not play an important role in terminal awarding processes across European ports.

Green actions in the three phases When deciding what site to award, port authorities could more explicitly look at the environmental quality of the port site. Brownfields might be more expensive to redevelop, but often

Figure 1. How environmental targets can be integrated when awarding seaport terminal contracts.


1

PT47–01_1

ENVIRONMENT, HEALTH AND SAFETY

lead to a higher spatial quality and regeneration of older port sites. Port authorities could also include more stringent construction guidelines for port infrastructure and superstructure. Such measures could include the use of a minimum percentage of green energy or the installation of coldironing facilities. In the awarding phase, port authorities often include a qualification stage in which the number of candidates is narrowed down. Candidates are qualified based on minimum requirements related to their financial strength and relevant experience in operating facilities for similar cargo in the same or other ports. Environmental performance can constitute a new additional element in this qualification phase. By doing so, possible candidates are not only rewarded for their market scale and financial potential, but also for having taken initiatives previously to develop a green policy at other terminals in their portfolio. In about 70 percent of today’s European terminal projects, candidates have to present studies of environmental and territorial impact, covering aspects such as the impact of the terminal operations on the environment and the alternatives to eliminate, reduce or mitigate certain effects. While this proves that port authorities are very much interested in the environmental strategy of candidates, it remains remarkable that environmental criteria are rarely included in the final selection round. There is scope here to more explicitly integrate environmental performance into the selection process, next to more traditional criteria such as throughput expectations, financial performance, the price bid and socio-economic impacts in terms of value-added, created and employment effects. Port authorities should also consider the inclusion of green elements in the post-bidding phase. Environmental clauses appear in 85 percent of all recent terminal contracts. In most cases, however, the clauses simply stipulate that the terminal operator will have to comply with local, national and supranational environmental legislation. In about 30 percent of these cases, the environmental clauses refer to the compulsory use of some sort of environmental management reporting system, while stipulations on emission levels are included in 18 percent of the contracts. About 9 percent of the contracts refer to specific technical equipment being used to limit emissions. About one fourth of all contracts combine several of the above environmental clauses. Occasionally, ports include clauses on existing or future contamination of the terminal site. Looking at the multi-year trend, not on a year-to-year basis, is the best way to evaluate the environmental performance of a terminal.

Towards an environment-friendly modal split: the carrot or the stick? A small number of recent terminal contracts include modal split specifications, particularly in a container terminal context. In about half of these cases, the contract elaborates on some technical specifications and compulsory investments to be made by the terminal operator in hinterland transport infrastructures on about the author

the terminal site. In only 21 percent of these cases, the modal split clauses explicitly impose a specific modal split on the terminal operator to be reached by a certain year (for example: 40 percent road, 40 percent barge and shortsea, and 20 percent rail by 2015). The modal split target is often formulated as a soft objective (an intention). Soft targets are, however, best kept outside the contractual setting, as they cannot be legally imposed on the terminal operator. The port authority can encourage terminal operators to reach the soft targets by positive pricing or awarding systems (the ‘carrot’ approach). The setting of hard targets in the concession agreement implies a ‘stick’ approach, with binding clauses and enforcement (penalties in case of non-compliance). In following such a stick approach, port authorities often face the problem of posing credible threats. For example, terminal operators who are confronted with ‘hard’ modal split clauses will argue that the distribution of cargo over the various inland transport modes is largely affected by exogenous factors. These factors might include, for instance, the supply chain practices of their customers, the pricing and quality of rail and barge services and the infrastructure policy outside the port area (by government). Terminal operators can, however, positively influence the modal split on their terminal through pricing (for instance a dwell time fee system or pricing of moves to inland transport modes), actions to increase the transparency of information flows (which makes cargo bundling towards rail and barge easier) and extended gate solutions in the hinterland (for instance by setting up satellite terminals in the hinterland).

Low hanging fruits? Environmental factors are not yet widespread criteria in bidding procedures. Port authorities should (continue to) have the possibility to work out terminal awarding procedures, taking into account environmental objectives and the need for a sustainable and highly competitive port context. While each port is unique, there is some scope for joint action and convergence among seaports with respect to these aspects. Port authorities and terminal operators are only able to fully benefit from green concession procedure initiatives if these actions are embedded in a chain approach towards the environment (ship, port, terminal, warehouse, inland transport, and so on). Green concession agreements miss their effect when treated in isolation. references

[1] N otteboom, T., (2007): “Concession agreements as port governance tools”, Research in Transportation Economics, 17, p. 449-467. [2] Theys, C., Notteboom, T., Pallis, A., De Langen, P., (2010): “The economics behind the awarding of terminals in seaports: towards a research agenda”, Research in Transportation Economics, 27(1), p. 37-50.

ABOUT THE company

Enquiries

Dr. Theo Notteboom is President of ITMMA (an



institute of the University of Antwerp), professor



at the University of Antwerp, a part-time professor

is one of the world's premier suppliers of highly


at the Antwerp Maritime Academy and a visiting


Antwerp

professor at Dalian Maritime University in China and


Belgium

World Maritime University in Sweden. He published

activities include M.Sc. programs, a Ph.D. program,

Tel: +32 3 2655152

widely on port and maritime economics. He is also


Fax: +32 3 2655150

chairman of the Board of Directors of the Belgian









global terminal operators

PT49–09_4

Global networks in the container terminal operating industry Part 1: How global are global terminal operators? Dr. Jean-Paul Rodrigue, Hofstra University, New York, USA, & Dr. Theo Notteboom, President of ITMMA, University of Antwerp, Antwerp, Belgium

The nature and history of global terminal operators Global terminal operators are defined as companies involved in international port terminal operations with a view of establishing globe-spanning network services. They account for a growing separation between the role assumed by port authorities and terminal operations. The container terminal operating industry has witnessed an internationalization process during recent decades, which took place in three consecutive waves. The first wave included companies such as HPH, P&O Ports and SSA who expanded their operations in new markets, thereby benefiting from the port privatization schemes in many regions across the world. As soon as the strategies of the pioneers proved to be successful, a second wave of companies started seeking expansion internationally (e.g. PSA, CSX World Terminals and Eurogate). A third wave of terminal operators emerged when major container carriers entered the terminal industry in an effort to support their core business. This led to three groups of global terminal operators: pure stevedores who manage terminals as profit centers, integrated carriers who manage terminals mainly as costs centers, and a group of hybrid terminal operators consisting of shipping lines involved in the stevedoring business and handling both own cargo and third-party traffic to make profit.

Not all operators started their international expansion from their respective home markets. For example, Hanjin started the international expansion of its terminal network out of foreign ports due to institutional impediments for investments in South Korea. In more recent years financial holdings, ranging from investment banks, retirement funds to sovereign wealth funds, were attracted to the port terminal sector as an asset class and for revenue generation potential. The majority has an indirect management approach; acquiring an asset stake and leaving the existing operator take care of the operations. Others will manage the terminal assets directly through a parent company, such as DP World.

World rankings Table 1 and Figure 1 provide an overview of the top ten global terminal operators classified by volume and by hectares of terminals they control. The equity TEU measure adjusts throughput to reflect the share of individual terminal operating companies held by the global operators. The top twelve terminal operators control an increasing share of the world’s total container handlings: 64.6% in terms of total throughput handled in 2009 compared to 41.5% in 2001. The sample of terminal operators classified by Figure 1 accounts for 441 terminals worldwide totaling close to 23,000 hectares (230 square kilometers).

Figure 1. Number of terminals and total hectares controlled by the twelve largest port holdings, 2010.


1


PT49–09_4 Table 1: Throughput of the top 10 global container terminal operators for selected years

Throughput of the global container terminal operators* 2001 Operator TEU (m) Share

2006 Operator TEU (m) Share

2009 Operator

HPH

29.3

HPH

60.9

13.9%

HPH

PSA

19.5

7.9% APMT

52.0

11.9% APMT

56.9 12.0%

APMT

13.5

5.5% PSA

47.4

10.7% PSA

55.3 11.7%

P&O Ports

10.0

4.0%

DP World

41.6

9.4%

DP World

45.2 9.5%

Eurogate

8.6

3.5%

Cosco Pacific

22.0

5.0%

Cosco Pacific

32.5 6.9%

DPA

4.7

1.9% Eurogate

11.7

2.7% MSC

16.4 3.5%

Evergreen

4.5

1.8% Evergreen

9.4

2.1% Eurogate

11.7 2.5%

Cosco Pacific

4.4

1.8% SSA Marine

8.9

2.0% Evergreen

8.6 1.8%

Hanjin

4.2

1.7% MSC

7.6

1.7% SSA Marine

7.7 1.6%

4.0

1.6%

6.6

1.5%

SSA Marine Top 10

11.8%

102.7 41.5%

HHLA Top 10

268.1 60.9%

TEU (m) Share 64.2 13.6%

CMA-CGM Top 10

7.0 1.5% 305.5 64.6%

Top 10 global container terminal operators’ equity based throughput

Terminal control is allocated to the firm that has the largest equity stake. The results of Figure 1 should thus be treated with caution as various terminals have various levels of equity stakes, and in many cases two major terminal operators have stakes in the same terminal. Terminals where terminal operators have a stevedoring contract are also included. In the recent financial/economic crisis early entrants like PSA and HPH have performed better than late entrants who have had to pay premiums to be in the game (e.g. DP World). The changed economic situation means that terminal operators have adopted a more cautious assessment of future prospects. No new global container terminal operators of any size emerged in recent years. However, there are a number of highly active smaller players in the market, building international portfolios. These include Shanghai International Port Group (SIPG), Macquarie, ICTSI, KGL and RREEF. China Merchants Holdings recently launched its internationalization through deals in Vietnam (May 2010) and Sri Lanka (Sept 2010). It is a sizeable player with 43.9 million TEU in 2009, and would rank fifth in the Drewry league.

Consolidation in the terminal operating industry Mergers and acquisitions have significantly affected the rankings. The year 2001 stands out as the year of hostile takeovers,with three landmark deals: HPH-ECT, PSA-HNN and HPH buying ICTSI’s International Business Division. The years 2005 to 2007 saw an extraordinary level of merger and acquisition activity in the terminal operator industry against a backdrop of increasing container terminal capacity shortages. A front-runner in the latest consolidation wave was DP World, through the acquisition of the terminal portfolios of CSX World Terminals (2005) and P&O Ports (2006). Apart from DP World’s acquisitions, another major deal was PSA’s acquisition of a 20% stake in Hutchison Port Holding’s global terminal portfolio, following its earlier purchase of strategic shareholdings in a number of other Hong Kong operations in 2005. Evidence underlines that the consolidation process that has taken place rapidly in recent years may have reached limits. From one side, most of the global terminal assets are already part of the portfolio of global terminal operators, and from the other diminishing returns are likely to play in view of growing competition and questionable future growth opportunities. 2 P o rt T e c h n o l o g y I n t e r n at i o n a l



PSA

41.2

9.3% PSA

45.0

9.5%

APMT

32.4

7.3%

HPH

32.2

6.8%

DP World

HPH

30.8

7.0%

31.5

6.7%

DP World

26.2

5.9% APMT

31.1

6.6%

Evergreen

8.1

1.8%

10.9

2.3%

Cosco Pacific

Cosco Pacific

7.9

1.8% MSC

8.2

1.7%

Eurogate

6.6

1.5% Evergreen

7.2

1.5%

HHLA

6.0

1.4% SSA Marine

6.3

1.3%

OOCL

4.8

1.1% Eurogate

6.1

1.3%

4.6

1.0%

4.6

1.0%

APL Top 10

168.6 38.2%

CMA-CGM Top 10

183.1 38.7%

*Figures include all terminals in which 10% plus shareholdings were held. Figures do not include operations at common-user terminals. Source: Based on data from Drewry Shipping Consultants (2006, 2010)

Given the fact that there are no large companies or terminal assets left to acquire nowadays, it can be expected that the top four players (PSA, APM Terminals, HPH and DP World) will maintain their lead over the other operators for quite a number of years to come. Spurred by the sudden excess supply of port capacity, as well as lower profitability levels enjoyed by terminal operators, M&A activity in the container handling sector is likely to slow down significantly in the years to come. Further consolidation may also be restricted by institutional factors, particularly the policies of national and supranational competition authorities that closely monitor the risks of having dominant actors in regional container markets. For example, in Europe, EU competition law has already affected HPH’s expansion within North Europe (i.e. when HPH took over ECT in Rotterdam). Another example relates to the acquisition of the American assets of P&O Ports in 2006. The acquiring firm, DP World, was constrained to sell these assets to Ports America, which is controlled by the financial interests of AIG/Highstar Capital. Of key interest in any M&A activity will be the valuation of port and terminal assets. In the peak period of demand growth and interest in acquiring terminals during 2005-2007, port companies were being valued (and paid for) at EBITDA multiples www.porttechnology.org


PT49–09_4

Figure 2. Container terminal surface of the world’s major port holdings, 2010 (N=244).

in excess of 20 times. With the crash in demand and the credit crunch, this exceptional situation has ended, at least for the time being. Anecdotal evidence suggests that multiples of around eight to twelve times EBITDA are the new benchmark, but there has yet to be any major M&A deal going through to verify these new levels in the market.

Drivers of internationalization Terminal growth involves replicating a business model and providing capital for infrastructure improvements. Global investors base their investment strategy on exhaustive analyses of profitability, operational efficiency, growth potential and the level of indigenous cargo. Port regions with poor prospects in terms of throughput growth gain less interest from potential investors, certainly when inter-port or intra-port competition is high. Transshipment terminals represent a riskier investment (higher vulnerability), since volumes are more footloose and much more subject to pricing strategies of rival transshipment hubs than in the case of gateway cargo. Regions with a high concentration in port volumes in a few ports or with terminal capacity constraints are much more prone to the direct involvement of shipping lines, as these actors are urged to secure capacity. Investment possibilities obviously also depend on the degree of private operator participation in the regional container market. Not all regions around the world show the same timeline in opening up local container markets to private operators. For example, South America and Eastern Europe have started to walk the path of port privatization a more than decade later than many port regions in Europe and North America. Even within the same region, large differences might exist at the level of port governance and institutional arrangements. For instance, the late arrival of international terminal operators in France was the combined result of the peculiar status of container

crane operators in French ports (prior to the recent port reform), the captive nature of much of the French cargo, and the shelter strategies of local terminal operators. Another factor that might lead to regional differences in the internationalization of port terminal operations is the potential increase in the valuation of the terminal asset. This factor is strongly related to the demand and supply profile in the region, as terminal assets are typically valuated higher when located in markets with a high growth potential and high terminal capacity utilization.

Making the difference Global terminal operators wishing to operate in a foreign port services market would have to possess some competencies that would offset the advantages held by incumbent firms. These are to be found in the area of firm size and the realization of economies of scale and scope, market power and marketing skills, technological expertise or access to cheaper sources of finance. Global terminal operators often have central purchasing departments at their headquarters involved in making large contracts with the suppliers of terminal equipment such as gantry cranes or terminal tractors. Similar arrangements are made for the purchase and maintenance of terminal planning software, which in some cases is developed in-house. The output of research and development units stationed at various locations across the world is typically shared among the terminals of the whole network, through knowledge sharing configurations based on IT-platforms and intensive workshops. Also, the creation of extensive networks makes it possible to spread investment risks.

How ‘global’ are global terminal operators? Assessing the transnational nature of terminal operators can be done over several dimensions. The first is an overview of the geographic coverage of a sample of major global operators in terms of how much terminal real estate is controlled and where. P o rt T e c h n o l o g y I n t e r n at i o n a l

3


PT49–09_4

Figure 3. Regional share in the terminal portfolio of the twelve largest global terminal operators (hectares, 2010).

Figure 2 underlines that the assets controlled by terminal operators, from local companies operating in a single port to multinational holdings, are servicing every single market of significance, with a particular concentration among the world’s major commercial gateways. The majority of terminals also clearly correspond to the underlying structure of global shipping networks. Therefore, the geographical coverage of global terminal operators is a near perfect representation of global long distance trade. A second way to look at the transnational nature of container terminal operators is to assess the regional orientation of each holding. Global container terminal operators show varying degrees of involvement in the main cargo handling markets around the world.

Figure 3 reveals a substantial geographical diversity of terminal assets among two groups: the four major holdings, and the smaller terminal operators. DP World and APM Terminals have the most diversified portfolio of terminals in terms of geographical spread and can thus be considered the most ‘global’ of the global terminal operators. However, a level of regional orientation is already evident at this level. APM Terminals does not have a presence in Australia, while DP World has only a very small presence in North America (CenTerm in Vancouver). PSA has no direct presence in North America, but has Latin American assets, as well as HPH. Both HPH and PSA seem to prefer the control of large terminal facilities since terminal operations is the core of their

Figure 4. Major global terminal operators APM Terminals and DP World have the most diversified portfolio of terminals in terms of geographical spread.




PT49–09_4

Figure 5. Container terminals of the world’s four major port holdings, 2010.

activities. They were actively involved in the development of large export-oriented port facilities in Pacific Asia. APM Terminals tends to have comparatively smaller terminals, underlining a strategy leaning more on global market coverage to support its sister shipping company Maersk Line. DP World has also a small hectare portfolio comparatively to its sizable number of terminals in which it has the largest equity; its largest terminals are in its home base in the United Arab Emirates. This underlines an aggressive growth strategy aimed at acquiring existing terminal assets, many of which in lower volume markets having a strong growth potential (e.g. the Mediterranean, South Asia and the Middle East). The strong global character of the largest operators is a bit in contrast with the regional orientation of smaller holding companies. Two in particular, Ports America and Eurogate, are strictly regional operators. Others are embarking into a substantial transnational strategy, mostly by securing concessions at smaller terminals.

Figure 5 provides more detail on the involvement of the four largest global terminal operators in some of the main port regions around the world. The four main operators are well represented in the Pearl River Delta (about 52 million TEU throughput in 2009), the Malacca Strait ports (39 million TEU), and the Rhine-Scheldt Delta (20 million TEU). However, other major port regions in North America and East Asia are dominated by other terminal operator groups, which are mainly shipping lines or partnerships between shipping lines and local terminal operators. This is particularly visible in the San Pedro Bay where Asian shipping lines (APL, NYK, MOL, Evergreen, Yang Ming, K-Line, HMM, Hanjin) have been able to secure terminal assets in the 1980s and 1990s when there was still the possibility to do so. Part two of this series on ‘Global Networks in the Container Terminal Operating Industry’ will focus on strategic issues and the future direction of these terminal networks. Part two will be published in the next issue of Port Technology International.

About the authors

Enquiries

Dr. Jean-Paul Rodrigue is a

Prof. Dr. Theo Notteboom is

Dr. Jean-Paul Rodrigue

professor at Hofstra University,

president of ITMMA (an institute of

New York. His research interests

the University of Antwerp), professor

Department of Global Studies & Geography – Hofstra University

mainly cover the fields of economic

at the University of Antwerp, a

Hempstead, New York

and transport geography as they

part-time professor at the Antwerp

US

relate to global freight distribution. Area interests

Maritime Academy and a visiting professor at Dalian

involve North America and East and Southeast

Maritime University in China and World Maritime

Asia, particularly China. Specific topics over

University in Sweden. He published widely on port

which he has published extensively about cover

and maritime economics. He is also President of

maritime transport systems and logistics, global

International Association of Maritime Economists

supply chains and production networks, gateways

(IAME) and Chairman of the Board of Directors of

and transport corridors, international trade and


regional development.


Email: [email protected] Prof. Dr. Theo Notteboom ITMMA – University of Antwerp Keizerstraat 64, 2000 Antwerp Belgium Email: [email protected]


5


PT50–03_2

Global networks in the container terminal operating industry Part 2: The future direction of terminal networks Dr. Theo Notteboom, President of ITMMA, University of Antwerp, Antwerp, Belgium, & Dr. Jean-Paul Rodrigue, Hofstra University, New York, USA Part One of this series on ‘Global Networks in the Container Terminal Operating Industry’ (see edition 49 of Port Technology International) discussed the internationalization and consolidation in the container terminal industry, the nature and history of global terminal operators and the extent to which global terminal operators show a truly global presence. In Part Two we focus on strategic issues and the future direction of these terminal networks. In recent years the container terminal industry has been confronted with several challenges, including economies of scale in maritime shipping and competition from new entrants, in particular from container carriers, logistics companies and investment groups. The year 2008 was a turning point for the container terminal operators as the final quarter saw unprecedented volume declines due to an emerging world economic and financial crisis. The contraction in global container port throughput in 2009 amounted to approximately 12%. In the recent financial/ economic crisis, terminal operators have done better than shipping lines as they faced fewer difficulties in managing their assets during the economic downturn. Also, early entrants like PSA and HPH have performed better than late entrants who have had to pay premiums to be in the game (e.g. DP World). The changed economic situation means that terminal operators have adopted a more cautious assessment of future prospects. In spite of expected future growth, global container terminal operators are involved in a range of rationalization strategies and show a much greater rationality in choosing where to make new investments.

Changing to a lower gear? Terminal operators are now more open to consider cancellation or postponement of terminal acquisition or construction projects, which tend to be the most capital intensive and risky decisions. This is the most straightforward strategy as a global terminal operator stops its geographical expansion and portfolio diversification strategy to reassess regional growth potential. While there is a lack of transparency about global operator plans, as it remains a highly competitive business, press releases make clear that quite a number of capacity expansion projects were being shelved, deferred or cancelled as a result of the economic crisis. For instance, in 2009 the Philadelphia Regional Port Authority postponed the bidding process for the design and construction of a new container terminal in the former Philadelphia Navy Yard. Shanghai International Port Group (SIPG) decided to postpone the taking of a minority shareholding in the APM Terminals facility in the port of Zeebrugge in Belgium. The economic crisis has also served to delay the second phase expansion of Tanger Med (the proposed TC3 and TC4 terminals) in Morocco. TC3 was planned to be used by Maersk and operated by its sister company APM Terminals, but the group decided to keep it under review. The plan for TC4 is still on track albeit

with a timeline pushed back from initiation in 2012 to 2014 and with some structural changes in terms of management (i.e. PSA International has withdrawn from the project). The London Gateway deep-sea port and logistics park on the banks of the Thames, which was originally due to open in 2010, is now set for completion in 2014. The construction of the new Jade Weser Port in Wilhelmshaven is proceeding according to a revised plan with a delayed opening date in August 2012. Rotterdam World Gateway, a 4 million-TEU terminal now under way at Maasvlakte 2 and also led by DP World, incurred a small delay of six months for completion expected in 2014. In view of minimizing risks, a growing number of large terminal projects are set to open in phases according to market demand. The market also witnesses outright divesture where a holding or terminal operator is forced to relinquish parts or the whole of its assets, mostly because of bankruptcy. Assets are therefore sold to other holdings or operators, particularly those judged to be profitable. For instance, in 2009 the financial holding Babcock and Brown went into receivership. Part of its portfolio included container terminal assets, some of which were acquired by Euroports. Renegotiation of existing concession agreements has become more common practice as terminal operators seek to renegotiate terms with a port authority in view of traffic expectations failing to materialize. This particularly concerns minimum traffic clauses where a global terminal operator pays a penalty if the terminal fails to handle a specific annual volume. The latest concession agreements try to anticipate to future tensions in this field by including variable throughput guarantees (i.e. the imposed volume guarantees are adjustable subject to a number of factors), or by replacing fixed throughput guarantees with minimum investment levels.

A rational expansion and consolidation of the terminal portfolio Terminal operators more than ever pay attention to the careful selection of good locations. Terminal investments are subject to a thorough risk assessment taking into account the characteristics in the regional market (capacity situation, market growth, and so on), tariff uncertainty, fee structure, licenses and permits, and nautical and inland accessibility. Commercial banks remain cautious and have become more demanding on terms and project characteristics. Only very good projects will raise the needed funds. Many of the hot spots are in emerging markets, as these port systems offer a higher growth potential and are further opening up to international interests. Ample examples are found in South America, Africa, India and Southeast Asia. An increasing number of terminal operators are selling stakes in terminal assets for financial relief, but where the terminal operator keeps its role as an operator. This commonly involves a financial holding seeking an opportunity to acquire terminal assets while leaving the existing terminal operator managing P o rt T e c h n o l o g y I n t e r n at i o n a l

1


PT50–03_2 Figures 1 and 2 illustrate that these complex arrangements lead to highly complex market structures at a regional level. Even the largest operators commonly have regional stakes in others’ assets, such as PSA’s 20% stake in HPH. Global finance and global container terminal operations are intractably linked with interdependent leverage; the port holding uses finance to leverage its capital investment opportunities, while financial institutions are using port holdings to leverage their rate of return as well as the book value of their assets. Yet, terminal operators are quick to cater to growth potential by mitigating future development projects. As the economy recovers and future prospects revised, terminal expansion projects that were shelved will be brought back in the pipeline. Still, it is unlikely that the construction and acquisition boom of 20002007 will reoccur.

Dealing with dynamics in liner shipping networks Global ter minal operators must also contend with the rationalization/reorganization taking place in other parts of the transport chain, with implications on their operations. A salient example concerns slow steaming practices in maritime shipping that are imposing a new operational environment for terminal operators, but also upstream (suppliers) and downstream (inland ports) the supply chain. Slow steaming ties a greater quantity of containers in transit, involves longer delivery times and does not appear to improve schedule integrity, which are all issues that global terminal operators must contend with. It is expected that the issue of schedule unreliability will become even more important in the future, as liner service networks are becoming more complex. Guaranteeing schedule and transit reliability to global supply chains will have an ever higher price. Low schedule integrity

Notes: (1) T hrough subsidiary company ZIM Ports; (2) T h ro u g h s u b s i d i a r y c o m p a ny Terminal Link; (3) Duisport is the fifth shareholder with a share of 7.5%; (4) U nconfir med reports put NYK’s ECT interest at 10%. The CKYH Alliance includes the shipping lines Cosco, K-Line, Hanjin and Yang Ming. NYK is part of the Grand Alliance that includes the shipping lines Hapag-Lloyd, NYK and OOCL. The Malaysian shipping company MISC was a member of the Grand Alliance till early 2009. The New World Alliance includes the shipping lines APL, MOL and Hyundai Merchant Marine.

Figure 1. Inter-firm relationships in selected container ports of the Rhine-Scheldt Delta – situation in early 2010.



Source: own elaboration based on company information.

the terminal. For instance, Citi Infrastructure acquired in 2010 a 75% stake in DPW’s Australian portfolio composed of five container terminals. The terminal market is also witnessing increased consolidation of a regional terminal portfolio, where a global terminal operator may divest from a terminal to consolidate its activities in others. This leads to the opportunity to rationalize a cluster of port terminals. In July 2010, APM Terminals Virginia was leased to Virginia International Terminals (VIT), which is the terminal operating branch of the Virginia Port Authority. The agreement will lead to a rationalization of the terminal facilities with the transfer of container activities from the Portsmouth Terminal to the two major facilities managed by VIT; Norfolk International Terminals and the newly acquired APM Terminals Virginia. Equity swaps are used, particularly in the case of shipping companies, to rebalance their portfolio to better reflect their shipping network configuration. Instead of divesture, two ter minal operators swap equity within their respective portfolios without the need to provide capital. In July 2010, APM Terminals and CMA-CGM agreed to an equity swap concerning their respective terminals in North America and Europe. In exchange for its 20% stake at the Mobile Container Terminal, CMA-CGM got APMT’s 61% stake at Nord France Terminal International, totaling a total of 91% ownership when adding to its existing 30% stake. With this 20% stake APMT took full control of the Mobile terminal since it was already controlling an 80% stake. The above trends lead to a growing complexity in ownership structures in view of minimizing risk, spreading the investment burden and maximizing commercial potential. Various and complex equity sharing agreements representing different stakes in regional markets are linked with expansion strategies to reinforce a presence in existing markets or to expand into new ones.


Source: own elaboration based on company information.

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Figure 2. Inter-firm relationships in selected container ports of North America – situation in early 2010.

terminal capacity deployment. Global container terminal operators are particularly involved in the setting of hubs servicing main transshipment markets within an emerging global shipping network composed of transoceanic and north-south pendulum connectors (Figure 3). The expansion of the Panama Canal is likely to incite the setting of a circum-equatorial route and renewed transshipment activity. The performance requirements for a global hub and gateway terminals on mainline vessels are moving to a sustainable

Source: Transshipment data from Drewry Shipping Consultants.

is a serious challenge for terminal managers as their planning and terminal management tools can only work optimally when the ship arrivals can be forecasted rather accurately (based on allocated slots). Vessel delays compound to delays in inland freight distribution. A changing economic geography, larger vessels, new liner service configurations and new long-distance trade corridors challenge container terminals in terms of vessel turnaround time, liner service connectivity and synchronization, and efficient

Figure 3. Emerging global shipping network and transshipment markets.


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PT50–03_2 ship output of at least 5,000 moves per 24 hours and a ratio working time to time at berth of 90%. Such volumes pose huge demands on container crane density per vessel, the ship-toshore gantry crane output productivity (40 moves per gross hour or more), yard equipment and on the required stacking area. The associated peaks make the hinterland transport issue more complex.

Moving into inland freight distribution? Next to a booming transshipment and interlining market, the future of containerization will largely depend on the land side, particularly on efficient intermodal and transmodal operations. At a regional scale, the process of integration between maritime and inland transport systems increasingly results in a number of penetration and modal shift strategies where each mode is used in its most cost- and time-effective way. These configurations can ease the pressure on deep-sea container terminals by moving the sorting function inland, thus increasing the efficiency of existing terminal facilities and the overall throughput. As terminal operators are urged towards a better integration of terminals in supply chains and shipping lines are acquiring container terminal assets worldwide, leading terminal operating companies are developing diverging strategies towards the control of larger parts of the supply chain. The door-to-door philosophy has transformed a number of terminal operators into logistics organizations and/or organizers/ operators of inland services. Not every terminal operator is integrating by acquiring or setting up separate companies or business units. In many cases, effective network integration is realized through better co-ordination with third-party transport operators or logistics service providers. The services offered include warehousing, distribution and low-end value-added logistical services (e.g. customizing products for the local markets). Particularly in Europe, a number of terminal operators have integrated inland terminals in their logistics networks or have a direct involvement in rail and barge operations. Maersk Line wants to push containers into the hinterland supported by its terminal branch APM Terminals and its rail branches.

HPH-owned ECT in Rotterdam has followed an active strategy of acquiring key inland terminals, acting as extended gates to its deep-sea terminals, for example, a barge and rail terminal in Venlo (the Netherlands), DeCeTe terminal in Duisburg (Germany) and TCT Belgium in Willebroek (Belgium). DP World is following a similar strategy to streamline intermodal operations on the Seine and Rhône axes, while the large terminals of Antwerp Gateway (open since 2005) and London Gateway (future project) are both linked to inland centers in the hinterland. Terminal operators can play an instrumental role in bringing together intermodal volumes of competing lines and as such create a basis for improved or even new intermodal services. The globalization strategies of ter minal operators are accompanied by the regionalization of their hinterlands in areas (e.g. Western Europe) where market situations and opportunities justify such a strategy. In other regions, global operators have been extremely hesitant to vertically integrate. Two main factors hold back full vertical integration of operators. First of all, global terminal operators do not wish to enter business segments in which their own customers have a presence in order not to compromise their business relations. Secondly, particularly in the case of Asian conglomerates, sister firms perform activities in other segments of the supply chain such that when taking a conglomerate perspective, the entire business group has involvement in all aspects of the supply chain. The setting of global networks in the container terminal operating industry has been a prevalent trend in the last two decades. Global terminal operators reflect well the geographical and functional complexities of global supply chains. While the focus has been at a close integration with global shipping networks either as gateways or transshipment hubs, terminal operators are increasingly looking at the immediate hinterland as a strategy to consolidate their business. Part One of this article was published in edition 49 of ‘Port Technology International’, which can be viewed in our online Journal Archive: http://www.porttechnology.org/journal_archive/edition_49

About the authors

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Keizerstraat 64, 2000 Antwerp



Belgium























Hempstead, New York USA Email: [email protected]


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Dry ports and the maritime hinterland: gaining momentum Dr. Jean-Paul Rodrigue, Hofstra University, New York, USA, & Dr. Theo Notteboom, President of ITMMA, University of Antwerp, Antwerp, Belgium

The setting of dry ports The evolution of inland freight distribution can be seen as an ongoing development of containerization and intermodal transportation. Modal availability, capacity and reliability of regional inland access all have an important role to play in shaping this development. As maritime shipping networks and port terminal activities become better integrated, the focus shifted on inland transportation and the inland terminal as a fundamental component of this strategy. Thus, after a phase that relied on the development of port terminals and maritime shipping networks, the integration of maritime and inland freight distribution systems has favored the setting of what has often been labeled ‘dry ports’. Using the term ‘dry port’ to define an inland terminal is open to debate since many inland terminals are in fact ‘wet’ given their direct access to inland waterway systems. Moreover, the inland location can effectively be a port if a barge service is concerned, but fundamentally cannot be considered a port if it involves a rail terminal. Thus, there seems to be no consensus on the terminology resulting in a wide range of terms including dry ports, inland terminals, inland ports, inland hubs, inland logistics centers, inland freight villages, etc. The reason for this lies in the multiple shapes, functions and network positions these nodes can have. Regardless of the terminology used, three fundamental characteristics are related to an inland node: • An intermodal terminal, either rail or barge that has been built or expanded. • A connection with a port terminal through rail, barge or truck services, often through a high capacity corridor. • An array of logistical activities that support and organize the freight transited, often co-located with the intermodal terminal. It can thus be seen that the functional specialization of dry ports has been linked with the clustering of logistical activities in the vicinity and have become excellent locations for consolidating a range of ancillary activities and logistics companies. In recent years, the dynamics in logistics networks have created the right conditions for a large-scale development of such logistics zones.

Driving forces: pushing economies of scale inland Each dry port remains the outcome of considerations pertaining to modal availability and efficiency, market function and intensity as well as the regulatory framework and governance. Their emergence underlines some deficiency in conventional inland freight distribution that needed to be mitigated. On top of the list is real estate where many deep sea terminal facilities have limited land available for expansion. This favors the intensification of activities at the main terminal and the search of lower value locations supporting less intensive freight activities. Capacity issues also appear to be one the main drivers of dry port development, since a system of inland terminals increases the intermodal capacity of inland freight distribution.

While trucking tends to be sufficient in the initial phase of the development of inland freight distribution systems, at some level of activity, diminishing returns such as congestion, energy and empty movements become strong incentives to consider the setting of inland terminals as the next step in regional freight planning. Inland locations tend to be serviced less by intermodal transportation than coastal regions. Through long distance transport corridors, inland ports confer a higher level of accessibility because of lower distribution costs and improved capacity. These high-capacity inland transport corridors allow ports to penetrate the local hinterland of competing ports and thus to extend their cargo base. In addition to standard capacity and accessibility issues, a dry port is a location actively integrated within supply chain management practices, particularly in view of containerization. This takes many forms such as the agglomeration of freight distribution centers, container depots, customs clearance and logistical capabilities. The dry port can also become a buffer in supply chains, acting as a temporary warehousing facility often closely connected to the warehouse planning systems of nearby distribution centers. Modal availability and capacity of regional inland access have an important role to play in shaping the emergence and development of dry ports. Each inland market has its own potential requiring different transport services. Thus, there is no single strategy for a dry port in terms of modal preferences as the regional effect remains fundamental.

Three functions within transport chains Dry ports service three major functions. The first is one of a satellite terminal located in proximity to a port facility. It accommodates additional traffic and serves functions that either have become too expensive at the port such as warehousing and empty container depots or are less bound to a location near a deep-sea quay. A number of satellite terminals only have a transport function transshipping cargo from rail/barge to trucks and vice versa, as is the case for the ‘container transferium’ concept of the port of Rotterdam or the Gateway Access Point (GAP) concept in Belgium. Satellite terminals can also serve as load centers for local or regional markets, particularly if economic density is high, in which case they form a multi-terminal cluster with the main port they are connected to through regular rail or barge shuttle services. For gateways with a strong import component, a satellite terminal can also serve a significant transloading function where the contents of maritime containers are transloaded into domestic containers or truckloads. A major intermodal facility – load center – granting access to well defined regional markets that include production and consumption functions is the second function assumed by dry ports. It commonly corresponds to a metropolitan area where a variety of terminals serve concomitantly intermodal, warehousing, distribution and logistics functions. These tend to take place in logistics parks and free trade zones. The dry port is thus the P o rt T e c h n o l o g y I n t e r n at i o n a l

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Figure 1. Types and functions of dry ports.

load center of a regional market. If the load center has a good intermediary location, such as being along a major rail corridor, then freight distribution activities servicing an extended market will be present. The third function of a dry port is one of a transshipment facility that links large systems of freight circulation either through the same mode (e.g. rail-to-rail) or through intermodalism (rail-to-truck or even rail-to-barge). In the later case, the inland terminal assumes the role of a load center. The origin or the destination of the freight handled is outside the terminal’s market area, a function similar to that of transshipment hubs in maritime shipping networks. Such transshipment terminals are often found near country borders in view of combining administrative processes linked to crossborder traffic to value-added logistics activities. Although this function remains marginal in most parts of the world, ongoing developments in inland freight distribution, where the scale and scope of intermodal services are increasing, are indicative that transshipment services are bound to become more prominent. These functions are not exclusive, implying that dry ports can service several functions at once. For inbound or outbound freight flows, the dry port is the first tier of a functional hierarchy that defines its fundamental (activities it directly services) and extended (activities it indirectly services) hinterlands.

Dry port is the name, co-location is the game Several dry port projects are set on the principle of co-location between an intermodal operator and a commercial real estate developer or a local public development office. Logistic zones tend to occupy a large amount of space to accommodate existing and anticipated freight distribution activities. Most co-located projects occupy at least 250 acres and several projects are well above 1,000 acres. Larger projects tend to have lower land acquisition costs. Also, since co-located projects involve two or more large players, they are able to tap into capital pools with better conditions than a smaller actor. For instance, CenterPoint Properties, one of North America’s largest developer of logistic zones, is owned by the pension fund CalPERS (California public employees’ retirement fund), enabling access to long-term capital. Another important aspect is that a co-located logistic project enables the joint planning of facilities. A co-location project enables actors involved to focus on their core competencies, creating multiplying factors. For example, the rail company can focus on terminal development and operations, while the real estate promoter can develop and manage the freight distribution facilities. Both the terminal operator 2 P o rt T e c h n o l o g y I n t e r n at i o n a l

PT50–04_3 and freight distribution activities at the logistic zone are their respective customers, implying that both partners have vested interests in the efficiency of their operations. The possibility of joint marketing where the logistic zone is promoted as a single intermodal package is also common since the terminal is sold as a value proposition to potential customers. A co-location project offers notable operational advantages for drayage, not just because of close proximity, but because trucks can have a priority access through the terminal’s gates. Drivers are able to perform more deliveries per day and the reliability of these deliveries improves. Intermodal transportation assets are capital intensive and there are pressures to increase their utilization level to achieve better returns on investments. Containers and chassis tend to be the assets that are the most prone to such strategies, namely through the setting of chassis pools and empty container depots. Finally, a co-location project offers the possibility to jointly plan information systems for terminal operations and the related supply chains, creating a dry port community system where users can have access to real time information about the status of their shipments. Both terminal operations and their related supply chains benefit. How dry ports interact with their regional markets remain fundamental as it defines their modal characteristics, their regulatory framework and their commercial opportunities. Depending on the geographical setting and the structure, governance and ownership of inland transport systems, dry ports have different levels of development and integration with port terminals.

Europe: dry ports as part of ports’ hinterland strategy It is in Western Europe that the setting of dry ports is the most advanced, with a close integration of port terminals with rail shuttles and barge services. Since a good share of the European market is inland, a growth in international trade required the setting of intermediary locations inland to help accommodate larger flows between ports and their hinterland. Many dry ports have become fully-fledged logistics zones. A large concentration of dry ports can be found around the Rhine-Scheldt delta (Figure 2), which is Europe’s most important gateway region with a total container throughput of 22.2 million TEU in 2010, and where the function of satellite terminals is prominent. Almost every European port has an inland terminal strategy as a way to secure hinterland traffic. Rail-based dry ports are found throughout Europe, often linked to the development of logistics zones. Depending on the European country considered, these logistics zones are known under different names: ‘platformes logistiques’ in France, the ‘güterverkehrszentren’ (GVZ) in Germany, ‘interporti’ in Italy, ‘freight villages’ in the UK, ‘transport centres’ in Denmark, and ‘Zonas de Actividades Logisticas’ (ZAL) in Spain. The rail liberalization process in Europe is supporting the development of real pan-European rail services on a one-stop shop basis. All over Europe, new entrants are emerging while some large former national railway companies have joined forces (cf. Railion). Rail terminals in Europe are mostly built and operated by large railway ventures. The largest rail facilities have bundles of up to 10 rail tracks with lengths of maximum 800 meters per track. Rail hubs are typically equipped to allow simultaneous batch exchanges (direct transhipment) through the use of rail-mounted gantry cranes that stretch over the rail bundles. In northwest Europe, barge transport is taking up a more prominent role in dealing with gateway traffic. Barge container transport has its origins in transport between Antwerp, Rotterdam and the Rhine basin, and in the last decade it has also developed greatly along the north-south axis between the Benelux and www.porttechnology.org

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Figure 2. Dry ports and Logistics Zones around the Rhine-Scheldt delta.

northern France. Antwerp and Rotterdam together handled nearly 5 million TEU of inland barge traffic in 2010 or about 95% of total European container transport by barge. Promising barging developments are also found on the Seine between Le Havre and the Paris region, in the Rhône/Seine basin between Marseille, Lyon and Dijon, on the Elbe and the Wester in Northern Germany and on the Danube river out of the port of Constantza. Fluviomar recently started barge services on the Po River connecting the Port of Venice with Mantua and Cremona, near Milan.

North America: dry ports and long distance trade corridors There have been dry ports in North Amer ica since the development of the continental railway system in the late 19th century. Their setting was a natural process where dry ports corresponded to metropolitan areas commanding a regional manufacturing and resource base. Although exports were significant, particularly for agricultural goods, this system of dry ports was mostly for domestic freight distribution. With globalization and intermodalism two main categories of dry ports have emerged in North America. The first is related to ocean trade where dry ports are an extension of a maritime terminal located in one of the three major ranges (Atlantic, Gulf and Pacific) either as satellite terminals and more commonly as inland load centers (e.g. Chicago). The second category concerns inland terminals mainly connected to NAFTA trade that can act as custom pre-clearance centers. Kansas City can be considered the most advanced inland port initiative in North America as it combines intermodal rail facilities from four different rail operators, foreign trade zones and logistics parks at various locations through the metropolitan area. Like Chicago, the city can essentially be perceived as a terminal.

Several recent logistic zones projects in North America are capitalizing from this advantage, where the planning and setting of a new intermodal rail terminal is done concomitantly with a logistics zone project (Figure 3). This partnership fundamentally acts as a filter for the commercial potential of the project as both actors must make the decision to go ahead with their respective capital investment in terminal facilities and commercial real estate. Compared to Europe, North American dry ports tend to be larger, but covering a much more substantial market area.

Asia: dry ports as satellite terminals or load centers? For Asia, coastal population concentrations and export-oriented development strategies have not been prone to the setting of dry ports. Several container depots have appeared inland as a way to improve the availability of export containers within manufacturing clusters (e.g. South Korea, Thailand, India), but containers are mainly carried by truck. In China there is the potential for a network of dry ports to emerge. Strong dry port development is taking place on the Yangtze river all the way up to the upper stretches near Chongqing, some 2400km upstream from Shanghai. Intermodal rail development faces the strong focus of the existing rail network on passengers and dry bulk commodities. As the Chinese economy moves towards a more extensive internal market, intermodal rail and barge traffic will increase. Eventually, another system of dry ports is likely to emerge in Southeast Asia, particularly along the Mekong. In light of the North American and European experiences, the question remains of how Pacific Asia can develop its own dry port strategy. The unique geographical characteristics of the region are likely P o rt T e c h n o l o g y I n t e r n at i o n a l

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Figure 3. Main trade corridors, dry ports and selected co-located logistic zones in North America.

to rely much on the satellite terminal concept and inland load centers in relative proximity. In this context, the European example is more suitable. However, the setting of long distance intermodal rail corridors within China and through Central Asia is prone to support the development to the inland load center system common in North America. The development of dry ports around the world has clearly underlined an emerging functional relation of port terminals and their hinterland. Based upon their regional setting, dry ports

assume a variety of functions with co-location with logistical zones a dominant development paradigm. While the interest in dry ports has increased we have to be aware that no two dry ports are the same. Each dry port is confronted with a local/ regional economic, geographical and regulatory setting which not only define the functions taken up by the dry port, but its relations vis-à-vis seaports. Best practices can only be applied successfully if one takes into account the relative uniqueness of each dry port setting.

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Email: [email protected] Prof. Dr. Theo Notteboom ITMMA – University of Antwerp Keizerstraat 64, 2000 Antwerp Belgium Email: [email protected]


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The Panama Canal expansion: business as usual or game-changer? Dr. Jean-Paul Rodrigue, Hofstra University, New York, USA, & Dr. Theo Notteboom, President of ITMMA, University of Antwerp, Antwerp, Belgium

Panama’s centennial: a new beginning In 2014 the Panama Canal will celebrate its centennial, an event that will not just simply be factual, but will also correspond to a new phase in its operations, if everything goes according to plan. The estimated US$5.25 billion expansion project will add a new set of locks and ancillary projects (dredging and widening) able to handle containerships in the 12,000-15,000 TEU range, depending on ship design and load configuration. This has triggered a wide range of speculations, from a ‘game-changing’ event fundamentally impacting global freight distribution, to another range of assessments where the expansion would have limited or no perceptible impacts. This divergence in opinion underlines that global freight distribution, the strategy of maritime shipping companies and terminal operators and supply chain management have become so complex and interrelated that it is unclear for many actors how the expansion will pan itself out. While what is known is fairly straightforward, such as the operational characteristics of the expanded canal, it is by far supplemented by what remains uncertain, namely trade flows, shipping network configurations and the growth of the amount of transshipment in the region. The problem in assessing the potential impacts of such a capacity expansion project is that in reality the consequences are multidimensional and prone with feedback effects, some of which may even be unintended consequences. There are thus many unknowns in this equation, namely how the multiple actors will react and to what extent the variety of converging and diverging strategies will lead to shipping service reconfigurations. For instance, how the strategic Pacific Asia – North American trade segment is going to be serviced? How much cargo is divertible from the West Coast to the East Coast through the all-water route? To what extent North and South American importers and exporters are going to be impacted by the availability, the cost and the reliability of transport services in a post-expansion era? It can be inferred that the expansion of the Panama Canal is going to be a game-changer, but the new rules of the game are not clear. This article summarizes a study funded by The Van Horne Institute of the University of Calgary. It is an attempt to shed some light on key elements that will have an impact on the outcomes of the expansion on global shipping networks and trade flows. It focuses on macroeconomic factors, particularly the expected shifts in the structure of production; operational factors that the expansion may provide for the maritime shipping industry, namely economies of scale and slow steaming; and competitive factors related to how other transport chains may anticipate and react to the changes brought by the expansion, particularly the cost structure.

The canal expansion and global economic changes The expansion project takes place in an economic environment prone to uncertainties since the financial crisis of 2008–2010 future trade growth prospects are being reassessed. One major uncertainty revolves around demand saturation for the American 2 P o rt T e c h n o l o g y I n t e r n at i o n a l

Figure 1. Main export-oriented regions and shipping routes servicing North America.

economy, which has been an important driver for the traffic transiting the canal over the last century. For instance, it has become clear ex-post that the American housing bubble of 2001–2007 was associated with a staggering level of debt-based consumption; once the bubble collapsed, so did its associated artificial level of consumption. The US today is facing a major government debt crisis that will affect future public spending and might trigger a downward pressure on US consumption levels. Economic opportunities in North America, particularly on the short- and medium- terms, appear to be more limited and would thus imply lower growth levels they were previously anticipated in port development plans, which prior to 2008 tended to be very optimistic. This is compounded by long-term demographic trends such as aging, where a growing share of the population will be involved in wealth consumption (retirement) as opposed to wealth creation. This would involve changes in the level and composition of the cargo carried by maritime shipping. Globalization is therefore not a static process, particularly since comparative advantages are constantly shifting. While East Asia has been a driver for global economic growth for decades (for example, Japan, South Korea, Taiwan and Hong Kong), it is the Chinese economy that has the most deeply impacted the global structure of production and trade. For several manufacturing sectors, the exploitation of comparative advantages within the North American Free Trade Agreement (NAFTA) were essentially by-passed by the ‘China effect’. This was accompanied with a surge in transpacific trade and cargo handled by West Coast www.porttechnology.org

ports. The Panama Canal obviously benefited from such a growth pattern, particularly for the all-water route between East Asia and the American East Coast that gained in popularity in the first half of the 2000s after uncertainties related to labor issues along West Coast ports and the capacity of the American land bridge to handle expected cargo volumes. For a variety of reasons, the comparative advantages of China are being eroded, particularly for labor intensive activities, which imply a redistribution of elements of the manufacturing base to other locations, namely Southeast Asia and South Asia (Figure 1). Although the interior provinces of China could represent development opportunities, accessibility and reliability issues in freight distribution make this alternative prone to risks. Expectations about future growth in aggregate demand have shifted to locations that are therefore dissimilar to the patterns that have prevailed in the last two decades. The export-oriented paradigm that characterized China cannot endure indefinitely. Since the expected changes in aggregate demand involve lower growth levels in markets that previously were the dominant drivers (for example, United States and Western Europe) and higher growth levels in markets that were previously more marginal (for example, South America, South Asia and Africa), this will have a notable impact on the global structure of trade flows. The extent to which the limited growth prospects of the conventional market of the Panama Canal will be compensated by emerging Latin American markets is unclear, but remains positive. Economic and trade growth on both South American coasts result in a proportional growth in Panama Canal usage as there are limited alternative shipping options. An exception is the growth of the Cape Route option for the trade flows between Asia and South American countries such as Brazil and Argentina (we refer in this context to the Suez Canal article by the same authors in this edition).

New operational factors in global maritime shipping An important rationale behind the expansion of the Panama Canal relates to the improvement of economies of scale in maritime shipping. A growing share of the world containerized fleet is unable to use the current Panama Canal, imposing new configurations in maritime services. By 2014, post-Panamax vessels are expected to account for 48% of the global container fleet capacity. Still, maritime shipping companies also expanded substantially ship designs fitting the Panamax specifications. This underlines the importance of the standard, not only because of its capability to use the Panama Canal, but also since many ports around the world have a draft and crane equipment designed with such specifications. Switching away from standards is always a costly and risky endeavor. The canal expansion has the benefit of putting the capacity on par with the level of economies of scale applied in long distance maritime shipping while remaining the de facto ship size standard. Maritime shipping is also highly sensitive to bunker fuel costs as they represent between 45% and 50% of operating costs with limited opportunities to mitigate outside slow steaming. For decades, the cruising speed of containerships has been relatively constant, enabling to maintain a level of schedule integrity along pendulum routes. Rising bunker fuel prices and excess shipping capacity caused by the financial crisis of 2008–2010 induced several maritime shipping companies to lower the operational speed of their ships. While the standard sailing speed of a containership is in the range of 20 to 25 knots, ‘normal’ slow steaming involves speeds between 18 and 20 knots, with super slow steaming reaching speeds as low as 14 knots. For transpacific shipping services, slow steaming can add between three to seven days in transit times and requires the addition of two or three ships to the pendulum service to maintain the frequency of port calls.

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For instance, a standard Far East – West Coast loop that requires six to eight ships to maintain with normal cruising speeds, requires nine to ten ships with a slow steaming service. Being at the far end of transpacific pendulum services, the Panama Canal may find itself impaired by slow steaming, but this can effectively be mitigated with improved reliability of port calls and the pull that additional transshipment cargo may draw on shipping routes.

Expected competitive changes in North American freight distribution Like all mega-projects, stakeholders that will be impacted are expected to undertake mitigating strategies on their own. Maritime shipping companies can change their capacity deployment and ports can invest in expansion projects in search of a new equilibrium. The stakeholders of the North American landbridge (mostly rail companies) have not remained idle with corridor development and inland terminal initiatives; they are gearing up the competition. Several elements of the transport cost structure are likely to change with the Panama Canal expansion, which will be an important determinant in the comparative advantages of respective routing options, including the American landbridge, the usage of the Suez Canal, or the all-water route through the Panama Canal. The usage of the all-water route can be perceived as a balancing act between lower transport costs at the expense of more time spent in transit than for the intermodal option. The tolls related to the expansion of the Panama Canal will also play a significant role in the cost structure. Already, the PCA (Panama Canal Authority) has substantially increased tolls; from US$40 per TEU capacity of the ship in 2006 to US$72 in 2009, an 80% hike. In 2011, tolls where slightly increased to US$74 per TEU capacity. This means that toll increases have already captured about 40% of the potential cost savings of the expansion, which mitigates a substantial share of the expected gains. An overview of the existing cost structure to ship containers between East Asia (Shanghai) and North American ports is revealing (Figure 2). The pattern for inbound traffic is straightforward and related to shipping distance; the lowest among the sample being Vancouver and the highest being Montreal at the opposite end of the allwater route. The container shipping rates for outbound traffic differ with shipping distance playing a much less evident role. They are more reflective of trade patterns, particularly of export opportunities in the port’s hinterland. Where inbound flows are significant and where return cargo is proportionally scarcer outbound rates are much lower as shipping companies try to attract backhaul cargo by discounting. The greatest paradox concerns New York and Vancouver, both at the opposite end of the all-water route from Asia. While, as expected, the inbound rate per TEU is 60% higher for New York than Vancouver, the outbound rate is 15% cheaper for New York. The availability of empty containers along the East Coast, as exemplified by New York, could expand export opportunities with the Panama Canal expansion. The shift of the line of cost equivalence (where it costs the same to either use the West or East Coast to reach Asia) deeper inland is a distinct possibility and would come with additional cargo handled by the East Coast port and the Panama Canal, but this is far from being given. It is subject to several uncertainties linked with the price of energy, the Panama Canal tolls as well as the capacity of inland rail corridors. Yet, this shift inland remains a reasonable assumption. East and Gulf coast ports see the expansion of the Panama Canal as an opportunity to increase cargo volumes and gather a greater share of the transpacific trade, which was the dominant growth factor in containerized transportation. West Coast ports tend to perceive the expansion of the Panama Canal as a threat to their hinterland market share, particularly for the Midwest. It is uncertain to what extent the cargo handled by the West Coast is P o rt T e c h n o l o g y I n t e r n at i o n a l

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Source: Drewry Container Benchmarks. Note: The rate benchmarks are for full container loads and include the base ocean rate, the terminal handling charge both at origin and at destination, the fuel surcharge and all other surcharges; they do not include inland transport costs. Source for equivalence lines: WorleyParsons and Princeton Consultants, Inc. Figure 2. Shipping rate in USD for a 40-foot container with Shanghai, selected port pairs, mid 2010.

divertible to other maritime ranges, with some putting this figure in the vicinity of 25% of the intermodal cargo. Still, Pacific Asia remains the fundamental market of the West Coast and the cost structure has to change significantly to have an impact.

The expanded canal as a value proposition The expansion of the Panama Canal is opening a new phase for transshipment in the region. It is important to underline that at the global level only 17% of the global commercial relations involve direct connections between ports, so transshipment is a fundamental aspect of maritime shipping networks. In recent years, an active transshipment market has emerged in Panama and the Caribbean, particularly within what has been dubbed as the ‘transshipment triangle’. The growth in the Caribbean transshipment activities is linked to issues such as economic growth in Latin America, being at the crossroads of transatlantic

and north-south trade flows and the need of shippers to reconcile these numerous inbound and outbound trade flows within their shipping networks. Transshipment activities are thus a mix of huband-spoke network configurations as well as interlining between long distance shipping routes. The advantages gained in terms of network inter-connectivity and better usage of ship assets outweigh the additional handling costs that transshipment entails. The expansion of the Panama Canal comes at a unique time in world trade developments, which are prone to uncertainties since the main trade drivers, such as American import-based consumption, are being questioned while new trade relations are not firmly established. Still, South America represents a remarkable potential for additional volumes and transshipment activities. Therefore, the expanded Panama Canal will not face a ‘business as usual’ situation, but the new rules of the global trade game are not clear. Enquiries

About the authors Dr. Jean-Paul Rodrigue is a

Dr. Theo Notteboom is President


Professor at Hofstra University,

of ITMMA (an institute of the


University of Antwerp), professor




Hempstead, New York



USA





Asia, particularly China. Specific topics over which


he has published extensively about cover maritime


transport systems and logistics, global supply


chains and production networks, gateways and


transport corridors, international trade and regional


development.



Email: [email protected] Professor Dr. Theo Notteboom ITMMA – University of Antwerp Kipdorp 59, 2000 Antwerp Belgium Email: [email protected]


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Challenges to and challengers of the Suez Canal Dr. Theo Notteboom, President of ITMMA, University of Antwerp, Antwerp, Belgium & Dr. Jean-Paul Rodrigue, Hofstra University, New York, USA

The Suez Canal revisited The Suez Canal plays a pivotal role in today’s global container shipping network, in particularly in accommodating vessels sailing on the important Asia-Europe trade lane. Together with the Panama Canal, the Suez Canal serves as one of the oceanic canals contributing to the large concentration of shipping and port activities along the world’s maritime ‘beltway’ or equatorial route. Along this beltway we find the majority of large transhipment hubs acting as turntables in extensive regionally-based hub-andspoke networks. Yet, in recent years the almost monopolistic position of the Suez route is being scrutinized by rising security concerns caused by piracy acts and armed robbery on vessels transiting the region, by high Suez Canal charges and by an ever-changing geography in world trade patterns. Moreover, a number of alternative allwater and land-based routes are vying for part of the cargo flows now passing through the Suez Canal. Shippers and shipping lines are continuously re-assessing the design of their shipping and distribution networks in search of high cost efficiency, manageable risks and increased routing flexibility. This could affect the dominant position of the Suez route in the longer term.

The importance of the Suez Canal route The Suez Canal was opened in 1869 as a man-made waterway connecting the Mediterranean Sea and the Red Sea. The canal is owned and maintained by the Suez Canal Authority (SCA), which is under the government of Egypt. However, the passage is guaranteed by the Constantinople Convention of the Suez Canal of March 1888. Over the years the dimensions of the Canal increased in depth, width and length (see Table 1). Improvements are made to increase draft to 22m (72 feet), allowing passage of fully laden supertankers. The largest container vessels can navigate the Canal without difficulties. It is a single-lane waterway with four passing places in Ballah and in the Great Bitter Lake. Passage takes between 11 and 16 hours. Ship convoys are formed on either side of the canal to cope with the limited width of the canal. Shipping lines reserve their place in a convoy and as such want to ensure that the vessel will make it in time to the Canal’s entrance.

The Suez Canal route’s dominant function is accommodating East-West container trade between Asia and Europe. In 2008, 8,156 container vessels transited the Suez Canal, an increase of 74% compared to 2001. More than a third of all vessels using the Canal are container vessels. About 723 million tons of cargo passed via the Canal in 2008 or almost double the tonnage of 2001. Nearly half of the cargo volume is containerized. The share of containerized cargo is still rising on the South to North direction (westbound from Asia to Europe) while it remained rather stable at 50% on the eastbound leg to Asia. Total container volumes reached an estimated 31 million TEU in 2008 compared to 20 million in 2004. Nearly 93% of these container flows are related to the Europe-Asia trade routes. North America (East Coast) – Asia trade represents about 5.3% (figures: Boston Consulting and Suez Canal Authority).

Suez Canal transit fees The transit rates are established by the Suez Canal Authority (SCA). They are computed to keep the Canal transit fees attractive to shippers. In fiscal year 2008, Egypt earned US$5 billion in canal fees (US$4.6 billion in the previous year) making it Egypt’s third largest revenue generator after tourism and remittances from expatriate workers. Container ships account for just under half of the Canal’s traffic and a slightly higher percentage of its net tonnage and revenues. Table 2 provides an estimate of the transit fees for various container vessel sizes based on rates of April 2008 (i.e. the last rate increase). The average canal transit fee per TEU (at 90% vessel utilization) amounts to US$102 for a vessel of 1000 TEU down to US$56 for the largest container vessels. In early 2009, SCA announced an indefinite freeze on transit fees as a result of the global downturn and the Somalian piracy crisis. Suez Canal fee revenues fell to US$1.1 billion in the first quarter of fiscal year 2009/2010 compared to US$1.5 billion in the same period of the previous fiscal year (minus 24%). In early 2009, a number of shipowners started to boycott the Suez Canal because of the high transit fees. Maersk Line and the Grand Alliance were examples of shipping lines temporarily opting for the Cape route around South Africa instead of the Suez Canal route, mainly on the eastbound leg of the roundtrip.

Table 1: Evolution of the nautical characteristics of the Suez Canal

Width at 11m depth

Unit

1869

1956

1962

1980

1994

1996

2001

2008

m

44

60

90

160

210

210

210

210

Maximum draft of vessels

feet

22

35

38

53

56

58

62

68

Overall length

km

164

175

175

190.25

190.25

190.25

190.25

190.25

Doubled parts

km

–

29

29

78

78

78

78

78

Water depth

m

10

14

15.5

19.5

20.5

21

22.5

23.5

Max. tonnage of vessel (DWT)

ton

5,000

30,000

80,000

150,000

180,000

185,000

210,000

210,000

Source: Own elaboration based on data from Suez Canal Authority



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Table 2. Estimated transit fees for a single transit via the Suez Canal (fees for April 2008)

TEU-capacity Typical SCNT*

Canal transit fees (US$)

Net tonnage fee (US$)

Fee on-deck containers (US$)

Per TEU (full vessel)

Per TEU 90% utiliz.

Per TEU 60% utiliz.

1,000

8,727

91,999

87618

4,381

92.0

102.2

153.3

1,500

14,210

130,762

123,360

7,402

87.2

96.9

145.3

2,000

19,693

168,141

157,141

11,000

84.1

93.4

140.1

3,000

30,659

221,403

205,002

16,400

73.8

82.0

123.0

4,000

41,625

271,939

251,796

20,144

68.0

75.5

113.3

6,000

63,557

373,589

339,627

33,963

62.3

69.2

103.8

8,000

85,489

455,770

414,336

41,434

57.0

63.3

95.0

10,000

107,421

536782

483,588

53,195

53.7

59.6

89.5

13,000

140,319

654,455

584,335

70,120

50.3

55.9

83.9

* Suez Canal Net Tonnage = 10.966 x TEU-capacity – 2238.7 (R-square = 0.9861) Source: Own elaboration based on transit fee tables from the Suez Canal Authority

Maersk Line had 15 services routed through the Suez Canal, but in early 2009 six services (half the total volume) were rerouted via the Cape. The Cape route has longer transit times (i.e. caused by an additional sailing time of five to seven days) and thus requires more vessels per loop. However, going via the Cape allowed shipping lines to avoid high toll fees. In a reaction to the economic climate, SCA made discounts more readily available to container shipping lines. This practice is highly unusual since SCA normally does not grant rebates to container ships on any trade lane. Since 1987, the Suez Canal Authority has maintained a flexible pricing strategy defined to include rebates for various other ship types and trade routes for which the Canal believes it faces a competitive alternative route (particularly oil tankers). The SCA has been granting rebates to owners/operators whenever they are able to prove that the voyage cost via the Suez Canal is more expensive than proceeding via the Cape/alternative route. There is a rebate committee, which meets every day and discusses all rebate applications submitted.

Challenges to the Suez route While the Suez Canal will undoubtedly remain a very important oceanic canal, the Canal is confronted with a number of challenges which determine the Canal’s appeal to shipping lines and shippers.

The impact of the bunker price

Third, liner service dynamics have an impact on the Suez Canal. Bunker price evolutions remain an important factor to the success of the Suez Canal. Low bunker prices make shipping lines less concerned about nautical distances (see the rerouting via the Cape in early 2009 when bunker prices were low). High bunker prices give an incentive to shipping lines to slow steam and cut sailing distance. In times of surplus vessel capacity, shipping lines are more eager to opt for longer roundtrip times as it helps to absorb surplus capacity in the market (i.e. more vessels needed per loop). The Cape route as an alternative

Fourth, the macroeconomic geography has contr ibuted significantly to the success of the Suez Canal. The Europe-Far East container trade, the Canal’s key trade lane, surged in the last decades. The Suez route is expected to remain the logical and dominant choice for connecting Asia with Europe. However, the Cape route could serve as an alternative to the Suez option on trades between Asia and South America, Asia and West Africa and South America and East Africa. The flows related to the first two trade lanes now typically pass through the Suez Canal and are interlined in hubs such as

Piracy

First of all, the recent wave of piracy acts has generated great concern among shipping lines and cargo owners. The number of reported attacks near Somalia and in the Gulf of Aden increased from only 10 in 2006 to 111 in 2008 (figures of the International Maritime Board). Somalia pirates operate up to 800 nautical miles from the coast using mother vessels. The security threat linked to piracy increased the insurance fees for vessels transiting the region (i.e. war risk insurance, additional P&I fees and higher premium on cargo insurance) and increased operating costs in terms of additional manning costs, costs related to a licensed security guard and deterrent equipment. These additional costs typically amount to US$100,000-US$115,000 per transit. Capacity issues

Second, the Suez Canal has a finite capacity. For the foreseeable future there are no serious capacity constraints or draft limitations for container vessels. However, the single-lane character of the Canal continues to constrain the number of transiting vessels per day due to peaks in ship arrivals. As soon as the Canal is nearing its full capacity, SCA might have to consider a capacity management strategy based on a variable pricing system (yield management), i.e. high transit fees on peak moments and lower fees when demand is less.

Figure 1. The main routing alternatives between East Asia and Northern Europe.


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Figure 2. Circum-Equatorial maritime route.

Algeciras, Tanger Med or even in more northern ports such as Rotterdam (Maersk) and Antwerp (MSC). Interlining via the Cape offers a potential alternative to the Suez route. While distances and transit times via the Cape on these routes are typically lower than the Suez route, the Cape route today still faces higher costs mainly caused by poorer vessel economics (vessels on the Europe-Far East route are on average much larger) and the lack of large scale and efficient interlining ports in Sub-Saharan Africa. However, by 2020 interlining via a hub near the Cape is expected to become more competitive compared to the Suez route due to a combination of higher Suez Canal transit fees, better vessel economics on the routes to Africa; and subject to a more competitive terminal efficiency and pricing strategy of southern African transhipment facilities in view of attracting interlining flows. This does not imply the Cape route would overtake the Suez route as the dominant shipping link between East and West. The expected emergence of the Cape route should be seen as the embodiment of a promising development of south-south trade volumes between Asia, Sub-Saharan Africa and South America. New routing alternatives

Fifth, next to the Cape route, a number of other routing alternatives are being planned or are in operation to accommodate part of the trade volumes between Europe and Asia (Figure 1), but their market shares are expected to remain low compared to the Suez route. First there is the Northern Sea Route, a set of all-water shipping lanes between the Atlantic Ocean and the Pacific Ocean along the Russian coast of Siberia and the Far East. Future ice cap reductions would open new possibilities for commercial shipping on this route. In cost terms the route today is still less favorable due to the need for ice-classed ships and ice breaker assistance, non-regularity of the liner services, slower sailing speeds, navigation difficulties and Russian transit fees. Secondly, North South land corridors could develop as land bridges from the Persian Gulf via Iran to Russia. Third, the East-West rail corridors, a set of railway lines connecting East Asia and the western part of Russia with the

Eastern part of Russia, are becoming more commercially interesting. One of the main arteries is the Trans-Siberian Railway which connects St. Petersburg with the port of Vladivostok. Other primary rail connections are the Trans-Manchurian Railway, the Trans-Mongolian Railway and the Baikal Amur Mainline (BAM – opened in 1991). The ‘Trans-Siberian in Seven Days’ program sets a target speed of 1,500 km a day by 2015. Rail land bridges in principle offer lead time advantages to shippers, but capacities remain low compared to container liner services. They offer a niche potential for time-sensitive cargo. Competition with the Panama Canal

Sixth, the Suez Canal is also competing for cargo between Asia and North America (East Coast). Cargo between Asia and the US East Coast can follow three routing alternatives: the land bridge route (via US West Coast ports and then inland via the doublestack rail network), the all-water route via the Panama Canal and the all water route via the Suez Canal. The dominance of the land bridge route is being challenged by a resurgence of all water services between Pacific Asia and the East Coast. The share of the land bridge route for cargo from Asia destined for New York is expected to decrease from 75% to 60%. It is expected that the Panama Canal route will continue to account for the vast majority of all-water routes between Asia and the US East Coast, certainly when considering the Panama Canal expansion. Still, the Suez route plays a modest but increasing role particularly through pendulum service configurations offering plenty of cargo bundling potential by connecting Asian, European and North American cargo centers. The relation between the Suez Canal and the (upgraded) Panama Canal is not only of a competitive nature: these oceanic canals show a high degree of complementarity in view of a renewed development of roundthe-world equatorial liner services (Figure 2). Shipping lines have abandoned RTW-services in the mid-1990s due to the vessel size restrictions of the Panama Canal, but the Panama Canal expansion is expected to revive their interest in such a liner service network solution. Enquiries

About the authors Dr. Theo Notteboom is President of


Professor Dr. Theo Notteboom




of Antwerp), professor at the


Kipdorp 59, 2000 Antwerp

University of Antwerp, a part-time


Belgium

professor at the Antwerp Maritime



Academy and a visiting professor at Dalian Maritime


University in China and World Maritime University in



Sweden. He published widely on port and maritime


economics. He is also President of International



Association of Maritime Economists (IAME) and


Chairman of the Board of Directors of Belgian





development.


Hempstead, New York USA Email: [email protected]


PORT FOCUS

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Port regionalization: improving port competitiveness by reaching beyond the port perimeter Dr. Jean-Paul Rodrigue, Hofstra University, New York, USA, & Dr. Theo Notteboom, President of ITMMA, University of Antwerp, Antwerp, Belgium

Port system development dynamics in the containerization era Since the mid-19th century and up to the diffusion of containerization as a dominant form of freight distribution in the 1980s, the development of a port system evolved from an initial pattern of scattered, poorly connected ports along a coastline to a main network consisting of corridors between gateway ports and major hinterland centers (see phases 1 to 4 on Figure 1). Containerization revolutionized maritime shipping and port terminal operations and supported the substantial growth in international transoceanic trade over the last decades. While traditionally most ports had a fairly clear and distinctive hinterland, containerization initiated a trend towards large overlapping or contestable hinterland regions. The competitive landscape became even more complex by the setting of large container transshipment facilities in locations with a weak hinterland. From the late 1980s, the integration of such transshipment hubs led to a new paradigm in port evolution.

Transshipment hubs tend to have greater depth in view of accommodating modern containership drafts, placing them at a technical advantage and inciting the setting of hub-feeder services and interlining/relay configurations between mainline vessels (see phase 5). As intermediary locations, they offered a compromise between economies of scale in vessels and terminals, and the need to maximize connectivity in maritime networks.

Enter the hinterland regionalization paradigm In the 1990s the growth in container traffic reached a level in several large port facilities where a more efficient form of hinterland transportation needed to be organized. It involved the incorporation of inland freight distribution centers and terminals as active nodes in shaping load center development (phase 6). This port regionalization phase is characterized by the joint and coordinated development of a specific load center and multimodal logistics platforms in the hinterland, ultimately

Figure 1. The spatial development of a port system. [1]



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31

Foreland-based regionalization: Integrating transshipment hubs

Figure 2. Structures supporting port regionalization.

leading to the formation of a regional load center network which, depending on regional characteristics, is supported by two types on inland infrastructures: • Inland waterway ports These ports are either standard inland maritime or barge ports that are being integrated to hinterland services of coastal ports through shuttle services by barges or smaller coastal ships. This is particularly the case along the Rhine and in the Low Countries, where inland barge ports acts as feeders for large ports in the Rhine-Scheldt Delta such as Rotterdam and Antwerp. • Inland terminals This is a rather more recent concept where a direct inland connection, particularly through rail, is established between an inland terminal and the port. It takes advantage of intermodal transportation and the improvements in the transshipment efficiency of port terminals. North America has seen the extensive development of inland terminals and their associated logistics zones. The formation of an inland load center network therefore involves a series of inland terminals (IT) linked to the port facilities by high capacity rail or barge corridors (Figure 2). Also, a supporting land use structure needs to be established, mostly concerning the clustering of logistics activities (e.g. distribution centers) and often in co-location with the terminal facilities. For instance, port-centric logistics zones support freight distribution activities related to maritime shipping and have a dominant international trade orientation. Port authorities tend to be proactive in this type of development since it supports and provides added value to port activities. An inland port is an intermodal terminal (commonly rail) built or updated concomitantly with the development of adjacent (co-located) logistical and service activities. An intermodal industrial park is a similar structure although in proximity (not co-located) to the terminal facility. The growing interest in port regionalization is a gradual and market-driven process, imposed on ports, that mirrors the increased focus of market players on logistics integration. The regionalization phase demands appropriate structures to be in place as to face the challenges posed by changing port-hinterland relationships. Port authorities often adopt a facilitating or catalyst role in enhancing regionalization. In some cases they even take financial participations in the development of logistics zones and inland ports, as illustrated by the financial involvement of the Antwerp Port Authority in Trilogiport (a new terminal/logistics area in the inland port of Liège) and its minority shareholding in the Beverdonk container terminal along the Albert Canal in Belgium.

Regionalization is a process that has been looked so far as taking place over the hinterland, but regionalization can also take place on the maritime foreland. The concept of foreland-based regionalization refers to the integration of intermediate hubs in regional shipping networks, where the maritime foreland of the intermediate hub is functionally acting as a hinterland. For reasons like deviation, small volume and niche hinterland, some ports are not that well-connected to the global long-distance shipping network and show limited opportunities to improve this connectivity. Shipping companies must consider effective network configurations that tend to focus on major gateways and intermediate hubs. At a regional level, several small or medium-sized ports may realize that it is in their long-term interests to have a higher level of integration with an intermediate hub, even if it comes at the expense of shorter distance liner services calls. Foreland-based regionalization can support export-oriented strategies with a better connectivity of more marginal (or in their early stage of growth) ports to global shipping networks and thus international trade. There are also site constraints, environmental factors or low market potential that may limit the volumes generated by the hinterlands of some ports. On the intermediate hub side, the volatile long-distance transshipment traffic would be complemented with a more stable and secure regional gateway traffic. Both the foreland and the hinterland are thus mutually self-reinforcing, as hinterland stability can anchor the volatility of the transshipment function, particularly in light of footloose operators.

Massification versus atomization: a growing gap? Freight flows on the foreland and hinterland are not taking place at the same momentum, particularly since on the foreland economies of scale have been more effectively applied than on the hinterland. This creates a capacity/scale gap between inland and maritime transportation as economies of scale in maritime shipping cannot be effectively reconciled with economies of scale in inland transportation. Inversely, there is a frequency gap as inland transport systems operate at a higher frequency to accommodate punctual (atomized) demand (Figure 3). In both cases, port terminals are facing pressures to accommodate these gaps with regionalization as a resulting strategy. Hence, port regionalization allows stretching the massification of flows beyond the port toward the hinterland through the use of high capacity barge or rail shuttles linking the port to a set of inland ports and logistics zones.

Figure 3. Foreland and hinterland-based regionalization: reconciling the pressures of massification and the demands of atomization.


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Figure 4. The European container port system and its main regionalization clusters. [2]

In light of an increasing massification of containerized freight loads, and while the ultimate goal remains atomization (individual containers delivered to freight owners), the insertion of an intermediate hub can in some circumstances act as a mitigation strategy that can complement the setting of an inland load center network. The largest containerships can call at intermediate hubs with high capacity and frequency services. Through feedering, ports serviced through the intermediate hub can have smaller ships (e.g. Panamax class) calling at a high frequency.

A look at European and North American hinterland-based regionalization Regionalization strategies are strongly influenced by the geographical characteristics in which they take place. In Western Europe, the hinterland is not only intense along the coastline but also in the interior, notably along the Rhine-Scheldt delta; Bavaria in the South of Germany; the economics centers around Milan in Northern Italy, Madrid in central Spain and major markets in Paris; the Liverpool-Manchester-Leeds belt in the UK; and the belt reaching from Austria to the growing production clusters in Hungary, the Czech Republic and Southern Poland. Moreover, a large part of the European economic centers are somewhat remote from the main shipping lines as is the case for the countries around the Baltic. European gateways are therefore not the only major markets, but often intermediary locations, even if many are important industrial centers (Figure 4). The hinterland is accessed from coastal gateways such as Rotterdam; Antwerp, Hamburg, Bremerhaven, Le Havre, Barcelona, Marseille and Felixstowe by medium-distance corridors involving a variety of combinations of road, barge (where available) and rail services. Each of these gateways have implemented in the last decade active hinterland regionalization 4 P o rt T e c h n o l o g y I n t e r n at i o n a l

strategies, with ports of the Rhine-Scheldt delta being the most active and successful in establishing a network of inland load centers. Their hinterland reach and scale scale is such that they are able to successfully compete in the more distant hinterland regions, introducing competition with Mediterreanean gateway ports such as Genoa, La Spezia, Venice and Trieste for northItalian cargo, and Marseille for cargo destined for southern France. In North America, there is a high level of concentration of economic activities along coastal areas (East and West coasts) with significant resource and manufactur ing hinterlands. Gateways tend to be the dominant markets and this for all the two major maritime facades, the East and the West coasts (the Gulf Coast plays a more marginal role, particularly for containers). Commercial considerations were those that shaped North American gateways and corridors the most, which have remained quite stable in time, albeit with an ongoing trend of traffic concentration. North America relies on a relatively small number of gateway regions (with the San Pedro Bay port region in California showing the highest container throughput) and less developed port ranges. From coastal gateways longitudinal long distance rail corridors, often taking the form of a landbridge, are servicing a continental hinterland articulated by major transportation and industrial hubs such as Chicago and Kansas City. The large scale inland rail freight transport system of North America is unique in the world, not only because of its sheer size, but also because of the direct link made between two different coastlines.

To what extent a port’s future is decided in the hinterland? After more than half a century of containerization many ports are facing pressures to improve their capacity and performance www.porttechnology.org

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Figure 5. The North-American container port system and its main regionalization clusters. [3]

in light of constraints in the availability of land for expansion. Port regionalization, through the setting of an inland network of load centers, is a strategy that has been used to massify hinterland transportation and correspondingly port competitiveness; hinterland-based regionalization. Another form of regionalization, less common, relates to the usage of transshipment hubs as gateways to a regional port system; foreland-based regionalization. A better reconciliation between forelands and hinterlands would help to ensure that returns on investments are higher and that port terminals are able to cope with the growing capacity and frequency gaps. The ports that are the most proactive at implementing regionalization strategies are those that will be able to compete the most effectively in attracting port calls and their related traffic.

references

[1] Adapted from T. Notteboom and J-P Rodrigue (2005) “Port Regionalization: Towards a New Phase in Port Development”, Maritime Policy and Management,Vol. 32, No. 3, pp. 297-313. [2] A dapted from Rodrigue, J-P and T. Notteboom (2010) “Comparative North American and European Gateway Logistics: The Regionalism of Freight Distribution”, Journal of Transport Geography, Vol. 18, No. 4, pp. 497-507. [3] Ibid.

About the authors

Enquiries











Hempstead, New York



USA















development.


Email: [email protected] Professor Dr. Theo Notteboom ITMMA – University of Antwerp Kipdorp 59, 2000 Antwerp Belgium Email: [email protected]


5

PT53–02_4


The preferred scale of container terminals Vicky Kaselimi, Research Fellow & Dr. Theo Notteboom, President, ITMMA, University of Antwerp, Antwerp, Belgium

Mind the scale Both terminal operators and port authorities are interested in knowing the optimal scale for a terminal they are going to operate or lease. Container terminal operators are interested in the terminal scale as it will affect their operational cost structure and will have implications on the commercial strategy needed to attract container volumes. Landlord port authorities, or any other managing body of a port responsible for strategic decisions regarding the provision of a port’s infrastructure to terminal operators, are (or should be) implicitly or explicitly interested in the scale of terminals in their ports in the context of the concessioning of port land. When developing a new port area, port authorities might opt to concession one big terminal or, alternatively, to divide the available land into more sections and thus more and smaller terminals. The purely economic approach: the Minimum Efficient Scale (MES)

From a strictly economic point of view, the best possible scale for a terminal is guided by the Minimum Efficient Scale (MES). MES is a central concept in economic literature, with applications to plants and/or firms, mainly in the manufacturing, electric power generation, agriculture, banking and air transport industries. One possible way of defining the MES of a container terminal is by linking this scale to operational efficiency as reflected by the average cost function and therefore to define it as the smallest scale at which output can be produced at minimum average longrun cost. ‘Preferred’ scale is more than Minimum Efficient Scale (MES)

In practice there are more parameters, apart from MES, that define the best possible scale of container terminals. In terminal concessioning procedures, the terminal scale that is ‘preferred’ in the end is usually different from MES. For example, terminal operators typically want to benefit from economies of scale, while port authorities also have to consider the (internalized) social costs arising from the (imminent) monopoly power of single terminals. The result of this could be that port authorities, when awarding new concessions, encourage container terminal development at less than MES level. In addition, the geographical segmentation of the container terminal market contributes to the existence of different sizes and cost structures of these markets, which leads to different terminal scales. Also, the development of terminals in different periods of time means that they have access to different technology and thus have different cost curves, leading, in the end, to different terminal scales. In some other cases, the space available for terminal development is so restricted that new terminal capacity development is not possible and expansion can only be achieved through substantial changes to the input mix. Finally, the container terminal scale is also linked to the local shipping patterns and the minimum amount of infrastructure and equipment required for handling the smallest basic unit of shipping using the port as a standard of service acceptable to the ship operator. From the above, we can conclude that the preferred scale of container terminals is the result of a complex interaction

Source: Kaselimi, E.N., Notteboom, T.E., Pallis A.A., and Farrell, S. (2011). Minimum Efficient Scale (MES) vs. ‘Preferred’ Scale of Container Terminals. Research in Transportation Economics, 32(1), 71-80.

Figure 1. Preferred scale of container terminals: determining factors.

between the MES of the relevant terminal and a number of other parameters, such as the port governance framework and policy objectives, the market size and structure, technological change and operational considerations, the physical and geographical limitations and shipping lines’ costs and business patterns (see Figure 1).

How can we estimate the preferred scale? When it comes to the estimation of the container terminal scale, the acceptance of the assumption that the preferred scale is not solely based on MES gives us the freedom to choose a method other than the purely economic measurement of the MES. In that framework, the typical statistical cost estimation and engineering approaches that are widely used in economic literature are not so relevant. On the other hand, the proxy methods, that have received a lot of criticism for being unable to give good estimates of MES and efficiency, can be used for the estimation of the preferred scale. Taken into consideration that the actual terminal size is the preferred scale, a revealed preference technique can be used to measure the preferences of terminal operators and port authorities on container terminal scales. Based on the hypothesis that the observed distribution of terminal sizes will be clustered in some way around the best possible size, we expect that the preferred scale of container terminals can be deducted from the size distribution analysis of terminals. We also argue that the preferred scale is not a single value but instead lies within a range. Empirical evidence on preferred scale

We performed a size distribution analysis of 333 container terminals worldwide. All terminals operate in ports that handle more than 150,000 TEU and have up to four terminals. Ter minal size was measured by focusing on container throughput in TEU at terminal level. The size distribution of container ter minals was explored in relation to the following parameters: the continent in which the terminal P o rt T e c h n o l o g y I n t e r n at i o n a l

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Figure 2. Terminal preferred scale (in 1,000 TEU) by number of terminals in the port.

operates (Africa, Asia or Europe), the number of terminals in the port and the transhipment incidence of the terminal (0-100 percent). Following a differentiated approach, we thus examined three different cases: • The size distribution of transhipment container terminals with a transhipment incidence of at least 65 percent compared to the size of the remaining non-transhipment container terminals; • The size distribution of container terminals by continent; • T he size distribution of container terminals by number of terminals per port. Figure 2 presents the results by number of terminals per port, geographical area and transhipment incidence. For terminals located in ports with only one terminal, the typical preferred scale ranges from 205,000 TEU to 1 million TEU with the exception of transhipment ports. For two-terminal ports, in Asia, Europe and Africa, the lower bound of the preferred scales start from a throughput of around 130,000-180,000 TEU and goes up to 1.2 million TEU. The exception, once again, is the

transhipment terminals that influence the ranges up to 3.2 million TEU. For terminals in ports with three terminals, the range of the preferred scale shows a wide dispersion. For Europe, the range fluctuates between 80,000 and 500,000 TEU, while in Asia it lies between 400,000 and 2.4 million TEU. For four-terminal ports, there is again a large spread in the range of preferred scales. The analysis reveals there is not a clear relationship between the scale of container terminals and the number of terminals inside the same port. In Africa, it seems that the scale of terminals increases as the number of terminals in a port increases. In Europe and Asia, the scale ranges are similar but again it seems to be an upward trend in ports with three and four terminals. The scale of transhipment terminals seems to be similar with a slight downward trend especially when it comes to ports with four terminals. Also in non-transhipment terminals, the range in the terminal scale is similar but with an increase when it comes to ports with four terminals. In summary, the scale of the terminals is not decreasing when the number of terminals inside a port increases.

About the authors

Enquiries

Ms. Evangelia (Vicky) Kaselimi is


Evangelia (Vicky) Kaselimi

a Research Fellow at University of


Antwerp. She is currently conducting

University of Antwerp), Professor

Ph.D. research on port and terminal


Institute of Transport and Maritime Management Antwerp (ITMMA), University of Antwerp Kipdorp 59, 2000, Antwerp, Belgium

competition. Ms. Kaselimi is also a

part-time Professor at the Antwerp

Civil Servant at the General Secretariat of Ports and

Maritime Academy and a visiting Professor at Dalian

Port Policy, Hellenic Ministry of Maritime Affairs,


Islands and Fisheries. Her scientific interests include


port economics and policy, port and terminal


competition with application of game theory and


Institute of Transport and Maritime Management Antwerp (ITMMA), University of Antwerp Kipdorp 59, 2000, Antwerp, Belgium

statistical analysis. Ms. Kaselimi is a member of

(IAME), Chairman of the Board of Directors of

Tel: +32 (0) 3 265 51 52

PortEconomics.eu, a web-based initiative aiming to

Belgian Institute of Transport Organizers (BITO) and


advance knowledge exchange on port economics,

co-director of PortEconomics.eu.

Web: w ww.itmma.ua.ac.be and www.porteconomics.eu

management and policies.


Tel: +32 (0) 3 265 51 55

Fax: +32 (0) 3 265 51 50

Email: [email protected] Professor Dr. Theo Notteboom

Fax: +32 (0) 3 265 51 50


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global issues

The cruise industry: itineraries, not destinations Dr. Jean-Paul Rodrigue, Hofstra University, New York, USA, & Dr. Theo Notteboom, ITMMA, University of Antwerp, Antwerp, Belgium

From liners to cruise ships The global cruise industry carried about 19.1 million passengers in 2011, up from 7.2 million in 2000. Since 1990, over 154 million passengers have taken a cruise of more than two days. Of this number, over 68 percent of the total passengers have been generated in the past 10 years and nearly 40 percent in the past five years. The global growth rate of the cruise industry has been enduring and stable, at around 7 percent per year, in spite of economic cycles of growth and recession. The emergence of the cruise industry can be traced to the demise of the ocean liner in the 1960s as it was replaced by fast jet services for which it could not compete. The last liners became the first cruise ships; the availability of a fleet of liners, whose utility was no longer commercially justifiable, incited their reconversion to form the first fleet of cruise ships. However, liners were not particularly suitable to the requirements of the emerging cruise industry. For instance, since many liners were designed to operate on the North Atlantic throughout the year for scheduled passenger services, their outdoor amenities such as boardwalks and swimming pools were limited. Additionally, they were built for speed (which was their trademark) with the related high levels of fuel consumption. The first dedicated cruise ships began to appear in the 1970s and could carry about 1,000 passengers. By the 1980s, economies of scale were further expanded with cruise ships that could carry more than 2,000 passengers. The current largest cruise ships have a capacity of about 6,000 passengers.

The cruise industry finds its business model The modern cruise industry began in the late 1960s and early 1970s with the founding of Norwegian Cruise Line (1966), Royal Caribbean International (1968) and Carnival Cruise Lines (1972), which have remained the largest cruise lines. The early goal of the cruise industry was to develop a mass market, since cruising was until then an activity for the elite. In doing so, it developed a business model reflecting the mobility of its assets: the cruise industry sells itineraries, not destinations, implying a greater flexibility in the selection of ports of call and adaptability to changing market conditions. Applying this business model in the past decades, the cruise industry developed into a mass market using large vessels and adding more revenue generating passenger services onboard. The Caribbean, with its winter peak season, remains the key market, but its dominance is being slowly eroded by the Mediterranean market, which offers a complementary summer peak season. Furthermore, strong niche markets have developed, focusing on, for instance, history (Hanseatic cities in northern Europe) or natural amenities (Alaska). Since the cruise industry is a relatively small segment of the global touristic sector, it has so far been very successful at finding customers to fill ever larger ships. The cruise product has become diversified to attract new customers and to respond to the preferences of a wide array of customer groups. In doing so, the cruise industry has innovated through the development of new destinations, new

ship designs, new and diverse onboard amenities, facilities and services, plus wide-ranging shore side activities.

Capturing passengers and value What is novel with cruising is that the ship represents in itself the destination, essentially acting as a floating hotel (or a theme park) with all the related facilities (bars, restaurants, shops, theaters, casinos and swimming pools). This permitted cruise lines to develop a captive market within their ships as well as for shore based activities (for example, excursions or facilities entirely owned by subsidiaries of the cruise line). Some cruise operators go very far in developing new entertainment concepts on board of their vessels, such as surf pools, water parks, ice skating rinks or rock climbing walls. Onboard services typically account for between 20 and 30 percent of the total cruise line revenues. The average customer spends about $1,700 for their cruise, including on ship and off ship expenses for goods and services. The majority of these expenses are captured within the cruise ship, as passengers spend on average $100 per port of call.

Selecting itineraries Three main types of itineraries can be found: • Perennial – The region covered by the itinerary is serviced throughout the year as the demand remains resilient, which is associated with stable (subtropical) weather conditions as well as stable itineraries. There may be significant seasonal variations in the number of ships deployed but the market remains serviced throughout the year. The Caribbean is the foremost perennial cruise market (summer low season), but the Mediterranean is also serviced year round, with a winter low season. • S easonal – Weather is the dominant factor explaining seasonality, implying that some regions have a market potential only during a specific period or season. This is particularly the case for Baltic, Norwegian, Alaskan and New England cruises that are serviced during summer months. Inversely, South American and Australian itineraries are serviced during the winter months. • R epositioning – Because of the seasonality of the cruise industry the repositioning of ships between seasons is required. Cruise companies are increasingly using this opportunity to offer customers lower cost cruises for the inconvenience of having to book air travel arrangements for the return trip since the beginning and ending ports of call are not the same. This mainly takes place across the Atlantic as ships move from the winter Caribbean peak season to the summer Mediterranean peak season (and vice versa). The number and order of port calls, the total sailing distance and the vessel speed are the main determinants of the total vessel roundtrip time. Schedule reliability is of utmost importance to cruise passengers, particularly when a tight synchronization exists between their arrival at the hub port and the departure of their international flights. P o rt T e c h n o l o g y I n t e r n at i o n a l

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When delays along the route and in ports give rise to schedule reliability problems, cruise ship operators often decide to catch up lost time by increasing the sailing speed at night. Cruise ship operators can insert time buffers in the cruise liner service to reduce the risks of delays.

Caribbean itineraries: the cradle of the cruise industry The Caribbean is the world’s largest cruise shipping market, representing over 40 percent of the annual cruise supply. It acts as an ideal cruising destination for the following reasons: • The Caribbean is mostly a chain of islands in close proximity, implying short cruising distances between ports of call. The climate is subtropical with limited temperature fluctuations, albeit the hurricane season (August to October) can create some disruptions. There are a variety of landscapes ranging from rain forests to semi-arid conditions, as well as the presence of coral and volcanic islands. • T he region has a long history associated with European colonialism and accounts for the oldest settlements in the Americas. African, Hispanic, English, French and Dutch influences are prevalent, conferring a very diversified cultural landscape that often changes completely from one island to the other. Therefore, the cruise industry is able to offer to its customers a variety of cultural experiences in close proximity. • Being adjacent to the US offers a large market of potential tourists able to afford cruise packages without having to travel far to start a cruising itinerary.

PT54–17_4 Most Caribbean cruises begin (and end) from the Miami or Fort Lauderdale cruise ports that act as the main hub ports. Both are major airports well connected to the rest of the US. New York is also a significant hub port, but its distance limits its Caribbean ports of call options; Kings Wharf (Bermuda) represents a common port call for New York bound Caribbean itineraries. Itineraries using San Juan, Puerto Rico as a hub port have the advantage of being able to effectively cover the eastern Caribbean, the furthest from the US and not serviced by cruises of seven days and less calling from southern Florida. The typical itinerary is of about seven nights duration, which enables to cover a sub-region of the Caribbean comprising of three or four ports of call (see Figure 1). Cruise ships commonly arrive at the port of call early in the morning and leave in the evening, using the night to sail to the next port of call. To take advantage of a location that does not have sufficient infrastructure to accommodate cruise operations, several cruise shipping companies developed private cruise terminals, including related private touristic amenities, such as beaches, craft markets and restaurants. A salient example is Labadee in Haiti, which is privately owned by Royal Caribbean Cruises. The facility is an enclave protected by private security forces and acts as a port of call for most of the company's Western Caribbean itineraries.

Mediterranean itineraries: an emerging complementarity The Mediterranean is the world’s second largest cruise shipping market, representing over 29 percent of the annual cruise capacity.

Figure 1. Selected cruise itineraries, Caribbean.



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global issues

Figure 2. Selected cruise itineraries, Mediterranean.

Its adjacency to Europe provides the advantage of a large pool of customers. It is a perennial cruise market with a summer peak season (several itineraries are not serviced in the winter). The Mediterranean offers seaside resort destinations as well as world class cultural amenities, as several cities are museums by themselves (for example, Venice). Seven day itineraries are structured into small loops of four to five ports of call, each covering a specific sub-region, such as the Adriatic or the Spanish coast (see Figure 2). Since the distances between ports of call are relatively short, this leaves additional time for shore excursions as each port of call offers a wide array of cultural amenities. Itineraries of 14 days are also being offered, covering large parts of the European side of the Mediterranean. Many of the itineraries are focused on historical sites and exceptional scenery. The most popular countries for cruise ports of call in Europe are Italy, Spain and Greece. Strong growth in Mediterranean cruises in the past years has meant that some ports are getting very crowded. This is particularly felt in top cruise tourist destinations such as Santorini in Greece, Venice in Italy and Dubrovnik in Croatia, but also hub ports, such as Civitavecchia and Barcelona, are challenged to cope with the strong growth of the past years.

The importance of ports of call Cruise ports come into three main categories depending of the role they serve within their regions: • Destination cruise port – There are several reasons why the cruise port area can be the sole destination. In the case of cities such as Venice and Barcelona, the cultural amenities offered are world class to the point that tourists will have little incentives to see anything else in the vicinity. Alternatively, in some cases

there may be safety and security issues outside the port area, which can be common in developing countries. • Gateway cruise port – Some cruise ports act as technical stops since they offer no significant cultural or physical amenities, but are used because they are servicing a major touristic destination. For instance, the port of Civitavecchia is the gateway to Rome, one of the most visited cities in the world. • Balanced cruise port – These represent an array of cruise ports where the port can be a destination, but excursions are also available. The balance between the gateway and destination functions varies according to what each port and its region has to offer. For most customers, a cruise involves two travel segments, the first being air travel to the hub port (with a return trip) and the second is the cruise itself. It is therefore important that the hub port is serviced by a well-connected airport, with significant airlift capacity and which represents in itself a touristic destination. This is the case for Miami, Fort Lauderdale and San Juan; these are respectively well connected airports and act as hub ports for Caribbean itineraries. Barcelona and Civitavecchia (near Rome) are major hub ports for the Mediterranean and are well serviced by air transportation. Poorly connected airports are commonly associated with higher airfares, which impair the competitiveness of the city for mass tourism. There are a number of customer benefits linked to having more cruise embarkation points available, such as drive to convenience (particularly felt in North America) and fewer airport hassles. More ‘close to home’ ports also increase the likelihood of cruising; the reason why cruise lines will call at ports along the American Gulf Coast and Eastern Seaboard, such as Tampa, Galveston, Baltimore and New Orleans, is to capture customers wishing to avoid the hassles of flying to a hub port. P o rt T e c h n o l o g y I n t e r n at i o n a l

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Live by the supply, perish by the supply? The cruise industry has emerged to become a significant niche to the global tourism industry. The selection of ports of call and itineraries are carefully pondered to maximize the commercial potential and utilization of the ship assets. Since the cruise industry appears fundamentally to be driven by supply, it is likely that supply saturation, as opposed to demand saturation, will constrain future developments and impose a maturity on an industry that has until now continued to grow rapidly. While large hub ports have the capacity to accommodate additional port calls, it is the smaller ‘exotic’ or ‘must see’ ports that cruisers are seeking to visit;

this presents challenges for additional capacity. Berth availability and the capacity of small communities to accommodate large tourist influxes of short duration have become salient issues. This is likely to incite the additional involvement of the cruise industry in terminal operations, a trend that has already taken place with the setting of private port or resort areas. An emerging strategy involves the development of new cruise terminals co-located with service amenities, such as hotels, attractions, condominiums and shopping malls. While a further fragmentation of itineraries is likely to take place, a closer integration between the cruise port and cruise shipping industry is to be expected.

about the authors

Enquiries

D r. J e a n - P a u l R o d r i g u e i s

Dr. Theo Notteboom is president


professor at Hofstra University, New


York. His research interests mainly


Dept. of Global Studies and Geography – Hofstra University

cover the fields of economic and


Hempstead, New York

transport geography as they relate

part time professor at the Antwerp

to global freight distribution. Area of interests


include North America and East and Southeast



University in Sweden. He has published widely on


port and maritime economics. He is also president


of International Association of Maritime Economists


(IAME) and chairman of the Board of Directors of



development.



US Email: [email protected] Prof. Dr. Theo Notteboom ITMMA – University of Antwerp Kipdorp 59, 2000 Antwerp Belgium Email: [email protected]


GLOBAL ISSUES

The value of opening terminals to private operators Vicky Kaselimi and Dr. Theo Notteboom, Institute of Transport and Maritime Management, Antwerp (ITMMA), University of Antwerp, Antwerp, Belgium

The South African container terminal governance model Most ports around the world are governed following the landlord port authority scheme. Under this management model, terminal operations are awarded to private companies using long-term concession agreements that are signed between the (public) port authority and the private terminal operator. South African ports constitute an exception to this rule. All major ports in South Africa are owned and operated by state-owned Transnet, and its respective divisions such as the port authority Transnet National Port Author ity (TNPA) and ter minal operator Transnet Port Terminals (TPT). TPT is responsible for the cargo handling and logistics management solutions at the container terminals of the ports of Durban, Port Elizabeth, Ngqura and Cape Town. This governance model created a factual monopoly in the container terminal operating business in South Africa. TPT only faces competition from global terminal operators active in seaports located in neighboring countries such as Maputo (Mozambique), Walvis Bay (Namibia) and the ports or the islands of Mauritius and Madagascar. Still, both competition in the market and competition for the South African gateway cargo market remain limited. Opening up container terminal operations in one or more terminals in South Africa to outside terminal operators could change competitive dynamics in the region.

The use of game theory for the study of South African port competition Game theory offers insights into the possible effects of the mobilization of private capital and management skills in South African ports. We use a game theory model to examine the

implications for the stakeholders of a possible decision by Transnet to open up the container terminal business to outside operators. A non-cooperative model was developed to compare the current situation in South African ports with hypothetical scenarios of opening up one of the terminals to private business. A linear market area of unit length is assumed, with identical consumers evenly spread over this interval. We consider two ports in this simulation: if we imagine that TPT continues to operate terminals in Durban while one terminal of the Port Elizabeth/Ngqura cluster is opened up to private terminal operators following a form of landlord management system. The ports considered compete for inbound and outbound gateway cargo. The model presented in this study is based on the Cournot model of competition in the terminal handling industry (figure 1). Quantity competition is perceived as a choice of scale that determines the firm’s cost functions and thus determines the conditions of price competition. The competition that is expected to take place when one of the terminals is concessioned will be concentrated on the terminals. The competition modeled is inevitably between the four container terminals: two in Durban, one in Port Elizabeth and one in Ngqura. For simplification reasons, we model the ports Elizabeth and Ngqura as one. Apart from the fact that these two ports organizationally belong to the same authority, they are also in close physical proximity of around 19 kilometers. The analysis is based on the examination of the changes in the direction of the values (increase/decrease) of the policy choice variables rather than the absolute values.

Opening up the South African terminal business The competition that is supposed to take place after Transnet

Hotelling Competition

Durban Port

Tr. Cpst tx

x

Tr. Cpst t (1-x)

Port [Elizabeth+Ngqura]

Uniformly distributed users of ports

Pier 1

Pier 1

P.A.

Cournot Competition

Elizabeth Ngqura

Concessioned

Figure 1: The linear city model under the Cournot model of competition adjusted to the South African ports case study.



GLOBAL ISSUES

opening up the container ter minal handling operations to private interests is expected to bring new balances in the port business in the South African region. Although the game is a simplification of reality with a number of assumptions, it manages to grasp the vital components that need to be taken into account by Transnet. The pay-offs for Transnet can be translated into profits but also into other rewards that might follow the decision of concessioning one terminal. Besides, Transnet is a public entity and is not expected to have profit maximization as the first and only objective. The results of the model show that it is in Transnet’s best interest to open up the terminal business to outsiders. In doing so, Transnet’s profits increase considerably in both ports even though now it operates three rather than four terminals. The increase in operational efficiency stemming from imminent port competition seems to outweigh the fact that TPT will operate one terminal less. In addition, terminal and thus port efficiency, interpreted as a function of capacity, increases in the port of Ngqura. This will have a positive impact not only on the port but also on its users who will have the chance to enjoy better quality services. Positive impacts are also expected on the distr ibutional channels and corridors, especially the ones connected to the port of Ngqura. Eventually all of this should invoke a boost in the economy of the area surrounding the ports and their hinterland which is one of the intentions and goals of the authorities of the region. The private terminal operator of Ngqura is also expected to have an advantage from the new setting. The model results show it would have high profits, especially when compared to the profits of Transnet from operating two terminals. The model investigates the port system of the South African region by focusing on the operating conditions and the imminent competition of the container ports of this area. However, the South African port system faces competition from neighboring ports. This research could be further refined in the future by expanding the model in order to capture competition faced from ports outside South Africa.

ABOUT THE AUTHOR Ms. Evangelia (Vicky) Kaselimi is a research fellow at University of Antwerp. She is currently completing Ph.D. research on port and terminal competition. Ms. Kaselimi is also a civil servant at the General Secretariat of Ports and Port Policy, Hellenic Ministry of Maritime Affairs, Islands and Fisheries. Her scientific interests include port economics and policy, port and terminal competition with application of game theory and statistical analysis. Ms. Kaselimi is a member of PortEconomics.eu, a web-based initiative aiming to advance knowledge exchange on port economics, management and policies. Dr. Theo Notteboom is President of ITMMA (an institute of the University of Antwerp), professor at the University of Antwerp, a part-time professor at the Antwerp Maritime Academy and a visiting professor at Dalian Maritime University in China and World Maritime University in Sweden. He published widely on port and maritime economics. He is also President of International Association of Maritime Economists (IAME), Chairman of the Board of Directors of Belgian Institute of Transport Organizers (BITO) and co-director of PortEconomics.eu.

ENQUIRIES Evangelia (Vicky) Kaselimi Institute of Transport Maritime Management Antwerp (ITMMA) University of Antwerp Kipdorp 59, 2000, Antwerp, Belgium Tel.: +32 (0) 3 265 51 55 Fax: +32 (0) 3 265 51 50 Email: [email protected] Website: www.itmma.ua.ac.be and www.porteconomics.eu Theo Notteboom Institute of Transport Maritime Management Antwerp (ITMMA) University of Antwerp Kipdorp 59, 2000, Antwerp, Belgium Tel.: +32 (0) 3 265 51 52 Fax: +32 (0) 3 265 51 50 Email: [email protected] Website: www.itmma.ua.ac.be and www.porteconomics.eu


2

CONTAINER HANDLING

North American maritime gateways logistics Dr Jean-Paul Rodrigue, Hofstra University, New York, USA, & Dr Theo Notteboom, Institute of Transport and Maritime Management Antwerp (ITMMA), University of Antwerp, Antwerp, Belgium.

North American gateways in the age of globalization Gateways play a strategic role in connecting, organizing and managing freight flows between regional markets and therefore impacting upon the global economy. Rail and highway systems have long been the main support for the North American freight distribution market. This conventional system has now been expanded by the North American Free Trade Agreement (NAFTA), as well as by the globalization of production. This has created an environment where the transport sector is coping to adapt to higher volumes, particularly at major gateways, as well as adhering to more stringent requirements in terms of frequency and reliability of these expanded supply chains. Parallel to this growth; the need to reconcile spatially diverse demands for raw materials, parts and finished goods has placed additional pressures on the function of North American freight distribution and logistics. In the current context, North American maritime gateways are facing several challenges. They are coping with acute trade imbalances resulting in very different freight flows between imports and exports, which are impacting terminal operations and inland logistics. This is associated with a prevalence of transloading where the contents of maritime containers (typically 40 foot) are transloaded into 53 foot domestic containers; a characteristic unique to North American gateway logistics. North American gateways are confronted with largely deregulated freight markets (eg. the Staggers Rail Act of 1980), although pockets of restrictions remain, such as the Jones Act, which imposes strict conditions on coastal shipping between US ports.

Trade synchronisms: China in the balance The emergence of trans-Pacific trade and China in the global manufacturing market had profound impacts in terms of the volume and pricing of a wide variety of goods. During that period, China mostly focused on the lower range of the added-value manufacturing process in addition to having low labor costs. The usage of China as a privileged location in the global manufacturing system has thus been linked with low input costs (mainly labor) as well as low long distance transport costs brought by containerization. The longer distances of shipping freight from China were positively compensated by lower input costs, as well as the setting of massive economies of scale in maritime shipping through larger container ships. This explains why integration processes in North America, namely the use of Mexico as a low cost manufacturing base, were mainly bypassed in the last decade. Also bypassed was the setting of regional North American supply chains in light of the dominance and efficiency of global supply chains. However, the comparative advantages of China are starting to become eroded in part because of inflationary pressures in input costs, such as labor, as well as higher energy prices and environmental pressures. North American supply chains may be positively impacted by such a trend which will put a greater emphasis on NAFTA as a comparative advantage structure. Changes in the structure and direction of freight flows in North America are to be expected with a higher level of regional orientation. American containerized trade is characterized by an asymmetry between the nature of its imports and exports. North American retailers account for a substantial share of containerized imports, mostly involving finished consumption goods bound to major

Figure 1: American Foreign Trade by maritime containers, 2010 (in Twenty-foot Equivalent Units (TEUs) sourced from the Journal of Commerce.



CONTAINER HANDLING

inland freight distribution centers. The largest importers, such as Wal-Mart, Home Depot, Target, Sears, Costco, Ikea and Lowe's, are all mass (Big Box) retailers relying on high volume and low margin goods, which are dominantly produced in China. Exporters show a completely different profile. A major category of containerized exports concerns recycles with exporters such as America Chung Nam, Potential Industries or CedarwoodYoung. Other major exporters include diversified resource-based (Koch Industries) forest and paper products (e.g. Weyerhaeuser, International Paper), agribusiness (e.g. Cargill, Archer Daniels Midland) or chemicals (e.g. Dow, DuPont). Yet, a significant containerized trade imbalance remains. For the major transPacific and trans-Atlantic trade routes, while in 2010 17.1 million TEUs were imported in the United States, only 11.4 million TEUs of laden containers were exported. Thus, about 5.7 million TEUs needed to be repositioned empty. Trade asymmetry has significant impacts on North American inland logistics. The import-driven segment involves a series of stages to reach a multitude of outlets with a freight density correlated with population density. Since the retail trade is essentially unidirectional, a great deal of retail goods are transloaded at gateways into domestic containers while the maritime International organization for Standardisation (ISO) containers are re-exported empty. The export-driven segment relies on the massification of shipments at major gateways and inland ports. Since many resources (chemicals, forest products, food) are extracted inland at locations that rarely correspond to significant population centers, the reconciliation of containerized import and export logistics is a challenging task. While millions of TEUs will leave American ports empty, many inland locations are facing container shortages.

North American box logistics: transloading and stuffing In North America, longer distances and the availability of a load unit greater than the standard 40 foot maritime container, has favored an active transloading function in distribution centers at gateways. The equivalent of three 40-foot maritime containers can be transloaded into two domestic 53 footers, which is the largest inland load unit in North America. After being transloaded, maritime containers can be brought back to the port terminal and the maritime shipping network. Rail terminals charge by the number of lifts, which means it costs the same to handle a 40 foot or a 53 foot container. The additional costs incurred by transloading are compensated by a consolidation of inland load units with the outcome of anchoring an added value function at gateways, which can be in the range of 30 percent compared with the option of moving maritime containers inland. Transloading enables a more efficient use of both container assets (international and domestic) and can facilitate international trade by freeing transport capacity. For instance, moving maritime containers over long distances in the North American transport system can be considered a suboptimal usage of transport equipment, particularly from the perspective of maritime shipping companies. Conversely, the global maritime shipping industry is mainly designed to handle 40 foot containers and cannot accommodate domestic containers. However, a large amount of transloading for inbound shipments may reduce the availability of maritime containers available for export at inland locations. This is a salient problem for the export of containerized commodities.

Container terminal operations in gateway ports According to figures from the American Association of Port Authorities (AAPA), the North American container port system

(US and Canada) handled about 45 million TEUs in 2011, just below the record volume of 46 million TEUs in 2007. The San Pedro Bay ports of Long Beach and Los Angeles together handled about 14 million TEUs in 2011. Other major cargo centers include the port of New York/New Jersey which reached 5.5 million TEUs in 2011 and the northwestern seaport cluster (Seattle, Tacoma and Vancouver) representing some 6 million TEUs. In contrast to Asia, Europe or the Caribbean, North America does not count any transshipment hubs (transshipment incidence of only 5.8 percent), in spite of expectations from some ports to capture this role. The transshipment function takes place in a few offshore hub terminals along the Caribbean (Freeport, Bahamas or Kingston, Jamaica for instance) well positioned to act as intermediary locations between major shipping routes (Asia-Europe, Europe-Latin America) and offering lower costs. The expansion of the Panama Canal by 2014 may trigger more transshipment activities in the Caribbean (see our Panama Canal contribution in issue 51 of Port Technology International). The dominance of inbound logistics imposes a focus on the availability of import containers and gate operations. The specific nature of the container flows in North America had an impact on the terminal operating industry. Hence, the US West Coast has quite an extensive penetration of shipping line terminal operators, mostly Japanese and Korean. The involvement of Asian shipping lines in the North American container terminal industry is strongly entwined with the first wave of Asian exportoriented strategies with Japanese and Korean interests able to secure terminal assets in the 1980s and 1990s. In spite of their importance, Chinese carriers are less represented as there were few assets left to be acquired or developed with the exportoriented strategy of China came in full force in the late 1990s. The diffusion of slow steaming (ships reducing their average cruising speed from the 23-25 knots to 18-19 knots) as a prevalent practice for containerized maritime shipping will tie up a greater quantity of containers in transit and incite transloading at gateways. Containers (the majority owned by shipping companies) are thus kept within maritime circuits.

Inland Logistics The North American freight distribution system conveys several opportunities to extract added value from distribution efficiencies. One notable form is cross-docking where a distribution center essentially acts as a high throughput sorting facility where inbound shipments are reconciled with various outbound demands. Big box stores are heavy users of this form of sorting of inbound freight flows to a multitude of large stores. For instance, the world’s biggest retailer, Wal-Mart, delivers about 85 percent of its merchandise using a cross-docking system. This structure takes advantage of the massification of shipment along long distance rail corridors: a decomposition of shipments at a regional warehouse /cross-docking facility services an array of stores with daily trucking services. North American inland logistics are also increasingly influenced by the setting of large inland logistics facilities, notably inland ports where a logistics zone is co-located with an intermodal terminal facility. Infrastructure investments tend to reinforce the existing efficiency of the inland transport system where long distance is dominated by rail and where limited, if any, inland barge services are possible. As additional economies of scale are achieved inland, a rebalancing between gateway and inland logistics is expected to take place conveying a greater share of added value for inland facilities. The new heartland corridor linking the terminals of Norfolk to the Chicago hub is a salient example. The benefits of double-stacking are expanded with double (or triple) tracking and the setting of inland load centers servicing their respective market areas. This also permitted the P o rt T e c h n o l o g y I n t e r n at i o n a l

2

CONTAINER HANDLING

setting of large scale intermodal rail terminals because such economies of scale were feasible. Thus, North American inland terminals tend to service large market areas.

about the aUTHOR Dr. Jean-Paul Rodrigue is a professor at Hofstra University, New York. His research interests mainly cover the fields of economic and transport geography as they relate to global freight

Moving towards a new port system geography? From a historical perspective, the geography of North America has led to route specialization among gateways. The bulk of Asian cargo flows is handled in the West Coast ports, in particular Long Beach and Los Angeles, but the use of the all-water route through the Panama Canal has accounted for a growing share in recent years. Caribbean cargo finds its way in North America via the container ports in Florida and Georgia (Miami, Savannah). Liner shipping services between Europe and North America are primarily calling at ports north of Hampton Roads. The construction of a new lock system in the Panama Canal, which would allow vessels of up to 12,500 TEUs, is expected to lower this geographical specialization. There are few new ports in North America with the exception of Prince Rupert, British Columbia, exploiting a niche market of shorter trans-Pacific distances and long distance rail access to the Chicago hub, and the Mexican Pacific coast that has seen the setting of new terminal facilities such as in Lazaro Cardenas. APM Terminals recently secured a 32-year concession contract for the designing, financing, construction, operation and maintenance of a new container terminal at the latter port. Several ports have expansion projects that may capture a greater share of the traffic (eg. Mobile, Jacksonville, Norfolk), but it remains to be seen to what extent these additional capacities will be used in freight distribution.


distribution. Area interests involve North America and East and Southeast Asia, particularly China. Specific topics which he has published extensively about cover maritime transport systems and logistics, global supply chains and production networks, gateways and transport corridors, international trade and regional development. Dr. Theo Notteboom is president of the Institute of Transport and Maritime Management Antwerp (ITMMA), professor at the University of Antwerp, a part-time professor at the Antwerp Maritime Academy and a visiting professor at Dalian Maritime University in China and World Maritime University in Sweden. He is published widely on port and maritime economics. He is also President of International Association of Maritime Economists (IAME) and Chairman of the Board of Directors of Belgian Institute of Transport Organizers (BITO), an institute of the Belgian Federal Government.

ENQUIRIES Prof. Dr. Theo Notteboom ITMMA – University of Antwerp Kipdorp 59, 2000 Antwerp (Belgium) Email: [email protected] Dr. Jean-Paul Rodrigue Dept. of Global Studies & Geography - Hofstra University Hempstead, New York (United States) Email: [email protected]


GLOBAL ISSUES

The Quality of Port Infrastructure ranking: Some insights Peter de Langen, Eindhoven University of Technology, Eindhoven, The Netherlands, Theo Notteboom, University of Antwerp, Antwerp, Belgium, Thanos Pallis, University of the Aegean, Chios, Greece There is something about rankings. In sports, and increasingly in business, rankings abound. We have rankings of the best places to live, the most knowledge intensive regions of the world and the most competitive economies. In the latter case, countries are compared across economic performance criteria. One of the most influential is the Global Competitiveness Index (GCI) of the World Economic Forum (WEF). The 2012-2013 WEF ranking appeared last September. Switzerland is on top, moving ahead of Singapore. The WEF ranking consists of over 100 ranked items, classified in 12 pillars. For each pillar, some rankings are survey based, while others are based on actual data. Through the provision of cost-efficient, reliable and frequent connections to overseas and inland markets seaports play an essential role in facilitating trade and in increasing the competitiveness of a nation or region. It is no surprise that Pillar 2 of the GCI dealing with infrastructure includes a component on the ‘Quality of Port Infrastructure’. This component is based on survey results where business leaders assess the competitiveness of economies. Like most other rankings in business, the ranking methodology is not perfect. For one, the ranking is based on perceptions of business leaders, which may not always be accurate. In academia, scholars are well aware that ‘stated preferences’ (based on perceptions and ‘what if ’ situations) and ‘revealed preferences’ (based on actual economic behaviour) do not always point to the same direction. Next, the business leaders rank a variety of indicators, so they rank the quality of port infrastructure probably more in relation to other variables, as compared to other countries. Third, cultural differences are likely to affect results. In some cultures more outspoken and straightforward scores are given, while respondents in other cultures are less inclined to score really high or low. This is relevant as the highest-ranking countries, The Netherlands and Singapore, score a 6.8 on a maximum of 7. These disclaimers apply, but still, most industry observers would not be too surprised to find these two countries at the top of the rankings. Moving from a 4.5 to a 4.6 may not be a reason to uncork the bottles, but the big picture is probably correct. Therefore, we think it is worth discussing some important findings from these rankings.

Huge differences between the BRIC countries First of all, the BRIC countries, whose economic performance is crucial for global economic growth, overall do not score high, with substantial differences between them. Brazil ranks 127th of 141, with a score of just 2.7. Furthermore, the country’s score has gone down in the last decade. This is a huge issue as Brazil has a vast potential for increased exports as well as imports. Important improvements in the port sector are required to enable this, both at the level of infrastructure provision, port operations and unfolding port governance reform processes. Russia is somewhat better off with a score of 3.7, India even a bit better (4.0), whereas China scores a 4.4. Especially this last result is intriguing: even though China has the largest ports in the world and advances substantial investments in port infrastructure, its ranking is average. This may hint at institutional and procedural bottlenecks. 1 P o rt T e c h n o l o g y I n t e r n at i o n a l

Overall, these results suggest a huge unlocked potential for international trade. This applies to the BRIC, but also to the ‘next eleven’ - Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, Philippines, Turkey, South Korea and Vietnam - that were identified by Goldman Sachs as large countries with huge growth potential.

The performance of the only fully private port sector (the UK) is improving Next, it is interesting to look at the performance of the UK, the only country with a fully private port industry. The UK scores a 5.8, good enough to reach the 13th position. In the last five years, the UK’s score has gone up year by year. So even though some observers have voiced concerns over the lack of public control over a vital sector, this WEF ranking suggests the UK ports industry is performing well without the public funding that goes into the industry in many other countries.

France’s port reform has not (yet) had an effect It may be too early to expect results, but France’s score, after the port reform that was finalised in 2011, suggests that the effects are still to come. After scores around 6 in the period 2004-2010, France is now down to 5.4. This may be due to the labour unrest (in 2010 and 2011) that negatively impacted the image of French ports (in particular Marseille). It will be interesting to see how business leaders rank France’s port system in the coming years. Indeed, there seems to be a considerable time lag between a port reform process and an improved score in the WEF ranking: Ireland pursued port reform in the late 1990s but only started to score better since 2007.

Germany seems to slide down Germany may be a case in point to suggest that a high quality port infrastructure needs to be nurtured. Germany ranked 4th in 2007, with a score of 6.6, but has since been sliding down to 6.0, and the 10th place. The score is certainly still good, but does seem to suggest that the quality of the port infrastructure is less considered as of global benchmark quality . Perhaps the investments in Wilhemshafen and the associated port competition dynamics will turn this trend around.

Some island economies have potential to improve Even the landlocked countries receive a score that may be related to intermodal infrastructure, as well as the quality of ports in neighbouring countries. Switzerland is the highest ranking landlocked country (5.2), landlocked Kyrgyzstan has the lowest score of all countries (1.5). Ports are certainly also important for these countries, but especially important for island economies. Most countries actually trade more overland than by sea. For instance, the US trades more (in value terms) overland with www.porttechnology.org

GLOBAL ISSUES

WEF - Quality of port infrastructure (selected countries)

about the authors

8

Prof. Dr. Peter de Langen works at Port of Rotterdam Authority, department Corporate Strategy, as senior advisor and is

7

involved in various strategy projects both in Rotterdam and for 6

the international activities of Port of Rotterdam Authority. He

5

& Logistics, at Eindhoven University of Technology. He published >30 articles

also holds a part-time position as professor Cargo Transport in academic journals and various books on such issues as port selection, port policy, and international transport & logistics chains. He is the chairman of the

4

Innovation Advisory Council of the Dutch Inland Shipping Innovation Center and co-director of the PortEconomics initiative.

3

Dr. Thanos Pallis is Jean Monnet Professor in European Port

2 20012002

20022003

Netherlands Singapore Germany United Kingdom

20032004

20042005

20052006

20062007

20072008

20082009

20092010

20102011

20112012

Policy at the Department of Shipping, Trade and Transport,

20122013

University of the Aegean, Greece, Adjunct professor at Dalhousie

brazil china india

University, Canada and lectures at the University of Antwerp, Belgium. A regular contributor to OECD, UNCTAD, IAPH, AIVP

WEF - Quality of port infrastructure (selected countries)

and ESPO discussions on ports, Thanos has served the General Secretary for Ports & Port Policy, Ministry of Development, Competitiveness and Shipping, Greece and was Fulbright scholar at the Centre for Energy, Marine Transportation and

Mexico and Canada than overseas. Island countries are fully dependent on efficient and effective ports for trade – in volume, airfreight is only a fraction of maritime trade. In that perspective, one would have expected that more islands would obtain a higher position in the rankings. Iceland is the first (6.2), followed by the UK. But even somewhat below the OECD average we find large islands or island groups such as New Zealand (5.5.), Japan (5.2) and Australia (5.1). These scores perhaps should be a reason for rethinking regulations and public policies regarding seaports. Hence, island nations typically encounter a range of challenges in dealing with their respective and often elaborate port systems, such as the lack of competition due to the existence of captive hinterlands for local ports and the pros and cons of introducing one or more hub ports serving the entire port system. The state and overall ranking of port infrastructure indicates the extent that the port system of any given country stands as a facilitator for international trade and an enabler for seaborne trade accommodation. Even though it is understandable that WEF only devotes one item to ports, there is more to say about ports than their quality of infrastructure. More detailed port user satisfaction can certainly provide additional insights. A more complete full picture will be accessible when the WEF ranking will be accompanied by the measurement of how users evaluate the port services, in particular those attributes that are most important to them. Efforts are underway to develop more comprehensive port user satisfaction surveys, but none have yet reached the global scale. More detailed rankings certainly have merits. They allow decisionmakers—whether governments, port authorities, or service providers—and ports to fine tune operations to match customers’ expectations. They also enhance competition by allocating resources to where they will have the greatest impact.

Public Policy, Columbia University, New York. He is the author of several port studies, including the book European Port Policy: The search for a long-term strategy, and co-director of the PortEconomics web-initiative Dr. Theo Notteboom is president of ITMMA (an institute of the University of Antwerp), professor at the University of Antwerp, a part-time professor at the Antwerp Maritime Academy and a visiting professor at Dalian Maritime University in China, World Maritime University in Sweden and Nanyang Technological University in Singapore. He published widely on port and maritime economics. He is also President of International Association of Maritime Economists (IAME), Chairman of the Board of Directors of Belgian Institute of Transport Organizers (BITO), an institute of the Belgian Federal Government, and co-director of the PortEconomics initiative.

ENQUIRIES Dr. Peter de Langen Department of Industrial Engineering and Innovation Science Eindhoven University of Technology E-mail: [email protected] Prof. Dr. Thanos Pallis Department of Shipping, Trade and Transport University of the Aegean, 2 Korai St. Chios 82100, Greece [email protected] Prof. Dr. Theo Notteboom ITMMA – University of Antwerp Kipdorp 59, 2000 Antwerp (Belgium) [email protected]

All in all, there is enough in this Quality of Port Infrastructure indicator to make it relevant. So for those that can handle another ranking: mark your agendas for next year. The next edition of the Global Competitiveness Report will be out in September 2013. about the company PortEconomics is a web-based initiative aiming at generating and disseminating knowledge about seaports (www.porteconomics.eu ). It is developed and empowered by the members of the PortEconomics group, who are actively involved in academic and contract research in port economics, management, and policy. Since October 2012, Port Technology International and PortEconomics are engaged in a partnership.


2

GLOBAL ISSUES

Recent traffic dynamics in the European container port system Professor Theo Notteboom, ITMMA, University of Antwerp, Antwerp, Belgium

Recovering from 2009 drop but with regional differences With a total maritime container throughput of an estimated 95.2 million twenty-foot equivalent units (TEU) in 2012, the European container port system ranks among the busiest container port systems in the world. Growth has been particularly strong in the period from 2005 to 2007 with an average annual growth rate of 10.5 percent, compared to 6.8 percent in the period from 1985 to 1995, 8.9 percent in 1995 to 2000 and 7.7 percent in 2000 to 2005. The economic crisis which started to have its full effect in late 2008 brought an end to the steep growth curve. Total container throughput increased from 90.7 million TEU in 2008 to 95.2 million TEU in 2012 or an average annual growth of only 1.26 percent. The year 2009 is at the root of this slow pace given a year on year drop in container volumes of about 14 percent in 2009. Between 2009 and 2012 traffic volumes have recovered at a rate of 6.87 percent each year. The container ports in the Hamburg-Le Havre range (which includes all ports along the coastline between Le Havre in France and Hamburg in Germany) handle about half of the total European container throughput (see figure 1). The share of the Mediterranean ports grew significantly between the late 1980s and the late 1990s at the expense of the ports in the Hamburg-Le Havre range. The significant improvement of the share of the Mediterranean was mainly the result of the insertion of transhipment hubs in the region since the mid-1990s (Gioia Tauro, Marsaxlokk, Cagliari, Taranto to new but a few). At the start of the new millennium, the position of the northern range gradually improved while the Mediterranean ports and the UK port system lost ground. The crisis seems to have stopped this trend as from 2009 the traffic balance between the Mediterranean and the Hamburg-Le Havre range remained quite stable. However, the position of the UK ports (southeast and south coast only) continued to weaken. The Baltic port region has clearly strengthened its traffic position in the past few years. The strong 1 P o rt T e c h n o l o g y I n t e r n at i o n a l

60% 55%

Share in total container throughput

50% Hamburg-Le Havre range

45%

Mediterranean range

40%

UK range

35%

Atlantic range Baltic

30%

Black Sea

25% 20% 15% 10%

2012

2011

2009

2010

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

1989

1988

1987

0%

1986

5%

1985

European container ports find themselves embedded in everchanging economic and logistics systems. The European container port system cannot be considered as a homogenous set of ports. It features established large ports as well as a whole series of medium-sized to smaller ports each with specific characteristics in terms of transhipment incidence, the hinterland markets served and the location qualities. This unique blend of different container port types and sizes combined with a vast economic hinterland shapes port competition in the region. This contribution discusses recent developments in the European container port system. We are particularly interested in the impact of the crisis on the port hierarchy in Europe. Are new container ports and port regions emerging as challengers of established ports and regions? Are some port regions in Europe gradually losing their significance? How is the balance between north and south evolving? How are new large-scale terminal capacity expansions affecting the competitive balance in the European container port system?

Figure Traffic shares of port rangesranges in the European container container port system.port system Figure1: 1: Traffic shares of port in the European Individual port rankings: few changes at the top Table 1 provides an overview of the 15 largest container ports in the European Union. SaintPetersburg, path which handled 2.52 millionports TEU in in 2012the and has witnessed in the past growth of European Black Seastrong areagrowth (Romania few years is not included in the ranking. A number of the listed ports act as almost pure and Bulgaria) suddenly stopped in crisis year 2009. transhipment hubs with a transhipment incidence of 75 per cent or more (ie. Gioia Tauro, Marsaxlokk, Algeciras) while other load centres can be considered as almost pure gateways (e.g. Genoa and Barcelona to name a couple) or a combination of a dominant gateway function with sea to sea transhipment activities (eg. Hamburg, Rotterdam, Le Havre, Antwerp). About 68 per cent of the total container throughput in the European port system passes through the top 15 ports, compared to 61 per cent in 1985. Since 2008 no major shifts have taken place in the traffic shares of the top three, top 10 and top 15 ports, although the top three ports have lost some ground. Nearly one third an of alloverview containers areof handled top threecontainer ports. Worth mentioning Table 1 provides the by 15thelargest ports inis that the dominance of market leader Rotterdam weakened in the late 1990s, but in the past decade the European Union. handled 2.52 high million the port’s position has remainedSaint-Petersburg, quite stable. Overall, thewhich figures suggest a continued concentration of cargo in only dozen large container While in the the crisis past has not significantly TEU in 2012 and hasawitnessed strongports. growth few years the rankings, a number of ports lost some position while others gained. For example, the isaltered not included in the ranking. A number of the listed ports act as Belgian port of Zeebrugge initially overcame the crisis very well by climbing to the ninth position inpure 2010 but afterwards bookedhubs traffic losses the seaport backincidence to position 13. of The almost transhipment withpushing a transhipment Greek port of Piraeus showed the most volatile traffic evolution. Piraeus’ volume peaked at 1.6 75 percent or more (ie.andGioia Tauro, Marsaxlokk, Algeciras) million TEU in 2003, but strikes unrest led to a throughput of only 433,000 TEU in while 2008. In 2010, theload container port started remarkable recovery as pathalmost partly pushed the arrival of (e.g. Cosco other centres cana be considered pureby gateways Pacific as operator of the ‘Pier 2’ facility. Piraeus reappeared in the top 15 ranking in 2011 and Genoa and Barcelona to name a couple) or a combination of a last year held position eight with a total volume of 2.7 million TEU.

Individual port rankings: few changes at the top

dominant gateway function with sea to sea transhipment activities (eg. Hamburg, Rotterdam, Le Havre, Antwerp). About 68 percent of the total container throughput in the European port system passes through the top 15 ports, compared to 61 percent in 1985. Since 2008 no major shifts have taken place in the traffic shares of the top three, top 10 and top 15 ports, although the top three ports have lost some ground. Nearly one third of all containers are handled by the top three ports. Worth mentioning is that the dominance of market leader Rotterdam weakened in the late 1990s, but in the past decade the port’s position has remained quite stable. Overall, the figures suggest a continued high concentration of cargo in only a dozen large container ports. While the crisis has not significantly altered the rankings, a number of ports lost some position while others gained. For example, the Belgian port of Zeebrugge initially overcame the crisis very well by climbing to the ninth position in 2010 but afterwards booked traffic losses pushing the seaport back to position 13. The Greek port of Piraeus showed the most volatile traffic evolution. Piraeus’ volume peaked at 1.6 million TEU in 2003, but strikes and unrest led to a throughput of only 433,000 TEU in 2008. In 2010, the container port started a remarkable recovery path partly pushed by the arrival of Cosco Pacific as operator of the ‘Pier 2’ facility. Piraeus reappeared in the top 15 ranking in 2011 and last year held position eight with a total volume of 2.7 million TEU. www.porttechnology.org

GLOBAL ISSUES

1995 4787 2890 2329 1924 1518 1155 970 965 689 683 672 615 600 528 515 20841

Rotterdam Hamburg Antwerp Felixstowe Bremen Algeciras Le Havre La spezia Barcelona Southampton Valencia Genoa Piraeus Zeebrugge Marsaxlokk TOP 15

Rotterdam Hamburg Antwerp Felixstowe Bremen Gioia Tauro Algeciras Genoa Le Havre Barcelona Valencia Piraeus Southampton Marsaxlokk Zeebrugge TOP 15

2000 6275 4248 4082 2793 2752 2653 2009 1501 1465 1388 1310 1161 1064 1033 965 34698

2005 9287 8088 6488 3736 3161 2937 2700 2287 2100 2096 1625 1450 1408 1395 1309 50067

Rotterdam Hamburg Antwerp Bremen Gioia Tauro Algeciras Felixstowe Le Havre Valencia Barcelona Genoa Piraeus Marsaxlokk Southampton Zeebrugge TOP 15

2008 2009 Rotterdam 10784 Rotterdam 9743 Hamburg 9737 Antwerp 7310 Antwerp 8664 Hamburg 7008 Bremen 5448 Bremen 4565 Valencia 3597 Valencia 3654 Gioia Tauro 3468 Algeciras 3043 Algeciras 3324 Felixstowe (*) 3021 Felixstowe (*) 3200 Gioia Tauro 2857 Barcelona 2569 Marsaxlokk 2330 Le Havre 2502 Zeebrugge 2328 Marsaxlokk 2337 Le Havre 2234 Zeebrugge 2210 Barcelona 1801 Genoa 1767 Southampton (*) 1600 1534 Southampton (*) 1710 Genoa Constanza 1380 La spezia 1046 TOP 15 62697 TOP 15 54072

Rotterdam Antwerp Hamburg Bremen Valencia Felixstowe Gioia Tauro Algeciras Zeebrugge Marsaxlokk Le Havre Barcelona Genoa Southampton La spezia TOP 15

2010 11147 8468 7896 4888 4207 3415 2851 2807 2499 2370 2358 1931 1759 1566 1285 59447

Rotterdam Hamburg Antwerp Bremen Valencia Algeciras Felixstowe Marsaxlokk Gioia Tauro Le Havre Zeebrugge Barcelona Genoa Piraeus Southamption TOP 15

2011 11877 9014 8664 5915 4327 3603 3249 2360 2338 2215 2207 2014 1847 1680 1588 62898

Rotterdam Hamburg Antwerp Bremen Valencia Algeciras Felixstowe (*) Piraeus Gioia Tauro Marsaxlokk Le Havre Genoa Zeebrugge Barcelona Southamption (*) TOP 15

2012 11900 8864 8635 6115 4470 4071 3200 2734 2721 2540 2304 2065 1953 1750 1600 64922

TOTAL Europe

17172 TOTAL Europe

33280 TOTAL Europe 51000 TOTAL Europe

73729 TOTAL Europe

90710 TOTAL Europe

78011 TOTAL Europe

86485 TOTAL Europe

92677 TOTAL Europe (est.)

95220

Share R'dam Share top 3 Share top 10

15.5% Share R'dam 29.4% Share top 3 52.6% Share top 10








12.5% 30.9% 58.0%

Share top 15

60.9% Share top 15

62.6% Share top 15

68.0% Share top 15

67.9% Share top 15

69.1% Share top 15

69.3% Share top 15

68.7% Share top 15

67.9% Share top 15

68.2%

R 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Source: author based on statistics individual port authorities

in 1000 TEU R 1985 2655 1 Rotterdam 1243 2 Antwerp 1159 3 Hamburg 986 4 Bremen 726 5 Felixstowe 566 6 Le Havre 488 7 Marseille 475 8 Leghorn 387 9 Tilbury 353 10 Barcelona 351 11 Algeciras 324 12 Genoa 305 13 Valencia 218 14 Zeebrugge 214 15 Southhampton TOP 15 10450

(*) Estimate

Table 1: The top 15 European container ports (1985-2009, in 1000 TEU)

Table 1: The top 15 European container ports (1985-2009, in 1000 TEU). Multi‐port gateway regions (% in European TEU traffic) Source: author based on statistics individual port authorities. 2008 2012 1. Rhine-Scheldt Delta 2. Helgoland Bay 3. Seine Estuary 4. Portugese Range 5. Spanish Med range 6. Ligurian Range 7. North Adriatic 8. UK Southeast Coast 9. Gdansk Bay 10. Black Sea West 11. South Finland 12. Kattegat/The Sound All 12 m ulti-port gatew ay regions Stand-alone gatew ays West Med hubs

24.7% 16.8% 2.9% 1.4% 6.9% 4.5% 1.6% 7.4% 0.9% 1.7% 1.6% 1.9% 72.1% 8.6% 11.3%

24.1% 15.8% 2.6% 1.8% 6.7% 4.1% 1.9% 6.3% 1.7% 0.9% 1.3% 1.8% 69.0% 11.8% 10.7%

Gateway port Transhipment/interlining port

(transhipment incidence >75%) Looking at the position of seaport groups Gateway port also handling In this section we group seaports within the same gateway region together to form so-called substantial transhipment flows multi-port gateway regions. The locational relationship to nearby identical traffic hinterlands is Finland Multi‐port gateway region one of the criteria that can be used to cluster adjacent seaports. In cases where there is no Sweden Main stand‐alone gateways Norway coordination between the ports concerned, the hinterland is highly contestable as several Main shipping route neighbouring gateways are vying for the same cargo flows.Estonia The relevance of the multi-port gateway level is supported by the liner shipping networks asLatvia developed by shipping lines and the Russia communality in hinterland connectivity issues among ports of the same multi-port gateway Lithuania UK Den. region. Ireland 11

Bergen

Belfast

Oslo

Göteborg

(J) 8

(G)

(I)

(D) (B) (F) (C)

(E)

(K)

Lübeck

NL (A)

2

Poland Ukraine Czech Republic

France

Austria

Bordeaux Gijon

Marseille‐Fos Bilbao

Lisbon

Algeciras Malaga

Morocco

Romania

Livorno

Bosnia& Herz.

Varna

Serbia

Burgas

Bulgaria Mace. Thessaloniki

Alb. Naples

5

Constantza 10

Italy

Taranto

Turkey

Greece

Cagliari

Sevilla Cadiz

7

La Spezia

6

Hungary

Tarragona

Valencia

Sines

Ravenna

Barcelona

Spain

Portugal

Genoa Savona

Slovakia

Trieste Koper Croatia Rijeka

Venice

Santander

Leixoes

4

Belarus

Gdansk

9

Germany

Switz.

Vigo

Gdynia Szczecin

Hamburg

Rouen

Americas Ferrol

Klaipeda

3

Nantes‐St‐Nazaire

Riga

Belg.

Le Havre Brest

Ventspils

Helsingborg Malmö

(O) 1

(H)

Americas

St‐Petersburg

Tallinn

Copenhagen

Hull Liverpool

Stockholm

Aarhus

Teesport

Cork

(M)

Turku

12

Grangemouth

Dublin

(L) (N)

Rauma

Piraeus Gioia Tauro

Main shipping route Algeria

Tunisia

Marsaxlokk

Cyprus

Middle East – Far East Malta

Figure 2: Multi-port gateway regionsgateway in the European containerin port system Figure 2: Multi-port regions the European

2013 ‐ T. Notteboom – ITMMA, University of Antwerp

(A) Antwerp (B) Zeebrugge (C) Ghent (D) Rotterdam (E) Amsterdam (F) Dunkirk (G) Southampton (H) Felixstowe (I) Thamesport (J)Tilbury (K) Bremerhaven (L) Kotka (M) Hamina (N) Helsinki (O) Wilhelmshaven

container port system.

Looking at the position of seaport groups

the broader port system, as they have less strong functional Figure 2 provides an overview of the main multi-portin gateway regions in Europe as well as In this section we group seaports within the same gateway interactions with adjacent ports than ports of the same multitranshipment hubs and stand-alone gateways. Stand-alone gateways areIn somewhat isolated in the region together to form so-called multi-port gateway regions. port gateway region. the next sections we will draw some system,toasnearby theyidentical have less strong functional interactions adjacentpositions ports than Thebroader locationalport relationship traffic hinterlands conclusions based onwith the changing of theports port regions is one of same the criteria that can be usedregion. to cluster adjacent between 2008 and 2012. of the multi-port gateway In the next sections we will draw some conclusions based seaports. In cases where there is no coordination between the on the changing positions of the port regions between 2008 and 2012. ports concerned, the hinterland is highly contestable as several Largest European container port region neighbouring gateways are vying for the same cargo flows. The with ample capacity Largest container withbyample relevance of European the multi-port gateway port level region is supported the capacity Theboth Rhine-Scheldt Delta and the Helgoland Bay ports, both liner shipping networks as developed by shipping lines and the The Rhine-Scheldt Delta and the Helgoland Bay ports, part of the Le Havre-Hamburg range, part of the Le Havre-Hamburg range, together represent some communality in hinterland connectivity issues among ports of the together represent some 40 per cent of the total European container throughput in 2012. The 40 percent of the total European container throughput in 2012. same multi-port gateway region. market share of Rhine-Scheldt Delta shows moderate fluctuations since 2008 withDelta 24.7shows per moderate The market share of the Rhine-Scheldt Figure 2 provides an the overview of the main multi-port gateway cent in in Europe 2008, 25.5 perascent in 2009,hubs 26 per in 2010, 25 persince cent2008 in 2011 andpercent 24.1 per cent 25.5 in percent fluctuations with 24.7 in 2008, regions as well transhipment andcent standin 2009, 26 percent in 2010, 25 percent in 2011 alone gateways. Stand-alone gateways are somewhat isolated 2012. The Rhine-Scheldt Delta port region has one of the largest terminal capacity reserves in and 24.1

Europe. The massive Deurganck dock in the port of Antwerp, which opened in 2005, provides ample room for traffic growth. The PSA terminal and the Antwerp PGateway o rt T e c hTerminal n o l o g y Iat n tthe e r ndock at i o n a l together handled less than two million TEU in 2012 while the design capacity of the dock amounts to some nine million TEU. A deepening programme of the river Scheldt was completed

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percent in 2012. The Rhine-Scheldt Delta port region has one of the largest terminal capacity reserves in Europe. The massive Deurganck dock in the port of Antwerp, which opened in 2005, provides ample room for traffic growth. The PSA terminal and the Antwerp Gateway Terminal at the dock together handled less than two million TEU in 2012 while the design capacity of the dock amounts to some nine million TEU. A deepening programme of the river Scheldt was completed a few years ago in view of guaranteeing access to the largest container vessels within an acceptable tidal window. The current Maasvlakte 2 developments in Rotterdam include the construction of two large scale container facilities, each with a capacity of between four and five million TEU: a terminal for APM terminals and the Rotterdam World Gateway which will be operated by a consortium led by DP World. The first phases of both terminals will come on stream in late 2013/early 2014. ECT, part of Hong Kong based Hutchison Port Holdings, has room for further capacity growth by extending the current 1.5 kilometre quay of its Euromax terminal. The terminal capacity in Zeebrugge includes PSA’s new and still unused Zeebrugge International Port (ZIP) facility and spare capacity at the APM Terminals facility in the outer harbour. The strong hinterland ambitions of the Rhine-Scheldt Delta ports are supported by a range of hinterland concepts and products such as a strong orientation on barge transport, a growing momentum for rail shuttles into the distant hinterland, ECT’s European Gateway Services network and similar efforts by DP World, and a dense network of inland terminals and European distribution zones in, or in the vicinity of, the ports. To secure growth in the future, the ports are actively targeting transhipment markets in the Baltic, the UK and southern Europe and hinterland areas in southern Germany, Italy, South France (Lyon area) and Eastern and Central Europe, next to a continued focus on their cargo rich core service areas (the Benelux, western Germany and northern France).

German ports recover after a dramatic 2009 The North-German ports in the Helgoland bay gained traffic share in Europe from 13 percent in the late 1990s to 16.8 percent in 2008. Bremerhaven’s volume surge and Hamburg’s pivotal role in feeder flows to the Baltic and rail-based flows to the developing economies in East and Central Europe were the main causes. However, sharp volume drops in 2009, ie. down 28 percent in Hamburg mainly due to a loss of transhipment flows to Rotterdam and down 16 percent in Bremerhaven, brought the traffic share below 15 percent. In the past three years their position recovered to 15.8 percent. The region welcomed newcomer Wilhelmshaven in 2012 when the Jadeweserport was opened for business. With a volume of about 24,000 TEU in 2012, the new large-scale terminal facility clearly has to make its mark. Short-term prospects to attract new business remain weak as shipping lines still massively opt for Hamburg and Bremerhaven. The deepening of the Elbe River is high on the agenda in Hamburg as the port is currently facing some restrictions to accommodate the largest container vessels.

‘Renaissance’ of the Seine Estuary The Seine Estuary, the third region in the Le Havre-Hamburg range, suffered from a gradual decline in its market share from 5.5 percent in 1989 to 2.9 percent in 2008. The ‘Port 2000’ terminals in Le Havre, a new hinterland strategy, the completed port reform process and the HAROPA initiative aimed at closer cooperation between Le Havre, Rouen and the inland port of Paris should support a ‘renaissance’ of Le Havre. These initiatives did not have their full effect in 2012 as the region’s share in European 3 P o rt T e c h n o l o g y I n t e r n at i o n a l

container traffic declined further to 2.6 percent. However, the year 2013 promises to reverse this trend as several shipping lines (such as MSC) and shippers have committed new volumes to this port area.

The Portuguese port system aims for hub status Portuguese ports Lisbon, Leixoes and Sines are trying very hard to expand business by developing a transhipment role as well as tapping into the Spanish market (particularly the Madrid area) through rail corridor formation and dry port development. After a long period of declining market shares, the Portuguese port system succeeded to lift its European share to 1.8 percent in 2012. The port of Sines recorded the strongest traffic growth mainly due to increasing volume commitments of MSC and a further extension of the PSA/MSC operated terminal facility. Sines more than doubled throughput since 2008 to reach 553,063 TEU in 2012. The three ports now have a rather similar cargo base of around 500,000 to 600,000 TEU.

Spanish Mediterranean ports show a diverging growth path Among the major winners before the crisis, we find the Spanish Mediterranean ports with a growth of the European share from 4 percent in 1993 to 6.9 percent in 2008. While the share remained rather stable the past few years, the growth path of the individual ports is quite different. Barcelona was hit hard by the crisis with a volume drop from 2.57 million TEU in 2008 to 1.8 million TEU in 2009. Container activities (particularly sea to sea transhipment) did not recover after 2009 and the Catalan port closed 2012 at 1.75 million TEU. At the other extreme, Valencia recorded a spectacular and consistent growth (also during 2009) from 3.6 million TEU in 2008 to 4.47 million TEU in 2012. MSC’s choice to use the port as a hub for the region boosted transhipment volumes and consolidated the port’s fifth position in the European ranking. While Tarragona remains a smaller player in the region, the port saw strong growth in 2008 when DP World and ZIM Lines took over the Contarsa terminal. Since then, throughput amounts to some 200,000 to 250,000 TEU.

Ligurian ports challenged to outgrow the Italian hinterland The Ligurian ports have difficulties in keeping up with other regions in Europe. The ports jointly represent some 4.5 percent of the total European port volume, a decline compared to six to seven percent throughout the 1980s and 1990s. The Ligurian ports rely heavily on the cargo rich economic centres in northern Italy. While they also aim at attracting business from the Alpine region, the southeast of France and southern Germany, success in these areas has been limited so far partly because of intense competition from northern ports supported by a strong multimodal offer in terms of rail and barge shuttles.

North Adriatic ports determined to become southern gateway to Europe Just like the Ligurian ports, the North-Adriatic ports have been facing lower than average growth rates. However, since the crisis year of 2009 the tide seems to have turned. The recent cooperation agreement of the North Adriatic Ports Association (NAPA) underlines the ambition of the region to develop a gateway function to Eastern and Central Europe and www.porttechnology.org

GLOBAL ISSUES

the Alpine region. The strategy should also enable the region to develop larger-scale container operations. The NAPA ports are determined to lure trade from northern ports via upgraded rail links and shorter transit times from Asia. For example, Trieste has a harbour that’s 18 metres deep and able to handle the largest container ships at full load. The Italian port offers shuttle train services to destinations in Germany, Austria, Hungary, Slovakia and the Czech Republic, and is targeting countries as distant as Poland, one of the main markets for Hamburg. Still the Adriatic ports are facing scale differences with the northern hub ports which affect the possibilities to develop a vast intermodal hinterland network. With only 1.8 million TEU in 2012 the Adriatic ports only handle a fraction of the volumes of the two leading multi-port gateway regions of the Hamburg-Le Havre range (ie. 22.9 million TEU in the Rhine-Scheldt Delta and 15.1 million TEU in northern Germany).

CONTAINER HANDLING

The UK's direct call versus feeder challenge The UK ports witnessed a rather significant decrease in market for a prolonged period time (dwell time), thereby coast representing share. Many of the load ofcentres along the southeast of the additional storage space at that shipper's facility, and providing the United Kingdom faced capacity shortages in the early 2000s while shipper the option to have different drayage operators dropping and new capacity became available only gradually. Quite a number of returninglines cargo, as the carrier does of notUK own the in chassis. shipping opted formotor the transhipment flows mainland One salient the greater prevalence European ports factor (mainlyis Rhine-Scheldt Delta andofLewheeled Havre) operations at railatterminals at marine the instead of calling UK ports than directly. With theterminals. prospect On of new whole, rail terminals make up the majority of wheeled operations, capacity getting on stream there is hope for more direct calls and with marine grounded if not potentially an terminals increase inincreasingly market share. The largepartially, scale London totally, making the can more on the Gateway terminalgrounded of DP World be predominant regarded as themodel embodiment whole. Most rail terminals have to handle bothThe TOFC (trailer of the UK ambitions to attract more direct calls. terminal is on flat car) and COFC (container on flat car) services. Wheeled being developed on an old Shell site along the Thames and should terminals a legacyinoflate handling trailers, accounted for be open forarebusiness 2013. The port which will add 3.5 million over 70 thecapacity market as recently as the early the 1980s. TEU to per the cent UK’sofport and will help to meet demand important in UK. the composition of the North American forAn extra capacity shift in the The full impact of London Gateway intermodal rail fleet took place in the late 1980s and early on competitive dynamics between mainland European ports1990s. and Theports development of long corridors linking majortoport UK will become cleardistance in the coming years. It remains be gateways as LosisAngeles/Long Beach inland destinations seen how such DP World going to balance its to many stakes in large incited the setting of the double-stacked unit train isservices andheavily a shift scale terminals across region. The company investing toward double-stacked COFC. The TOFC services that used in the Rotterdam World Gateway facility on Maasvlakte 2 and has to a dominate became marginal. The main reason relates to a more vested interest in filling the Antwerp Gateway terminal. efficient usage of rail assets permitted by double-stacked services as well as the commitment of trucking companies to integrate Attracting directwith deep-sea calls in therailBaltic their drayage services long distance intermodal services. What used to be carried as TOFC (without the use of a container In the last couple of years, the ports in the Bay of Gdansk have chassis) is now carried as COFC a drayage segment) the been witnessing a healthy growth(with and an increasing trafficfor share first/last mile, using a chassis. in Europe (now 1.7 percent compared to 0.9 percent in 2008 wheeled terminals port lands andMoreover, 0.5 percent in 2004). For a were long possible time, theonPolish load decades centres ago, but the expedience of priority wheeled service is at port odds were bound by their feeder port status, competing withnow main with the desires increased densityHowever, and grounding. Because of Hamburg for thefor Polish hinterland. in the last decade the still low density of the US relative to Europe inland terminals the Polish port reform process gave impetus to the development stillnew allow large plots for wheeled reduced of container handling facilities.chassis While storage Gdynia and has abenefited imperative for grounded operations at inland rail facilities. from volume gains, Gdansk attracted most attention as volumes increased from 163,704 TEU in 2008 to 928,905 TEU in 2012. Growth remainedof very strong in early 2013. The DCT facility in The future the container chassis Gdansk serves as a port of call on one of the main Europe-Far East Aroundofthe world, theEmma chassisMaersk remains a crucial component of services Maersk Line. class vessels with a capacity intermodal transport Theircargo, role in of 15,500 TEU not onlychains. bring Asian butterminal also pickoperations up North is in decline, notably in North American railports terminals are American container flows via other European of callthat before switching to grounded operations, particularly at new facilities, heading to Gdansk. The announced Triple ‘E’ vessels of Maersk though not as quickly as some hope to see, Line are expected to call DCT. Theproponents Gdansk casewould provides empirical with extensive wheeled suchcan as UP’s Joliet terminal evidence that deep-sea callsfacilities in the Baltic be viable despite the still beingofcommissioned in recentnetworks years. The setting of inland existence competitive hub-feeder linked to Hamburg terminals is also switching chassis drayage operations further and other major northern ports. The port is determined to become inland which usually involves shorter distances and thus less a hub for central and eastern Europe and Russia. Earlier this year, chassis; that same gets higher utilisation of level. an agreement was chassis reached ona the development DCT 2 which Additionally, shipping companies should increase themaritime port’s capacity to 4 million TEU bywhich 2016. have conventionally provided chassis in many American port terminals are pulling out of the chassis business, which is switching to various types of chassis pooling arrangements, as motor carriers as an entire industry are not capable to perform a wholesale

The rise and fall of European Black Sea ports The Black Sea ports, Constantza in particular, were on the rise in the early 2000s from virtually no traffic to a European share of 1.7 percent in 2008. Constantza attracted terminal investments given its potential to serve as a gateway to eastern Europe and a transhipment hub for the Black Sea area. The crisis abruptly ended this unfolding success story and Constantza’s container throughput fell sharply from 1.38 million TEU in 2008 to 594,299 TEU in 2009. In the following years the port could only present a modest growth to reach 684,059 TEU in 2012. The Bulgarian ports of Varna and Burgas remain small players in the container market. The traffic decline in Black Sea ports is in sharp contrast to strong growth witnessed by Piraeus and Turkish deep-sea ports near the Sea of Marmara. This development demonstrates shipping lines for the time being prefer a hub-feeder model in the Med to service the Black Sea area instead of direct deep-sea calls in the Black Sea.

Scandinavian ports conversion chassis fleets, as and wellSouth as theFinland maintenance The ports attotheowning entrance of the Baltic show implications of removing chassis inspection and maintenance a moderate growth path, both losing some ground in a European from theHowever, jurisdiction port labour. context. theofrelative decline in their European shares is On the medium term, convergence towards global smaller than in the five yearsa prior to the start of the the economic standard of motor carrier provided chassis is likely to take crisis. Scandinavian ports remain highly dynamic players in place, though in are the European US the misalignment interests across all the market and pioneers inoffar-reaching port parties in the supply chain from ocean carrier to customer are cooperation schemes. The ports of Malmo in Sweden and not yet remedied in any fashion. Eventually, grounded Copenhagen in Denmark were merged in 2001 to form terminal a single operationsCopenhagen will emerge Malmö as the dominant paradigm wheeled company, Port. It still serves aswith a successful operations serving niche functions such as high priority case in cross-border mergers of two ports. In 2011, the cargo, City reefers and hazmat. Councils in Kotka and Hamina on Finland’s south coast approved a ABOUT port merger. The port of Gothenburg in Sweden serves as a THE AUTHORS good practice in intermodal network development: half of the Dr Jean-Paul Rodrigue is a professor at Hofstra University, New port’s container volume is transported inland via an extensive York. His research interests mainly cover the fields of economic domestic rail network of container shuttles. The rail network also and transport geography as they relate to global freight extends to Norway. distribution. Area interests involve North America and East and

Southeast Asia, particularly China. Specific topics on which he has published extensively cover maritime transport systems and logistics, global about the aUTHOR supply chains and production networks, gateways and transport corridors, Prof Dr Theo Notteboom is president of ITMMA (an institute international trade and regional development. of the University of Antwerp), professor at the University of Antwerp, a part-time professor at the Antwerp Maritime Mark Booth is a senior consultant at CPCS, a management Academy and a visiting professor at Dalian Maritime University in consulting firm focused on transportation strategy based in China and World Maritime University in Sweden. He publishes Ottawa. He has completed a diverse array of engagements widely on port and maritime economics. He is also president of International dealing with multimodal freight transportation in Canada and Association of Maritime Economists (IAME), chairman of the board of directors the US, including multiple engagements for the Transportation of Belgian Institute of Transport Organizers (BITO, an institute of the Belgian Research Board. Internationally, his work has consisted of Federal Government) and co-director of PortEconomics.eu. financial modelling support for transaction advisory and feasibility studies.

aboUT THE ORGANISATION ABOUT THE ORGANISATION

PortEconomics is a web-based initiative aiming PortEconomics is a web-based initiative aiming at at generating and disseminating knowledge generating and disseminating knowledge about about seaports. It is developed and empowered seaports (www.porteconomics.eu ). It is developed by the members of the PortEconomics group, and empowered by the members of the PortEconomics group, who are actively who are actively involved in academic and contract research in port economics, involved in academic and contract research in port economics, management, and management, and policy. Since October 2012, Port Technology International and policy. Since October 2012, Port Technology International and PortEconomics are PortEconomics are engaged in a partnership. Visit www.porteconomics.eu for engaged in a partnership. further details.

ENQUIRIES ENQUIRIES Dr. Jean-Paul Rodrigue Prof Dr Theo Notteboom Dept. of Global Studies & Geography - Hofstra University ITMMA – University of Antwerp Hempstead, New York (United States) Kipdorp 59, 2000 Antwerp (Belgium) Email: [email protected] Email: [email protected] Website: www.itmma.ua.ac.be Mark Booth, MBA Senior Consultant, CPCS Ottawa, ON (Canada) Email: [email protected] P o rt T e c h n o l o g y

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Cargo volumes in the European port system Professor Theo Notteboom, ITMMA, University of Antwerp, Belgium

An earlier contribution in Port Technology International titled ‘Recent traffic dynamics in the European container port system’ [issue 58] discussed the impact of the crisis on the port hierarchy in the European container system. The focus was mainly on the evolving traffic position in twenty-foot equivalent units (TEU) of specific multi-port container gateway regions in Europe. In this contribution we analyse the recent changes in the total cargo volumes in European ports as well as in specific cargo groups. We also discuss the relevance of focusing on port throughput as an indicator of a port’s success. This contribution is largely based on the author’s keynote presentation delivered during the annual conference of the European Sea Ports Organisation (ESPO) in Varna, Bulgaria at the end of May 2013.

European port traffic and GDP growth

With a total throughput of an estimated 3.79 million tonnes in 2012, the European port system ranks among the busiest port systems in the world. Growth was particularly strong in the pre-crisis period between 2000 and 2008, partly driven by fast growing container throughput, ie. an average annual growth rate of 10.5 percent in the period 2005-2008 and 7.7 percent in the period 2000-2005. The economic crisis which started to have its full effect in late 2008 brought an end to the healthy volume growth in the European seaport system. Total cargo volumes handled by European ports decreased 12.2 percent in 2009 corresponding to a decline from 4.18 billion tonnes in 2008 to 3.67 million tonnes in 2009. The throughput figures somewhat bounced back in 2010 to 3.84 billion tonnes (up 4.5 percent compared to 2009), but more recent years did not bring further throughput recovery to precrisis levels (see Figure 1). In 2011 growth was merely 0.8 percent and in 2012 the European port system recorded a mild drop of 2.0 percent in cargo handlings. The first quarter of 2013 brought an

Figure 1: Year-on-year growth in total EU port traffic (basis = tonne) and EU GDP. Note: growth figures 2012 and quarter one 2013 are estimates based on a sample of about 60 European ports.

additional decline of 1.7 percent compared to figures of quarter one in 2012. A comparison of the year-on-year growth figures in the European port system with the GDP growth figures for the EU27 reveals that ports continue to overreact to swings in economic growth. When the economy booms, seaports typically show high to very high growth figures; however, an economic crisis has a very pronounced negative effect on cargo volumes in seaports. The relation between GDP and port throughput has always attracted academic scholars, international organisations and maritime consultancy firms. Traditionally, GDP forecasts form one of the pillars in many port traffic forecasts. In one of its weekly newsletters, Alphaliner argues that the global GDP multiplier, ie. the ratio between world TEU growth and world GDP growth, is no longer stable. Alphaliner’s findings show that the global GDP multiplier fell from an average of 3.5 in the 1990s to an average of 2.7 in the 2000s and 2.1 in the last few years. [Alphaliner: vol. 2013, issue 17, April 2013]. Figure 2 presents the GDP multiplier for the European container port system based on our calculations. The trend in Europe

1 Po r t Te c h n o l o g y I n t e r n a t i on a l - E d i t i on 59

seems to be opposite to the global trend described by Alphaliner: the European GDP multiplier is on the rise, partly because of the recent trend toward lower GDP growth rates in the EU. The evolution in the European GDP multiplier is another demonstration of the complex relationship between port traffic and economic growth. On the one hand, the nature of economic activities in more mature economic regions in Europe is increasingly oriented toward the services sector, with agriculture and industrial/ production activities (both strong port traffic generators) facing increasing pressure from international competition. On the other hand, the cargo base of many seaports has been greatly affected by the changing logistics function of seaports as turntables in global supply chains, but also by the setting of (European) distribution systems, the emergence of extensive intermodal transport systems/corridors and the growth of hub-feeder networks in liner shipping. These trends have made the relation between port volume and the economic situation in the immediate hinterland of the port more diffuse, particularly when considering the larger main ports and transhipment hubs. www.por ttec hnolog y.org

GLOBAL ISSUES

Traffic evolution per cargo group

Figures 3 and 4 provide more detail on the traffic evolution for five cargo groups: liquid bulk (mainly oil and oil products), dry bulk (major bulks such as iron ore, coal and grain, but also minor bulks such as minerals and fertilisers), containers, roll-on/ roll-off (RORO) cargo and conventional general cargo (steel, forest products, heavy lift, etc.). The latter two cargo groups were initially affected the most by the crisis with a volume drop of nearly 20 percent in 2009. The recovery in 2010 was too weak to undo the 2009 effect. The year 2012 brought volume losses, after a stagnation in 2011. Container traffic was also heavily affected in 2009, but since 2010 the European container port system shows some growth again, be it at a much lower rate than before. Liquid bulk volumes initially recorded a rather modest decline in 2009, but growth figures have remained negative ever since. The differences between the growth paths of the respective cargo groups changed the cargo type distribution in the European port system (see Figure 5). Liquid bulk still accounts for the largest share, but its relative importance has dropped from about 40 percent in 2005 to 36.4 percent in 2012. Also dry bulk and conventional general cargo flows could not hold on to their respective shares. The position of RORO traffic in total European port throughput remained fairly stable. Containerisation is still on the rise despite the observation that the crisis has lowered the ‘container fetish’ of many European seapor ts. Indeed, the modest growth figures in containerised trade in the past few years have given incentives to port authorities, market players and investors to rebalance their commercial interests to include a range of promising non-containerised commodity flows.

Figure 2: The GDP multiplier in the EU container port system.

which have been severely affected by the government debt crisis. The weakest performers in terms of growth are also found all over Europe, including in countries with the best economic status in the Eurozone (such as Germany). In other words, seaports in countries with the weakest economies of Europe do not necessarily underperform compared to seaports in stronger countries. This serves as another demonstration of the ever more complex relation between economic activity in the immediate hinterland and port traffic.

Changing market conditions

The European port scene is not only confronted with a changing environment in terms of traffic growth. It is also facing markedly changed market conditions. Firstly, ports are challenged to cope with increased market uncertainty and volatility. Uncertainty is not a new phenomenon but the related intensity seems to be changing with the rise of non-linear developments, trend breaks and the so-called ‘Black Swans’. It is important to underline that market volatility in ports has exogenous causes (such as economic cycles) and

Are we back at pre-crisis traffic levels?

Not really. Total cargo throughput in European ports in 2012 was still 10 percent below the 2008 volumes (see figure 5). Our outlook for 2013 points to a very small change compared to 2012. Next to dry bulk and conventional general cargo, liquid bulk flows seem to face a hard time to turn the tide. Only container traffic in European ports has managed to rise above the 2008 level. However, large differences exist between individual ports. Figure 6 depicts the case for container ports in Europe, with growth figures between 2008 and 2012 expressed in TEU and growth rate. The highest growers can be found all over Europe, including countries such as Greece, Portugal, Spain and Italy

Figure 3: Year-on-year growth in total EU port traffic (basis = tonne) for cargo groups.

Figure 4: Distribution of cargo flows in the EU port system.

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endogenous causes linked to the actions of market players. While the economic crisis caught the maritime industry and ports by surprise, one could argue that the current continued overcapacity situation in liner shipping is mainly the result of endogenous actions of shipping lines. Market uncertainty has quite a lot of consequences for ports. It strengthens the role of ports as buffers in supply chains. Under the motto “uncertainty is the mother of inventory” [Martin Christopher], the past few years have brought a remarkable investment wave in warehouses, tank farms and other storage facilities in port areas across Europe, often supported by an active commercial policy by port authorities and (local) governments (eg. ‘port-centric logistics’ concept in the UK). Furthermore, market uncertainty challenges traditional forecasting techniques and port planning/ investment tools. Port authorities are trying to respond to the increasing need for flexibility in port planning and development via the use of more adaptive planning tools.

Secondly, there is a strong downward pressure on profit margins in the port and shipping industry. Customers demand higher service levels for the same or even a lower price. Market players are trying to differentiate themselves from competitors and are increasing the scale of operations through mergers and acquisitions or alliance formation and partnerships, which allow them to spread investment risks. Incumbent firms try to defend their market share by raising market-based barriers to entry. The high capital requirements in the port and maritime industry and the difficult access to capital enhance market consolidation and partnerships. Seaports are increasingly operating in buyers’ markets; there are no signs that we will move to a sellers’ market in the short or medium term. The buyers of port services look for supply chain solutions and develop a strong network focus. So, ports have to develop a stronger focus on how they can contribute to the supply chain excellence of the port users. Ports that do not respond adequately

to the buyers’ market imperatives will lose ground. Port authorities need to have sufficient autonomy to develop the necessary adaptive capabilities so that they can respond in an appropriate way to the volatility in the market and the requirements of the powerful ‘buyers’. In such a market environment, port throughput growth might no longer be the best indicator of success. It might be more a matter of binding supply chains to the port in a sustainable way based on a close partnership with the respective port users.

About the author Professor D r Theo Notteboom is president of ITMMA (an institute of the University of Antwerp), professor at the University of Antwerp, a part-time professor at the Antwerp Maritime Academy and a visiting professor at Dalian Maritime University in China and World Maritime University in Sweden. He publishes widely on port and maritime economics. He is also president of the International Association of Maritime Economists (IAME), chairman of the board of directors of Belgian Institute of Transport Organizers (BITO, an institute of the Belgian Federal Government) and co-director of PortEconomics.eu.

About the organisation Figure 5: Index evolution of throughput in the EU port system (2008=100).

PortEconomics is a web-based initiative aiming at generating and disseminating knowledge about seaports. It is developed and empowered by the members of the PortEconomics group, who are actively involved in academic and contract research in port economics, management, and policy. Since October 2012, Port Technolog y International and PortEconomics have been engaged in a partnership.

Enquiries

Figure 6: Strong growth differences between individual ports – TEU traffic.

3 Po r t Te c h n o l o g y I n t e r n a t i on a l - E d i t i on 59

Professor Dr Theo Notteboom ITMMA – University of Antwerp Kipdorp 59, 2000 Antwerp (Belgium) Email: [email protected] Website: www.itmma.ua.ac.be or www.porteconomics.eu


Dry Bulk and Specialist Cargo Handling

The port system in northern China Lin Feng, Dalian Maritime University, China, and Theo Notteboom, ITMMA, University of Antwerp, Belgium

Only 20 years ago the Chinese port system was still in its infancy stage. Hong Kong acted as the only container gateway to China. Since the second half of the 1990s, throughput at Chinese mainland ports started to accelerate. In recent years, shipping lines have been dedicating higher capacities and deploying larger vessels to cope with the increasing Chinese imports and exports. Chinese port activity is mainly concentrated in three regions: the Pearl River Delta (PRD), the Yangtze River Delta (YRD) and the Bohai Sea Economic Rim (BER). The PRD in the south with main ports Hong Kong, Shenzhen and Guangzhou was the first to benefit from China’s opening up policy launched in the late 1980s. The YRD with main ports in Shanghai and Zhoushan/Ningbo started to grow significantly in the late 1990s. In more recent years, the northern BER with main ports in Tianjin, Qingdao and

Port

Dalian, has witnessed remarkable growth (see Figure 1). This contribution looks at the evolving port hierarchy in the BER.

Port hierarchy in Northern China

Although most ports in China still remain under public ownership, more room has been given to market players, such as private logistics firms, foreign global terminal operators and national and international shipping lines, to take part in port activities. As a result, small and large firms cooperate and compete for port business. The same holds for the port system in northern China. There are 11 ports located in the region and classified into three so-called multi-port gateway regions (see Figure 2). All three regions serve international trade but differences exist. Region A is strongly focused on the north-south axis between the provinces of Heilongjiang, Jilin and Liaoning.

Region B is the gateway to Beijing and the surroundings while it also is a key port region to satisfy the national demand for coal. Region C has a strong focus on international trade as Shandong Bay is one of the world’s prime manufacturing areas. Three groups of ports can be identified: large gateway ports, medium-sized ports and small ports (see Figure 3). Fierce competition is observed between these ports as more and more ports compete for contestable hinterlands. The three largest ports account for 45.25 percent of the total market, medium-sized ports 46.62 percent and the remaining ports 7.13 percent. Moreover, if we expand the market area, the neighbouring port of Busan (Korea) and Japanese ports add to this highly competitive market. Competition is intensifying as the large ports in the region (Qingdao, Tianjin and Dalian) face significant challenges from

Total Port Growth Region Port throughput rate (%) in million tonnes 622.5

11.2

YRD

Shanghai

Container Growth Region throughput rate (%) in million TEU 25.16

3.9

YRD

2. Shanghai

513.5

7.3

YRD

Shenzhen

17.27

0.1

PRD

3. Tianjin

378.4

7.0

BER

Ningbo-Zhoushan

13.18

6.7

YRD

4. Qingdao

340.3

10.4

BER

Qingdao

11.91

9.4

BER

5. Guangzhou

338.0

4.4

PRD

Guangzhou

11.09

2.4

PRD

6. Tangshan

325.3

25.0

BER

Tianjin

9.80

7.0

BER

7. Dalian

309.7

11.4

BER

Dalian

7.20

23.3

BER

8. Yingkou

250.0

10.9

BER

Xiamen

5.83

13.8

PRD

9. Rizhao

238.1

10.0

BER

Suzhou

4.17

2.1

YRD

10. Qinhuangdao

200.7

-1.3

BER

Lianyugang

4.10

11.6

YRD

11. Shenzhen

175.2

2.0

PRD

Yingkou

4.05

12.1

BER

12. Yantai

170.0

13.0

BER

Fushan

2.01

0.8

PRD

1. Ningbo-Zhoushan

Figure 1: Port ranking based on total throughput and container throughput (figures for period January-September 2013).

1 E d i t i on 6 1 : Fe b r u a r y 2 0 1 4

www.por ttec hn olog y.org


Figure 2: Multi-port gateway regions in the Bohai Sea Economic Rim (BER).

neighbouring medium-sized ports. For example, in region A, the cargo volume of Yingkou increased rapidly and is closing in on Dalian. Both ports try to be in pole position in case the plans for a free trade zone (F TZ) between China, Korea and Japan become a reality. The situation in the BER is quite different from the YRD region. Port competition in the YRD is mainly centred around gateway ports Shanghai and Ningbo. However, to avoid excessive competition, the two ports have adopted somewhat different strategies. Shanghai launched a FTZ in 2013 to enhance the logistics function of the port within the land area controlled by the port authority. At the same time, Shanghai, via Shanghai International Port Group (SIPG), has also developed strong relationships with inland ports along the Yangtze River in view of

Figure 3: Port hierarchy in terms of total cargo volume (horizontal axis - in million tonnes) and container throughput (vertical axis - in million TEU) - data for year 2010.

streamlining cargo flows and improving the overall competitiveness of the Yangtze logistics corridor. Ningbo port merged with Zhoushan port in 2006 to form Ningbo-Zhoushan port. This merger is to be seen more as a horizontal integration strategy in view of expanding the port size and achieving economies of scale.

Challenges and opportunities

The average growth rate of cargo handled in the BER port system remains among the highest in the world, despite the economic slowdown witnessed in recent times. There are two main reasons why growth remains healthy. Firstly, most ports in the north of China handle cargo needed for manufacturing, such as coal, gasoline, agricultural products etc. This type of cargo has been less affected by the lower growth in international trade. Secondly,

the industrial transition in China from eastern areas to western and northern regions provides more opportunities for ports in the BER. However, some challenges remain. Bulk cargo shipments might be affected by an increasing environmental awareness in China, particularly with regard to the air quality in metropolitan areas and port cities. In the past decades, the northern part of China has seen a massive increase of large-scale production plants and coal-based power plants in or nearby port areas giving rise to increased emissions. Many port cities are now facing a dilemma: on the one hand, the re-location of these factories to port areas supports job creation, fiscal revenues and port volumes in the port cities. On the other hand, the pressure to lower emissions is mounting. This tension is particularly felt in region B of the BER.

About the authors Lin Feng is affiliated with the College of Transportation Management of Dalian Maritime University in China. She is currently pursuing a PhD at ITMMA of the University of Antwerp, Belgium. Her research focuses on port-city dynamics and the development of port regions with a specific focus on the role of small and medium-sized ports. Theo Notteboom is president of ITMMA (an institute of the University of Antwerp), professor at the University of Antwerp, a part-time professor at the Antwerp Maritime Academy and a visiting professor at Dalian Maritime University in China and World Maritime University in Sweden. He is published widely on port and maritime economics. He is also president of International Association of Maritime Economists (IAME), chairman of the Board of Directors of Belgian Institute of Transport Organizers (BITO, an institute of the Belgian Federal Government) and co-director of PortEconomics.eu.

About the organisation PortEconomics is a web-based initiative aiming at generating and disseminating knowledge about seaports. It is developed and empowered by the members of the PortEconomics group, who are actively involved in academic and contract research in port economics, management, and policy. Since October 2012, Port Technology International and PortEconomics have been engaged in a partnership.

Enquiries ITMMA – University of Antwerp, Kipdorp 59, 2000 Antwerp (Belgium) Email: [email protected] or [email protected] - Website: www.itmma.ua.ac.be

Edition 61: Febr uar y 2014

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Global Issues

The development of LNG bunkering facilities in NorthEuropean ports Siyuan Wang and Professor Theo Notteboom, ITMMA, University of Antwerp, Belgium

As the schedule for the application of the strict sulphur limits (enacted by IMO from 2015) in the emission control areas (ECA) is fast approaching, ports not only find it their responsibility to quickly adapt to the upcoming emission regulations, but they also intend to rapidly respond to port users’ environmental needs for obtaining competitive advantage. Liquefied natural gas (LNG) as one of the attractive fuels for ships can help ports to achieve these goals. This contribution is based on our extensive study on the current development status of LNG bunkering facilities in North-European ports. All ports considered are located within the two European ECAs (The Baltic Sea and the North Sea). Eight ports are included in the study. These ports cover large worldclass gateway ports such as Rotterdam, Antwerp, Hamburg and Bremen, and also four medium-sized to smaller ports like Zeebrugge, Gothenburg, Stockholm and Helsingborg (in Sweden). The eight ports all share the traditional ‘Hanseatic’ culture featuring municipal governance and their port authorities are either public or hybrid public/private. In addition, all eight ports operate according to the ‘landlord’ model while they intend to go beyond the traditional approach by adding more facilitating and coordinating roles. Although the selected ports all aim for an LNG-fuelled future, the development plans vary in line with different market expectations and operational conditions. The following sections briefly discuss LNG projects in the eight ports. Figure 1 illustrates the timeline of the LNG bunkering facilities planning in these ports. 1 E d i t i on 6 2 : M ay 2 0 1 4

Port of Antwerp

The LNG bunkering perspective started in 2011 when the port of Antwerp accepted the invitation to be the leading port for the LNG working group that forms part of the World Ports Climate Initiative (WPCI) in an organisation of the International Association of Ports and Harbors (IAPH). The main objective of this working group is to standardise the port regulations governing LNG, evaluate the bunkering risk perimeters, and raise public awareness. At the end of 2012, the draft ‘truck-to-ship bunker checklist’ was submitted by the WPCI LNG working group. In December 2012, the first LNG bunkering was successfully operated at the port of Antwerp when the dual-fueled oil tanker Argonon was bunkered via truck. In August 2013, the port was granted a subsidy by the European Commission to build an LNG bunkering station for barges. In September 2013, after completing a public tendering procedure, the port of Antwerp appointed the gas ship owning company EXMAR as its strategic partner for building an LNG bunker ship aiming to realise ship-to-ship bunkering to sea going vessels by 2015. In a first development stage, the bunker vessel will load LNG from the nearby terminals in Zeebrugge or Rotterdam. If the market condition is promising, the port of Antwerp will further extend LNG facilities to on-shore storage tanks or even to a small liquefied plant in the future.

Port of Zeebrugge

The port of Zeebrugge has a rather favourable position to develop LNG

bunkering since it has operated one of the oldest LNG terminals in Europe since 1987. The promotion of LNG as a ship fuel provides an excellent opportunity for Zeebrugge to strengthen its status as a main gas hub in NorthEurope. In order to achieve the goal, the port of Zeebrugge is constructing a second jetty which will enter into service in 2015. The jetty will be able to flexibly load and unload a wide range of LNG carriers, from 2,000 cm³ (the smallest bunker ships) to 217,000 cm³ (large Q-Flex and Q-Max types). For LNG bunkering operations, Zeebrugge joined the Flemish LNG study in January 2012 together with the ports of Antwerp and Gent. In S eptember 2013, an international cooperation was established among the ports of Zeebrugge, Antwerp and Singapore for developing LNG b u n k e r i n g i n f r a s t r u c t u re t o ge t h e r. Currently, the Port of Zeebrugge is perfectly equipped to introduce several pilot projects in the near future in order to kick-start the market development.

Port of Rotterdam

The port of Rotterdam started to operate LNG bunkering via truck when the dual-fuel oil bunker ship Argonon was christened in Rotterdam in November 2011. From March 2013, two new LNG powered inland barges mainly operating on the Rhine started to be bunkered in Rotterdam. Thanks to the great efforts of the port authority, the municipality o f R o t t e r d a m a m e n d e d t h e Po r t Management Regulations to allow LNG to be bunkered to inland ships from July www.por ttec hn olog y.org

Global Issues Figure 1: The timeline of LNG bunkering projects in the eight ports.

Port of Antwerp

Port of Zeebrugge

Port of Rotterdam

Port of Bremen

Port of Hamburg

Port of Stockholm

Port of Gothenburg

Port of Helsingborg

2011

APA became lead port of WPCI WG

Flemish LNG study (market, legal, logistic issues)

First bunkering via truck

Granted subsidy from EU

Selected EXMAR as the strategic partner to build a bunker vessel

First bunkering for seagoing vessels via STS by 2015

May, 2011

Jan, 2012

Dec, 2012

August, 2013

Sep, 2013

2015

LNG terminal started up

Flemish LNG study (market, legal, logistic issues)

Started to build the second jetty

1987

Jan, 2012

Oct, 2012

LNG bunk supply chain design and development

The second jetty completed for breakbulk activity by 2015 2015

Gate terminal started to operate

Dual-fuel tanker Argonon started to operate

Built an alliance with port of Gothenburg

LNG-powered barge Greenstream started to be bunkered via truck

LNG breakbulk terminal starts up by 2015

Sep, 2011

Nov, 2011

Oct, 2012

July, 2013

2015

Selected the LNG terminal location

Cooperated with Bomin Linde to develop LNG bunkering

VIA BREMEN operates the first LNG powered harbour barge

Oct, 2012

Sep, 2013

Mid 2015

Signed MOU with Bomin Linde to do a feasibility study

Completed a successful feasibility

Feb, 2012

Nov, 2012

LNG terminal started to operate

First LNG bunkering via truck

First LNG bunker via STS

Feasibility study for the second LNG bunkering terminal

May, 2011

Jan, 2013

Mar, 2013

Jan, 2014

Built an alliance with port of Rotterdam

Got EU funding for LNG project (35m Euro)

Cooperate with Vopak and Swegas to develop LNG bunkering facilities

Provide LNG bunker by 2015

Oct, 2012

July, 2013

Market, stakeholders’ analysis & Investment calculation, risk assessment

Design of terminal and quay

Permit process, tender procedure and LNG facilities development

Start LNG bunkering in 2016 or 2017

Jan, 2012

Sep, 2013

Jan, 2014

2012

2013

Bomin Linde and HPA cooperate to develop LNG bunkering facilities

HPA operates the first LNG powered patrol ships by 2014 Dec, 2014

2014

2015

2016

Note: APA: Antwerp port authority WPCI WG: World Port Climate Initiative (WPCI) working group for standardising the port regulations governing LNG VIA BREMEN: the brand name of port management company for port of Bremen MOU: Memorandum of understanding HPA: Hamburg port authority

1, 2013. Therefore, the port of Rotterdam became the first port in Europe where bunkering of LNG was legally regulated. On the other hand, in order to develop LNG bunkering for seagoing vessels, the port is developing a terminal next to

the Gate LNG terminal (which started operations in September 2011) together with Vopak and Gasunie (two of three initiators and partners of Gate terminal) where LNG can be handled as fuel for small seagoing ships, bunker barges and

trucks. The terminal is expected to be operational by 2015. Furthermore, the port of Rotterdam has extended its LNG ambition to be one of main gas hubs and LNG feeder distribution centres in the Europe. Edition 62: May 2014

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Global Issues

The ports of Hamburg and Bremen

Both German ports plan for small to medium scale LNG storage tanks particularly for supplying fuel for ships and trucks. After the completion of feasibility studies at the end of 2012, the two ports have been developing LNG bunkering facilities by cooperating with Bomin Linde LNG, a joint venture between Bomin (a bunker supplier) and Linde (a German gas supplier). The port authorities take initiatives to promote the market development of LNG as a ship fuel by investing in LNG-powered port vessels. The two ports hope to start operating these ships by 2015.

Port of Stockholm

In the beginning of 2013, the port of Stockholm became one of the first ports in the world to offer a LNG bunkering solution to a large passenger ferry. On January 14, 2013, Stockholm refuelled the Viking Grace, a new Viking Line (a Finnish ferry operator) passenger ferry, by LNG truck. Viking Grace is unique as she is the first large passenger ferry in the world to be powered by LNG. In March 2013, the first ship-to-ship bunkering to Viking Grace was realised by a small LNG fuelling vessel, the Seagas, which was converted from a retired Ro-Pax with a 180 m3 tank onboard. The LNG source for the bunkering operation is mainly from the import terminal in Nynäshamn, south of Stockholm, which is operated by AGA. The infrastructure is the first LNG terminal in the Baltic Sea and came into operation in 2011. However, the LNG bunkering in Stockholm at this moment is specifically designed for Viking Grace. If more LNG-fuelled vessels are brought into operation, the LNG infrastructure needs to be developed further. Currently, the port of Stockholm is looking for the opportunity to build a new LNG infrastructure at port of Kapellskär, a port in the northern part of Stockholm.

Port of Gothenburg

The port of Gothenburg plays an active role in various collaborative ventures designed to speed up the development of LNG as a marine fuel. In October 2012, the port signed a collaboration agreement with the port of Rotterdam for a cooperation to develop the necessary in-port infrastructure for LNG bunkering. In July 2013, this collaborative project was granted €35.5 million from the EU. Currently, Gothenburg is planning to build a medium-scale LNG terminal with the capacity of around 10,000-25,000cm 3. Three strategic partners are taking part in the initiative for the terminal: the 3 E d i t i on 6 2 : M ay 2 0 1 4

infrastructure company Swedegas (the owner of the Swedish gas transmission grid), the Dutch company Vopak LNG (a specialist in LNG storage) and the port of Gothenburg. The terminal will be built adjacent to Vopak’s oil facility in Skarvik Harbour and will be ready in 2015.

Port of Helsingborg

Although the Port of Helsingborg is a rather small regional port located at the narrowest bypass of the Oresund, it is one of the busiest ports in Northern Europe and the biggest ferry port in terms of volume in Sweden. Helsingborg shows great interest in offering LNG or liquefied biogas (LBG) in the port pursuing its environmental targets and improving its green image to the local community. In the beginning of 2012, the port of Helsingborg took the leading position in coordinating the EU funded project ‘LNG in Baltic Sea’ aiming to establish a stakeholder platform with six other ports in the Baltic Sea to share knowledge and skills on the development of LNG infrastructure. The other ports in the project of ‘LNG in Baltic Sea’ are the ports of Aarhus (Demark), Helsinki (Finland), Turku (Finland), CopenhagenMalmo (Denmark and Sweden), Tallinn (Estonia) and Stockholm (Sweden). At present, various pre-investment studies have been started up and the port hopes to start LNG bunkering operation in 2016.

Conclusion

The over vie w of the de velopment progress of LNG bunkering projects in the eight North-European ports shows that the eight port authorities are currently playing a proactive role in facilitating and promoting the use of LNG as a marine fuel. Although the main investors and operators for LNG bunkering facilities are private industrial players, the capital intensive nature of the LNG business and the high risk prevent a smooth market development and create a ‘chicken-and-egg’ problem. The proactive role of port authorities can help to kick-start the business and promote new innovative applications. In addition, it is noted that the eight ports adopt cooperative development policies with various stakeholders in or outside the port perimeters by establishing strategic alliances or partnerships. This suggests that cooperation is an effective way to reduce and share the uncertainties over availability of infrastructure; LNG demand and price, etc. and help to break the ‘chicken-andegg’ dilemma. The current practices in the above eight European ports on the development of

LNG bunkering facilities could be a vital driver for a quick market introduction of this new LNG application in a global context.

About the authors S iyuan Wang joined I T MMA (an institute of the University of Antwerp) as a PhD student under the CONNEC scholarship programme of the European Commission in 2010. She holds a MSc in Transport and Maritime Management from ITMMA and a Master in Maritime Law from S hanghai Maritime Universit y. Her research activities at ITMMA particularly focus on the LNG market. Theo Notteboom is president of ITMMA, professor at the University of Antwerp, a part-time professor at the Antwerp Maritime Academy and a visiting professor at Dalian Maritime University in China and Wor ld Mar itime Universit y in Sweden. He is published widely on port and maritime economics. He is also president of the International Association of Maritime Economists (IAME), chairman of the Board of Directors of Belgian Institute of Transport Organizers (BITO, an institute of the Belgian Federal Government) and co-director of PortEconomics.eu.


Por tEconomics is a web-based initiative aiming at generating and disseminating knowledge about seaports. It is developed and empowered by the members of the PortEconomics group, who are actively involved in academic and contract research in port economics, management, and policy. Since October 2012, Port Technolog y International and PortEconomics have been engaged in a partnership. www.porteconomics.eu.

Enquiries ITMMA – University of Antwerp Kipdorp 59, 2000 Antwerp (Belgium) Email: [email protected] or [email protected] Website: www.itmma.ua.ac.be



Dry bulk cargo in Ukrainian ports Kateryna Grushevska and Theo Notteboom, ITMMA, University of Antwerp, Belgium

The Black Sea region accounts for only 2.5 percent of global seaborne trade. While its significance is quite limited on a global scale (eg. seaborne trade in the North Sea region accounts for 17 percent of the world total), the Black Sea is an important area of development due to its geographical size and resource base. Ukraine and Russia are two major powers in the Black Sea port sector. This contribution zooms in on port activity in Ukraine with a specific focus on dry bulk cargo. We discuss the current status of and future outlook for the major deep-sea ports of Odessa, Ilyichevsk, Yuzhnyi and Nikolaev which together represent about 60 percent of dry bulk traffic in the Ukrainian port system.

Handling capacity of Ukrainian dry bulk facilities

The hinterland of Ukrainian ports

Ukrainian ports not only serve the local economy, but also have a strong transit function. Dry bulk cargoes and heavy

industr y goods are mainly expor toriented or transit cargoes. In 2011 transit cargo accounted for 30 percent of total volumes handled in Ukrainian ports. However, since 2008 the relative importance of transit cargo flows is decreasing, not only because of the world economic crisis, but also because of a stronger position of Russian ports in handling Russian cargoes. Moreover, the Russian railway company RZD is said to use a discriminative pricing policy disfavouring Russian cargoes that are handled in non-Russian ports. Figure 2 presents the hinterland coverage for all cargoes processed in Ukrainian ports. The largest receiver/shipper is the EU27 with a share of 24 percent. Some 15 per cent of the cargo flows has a domestic origin or destination. China and non-EU European countries are responsible for

Source: adapted from Marine Agency and Crewing company ‘Sif-Service’ and Centre of transport strategy cfts.org.ua (Kiev, Ukraine).

Ukrainian ports mainly focus on the

handling of dry bulk (agri-bulk, mining and metallurgic cargoes and chemicals), general cargo (containers and heavy industry goods) and liquid bulk. Dry cargo facilities (including dry bulk and general cargoes, but excluding grain and containers) in Ukrainian ports represent 133 million tonnes or 51 percent of the total capacity of the port system. The grain capacity represents another 15 percent of total ports’ capacities or about 38 million tonnes per year. The utilisation rate of the cargo handling facilities for dry bulk cargo in Ukrainian ports reached 92 percent in 2011. For grain facilities it amounted to 47 percent.

Figure 1: Geographical location of Ukrainian ports and their handling capacities in 2011.

1 E d i t i on 6 1 : Fe b r u a r y 2 0 1 4

www.por ttec hn olog y.org


O & D of all cargo flows through Ukrainian seaports EU 27

Ukraine CIS (excl. Ukraine) China Europe (not EU) Middle East Africa Asia (excl. China) North America South America Australia and Oceania Total

million % tonnes 37.3 24 22.5 15 7.1 5 22.3 14 20.5 13 14.0 9 11.9 8 11.6 7 5.2 3 2.2 1 0.3 0 155.0 100

O & D of mining and metallurgic cargo flows through Ukrainian seaports EU 27 Ukraine CIS (excl. Ukraine) China Europe (not EU) Middle East Africa Asia (excl. China) North America South America

million tonnes 8.1 8.0 1.2 19.8 6.2 6.0 2.3 4.7 2.2 0.2

%

Total

58.8

100

14 14 2 34 11 10 4 8 4 0

Figure 2: Origin and destinations of cargoes handled in Ukrainian ports (2011).

14 percent and 13 percent respectively of total port throughput in the Ukraine. The Middle East, Africa and Asia (excl. China) also have considerable shares representing 9 percent, 8 percent and 7 percent respectively.

Main dry bulk commodities and market players

T h e l a r ge p l aye r s i n m i n i n g a n d metallurgic cargoes (iron ore, coking coal and steam coal) are Metallinvest (Russian company), Ferrexpo, Metinvest, Evras and Privat (Ukranian companies) and Arcelor Mittal (international company). Europe and China are the two main importers of iron ore from the Ukraine and Russia. The volumes of iron ore exported by sea amounted to 21.9 million tonnes in 2011. The main ports active in handling this commodity are Yuzhnyi (incl. TIS terminal), Odessa, Ilyichevsk, Nikolaev and Izmail. The main destinations for iron ore are Europe and China. The main suppliers (shippers) of iron ore are Russian (Metalloinvest) and Ukrainian mining holdings (Ferrexpo, Metinvest, Arcelor Mittal, Evras, Privat etc.). The ports that are used for Russian transit iron ore are Yuzhnyi and Odessa. According to the industry’s forecasts (Portivest) handling volumes of iron ore in Ukrainian ports will slightly grow to 24.3 million tonnes in 2016. The main destinations for imported coking coal are steel mills in Poltava, Zaporozhie and Donbas regions (Ukraine’s industrial heart). It is expected that only two ports will remain to handle coking coal - Odessa and Yuzhnyi. The local production of coking coal is expected to drop by 40 percent in 2016.

Figure 3: Total cargo throughput dynamics in the main ports of the Ukraine (in 1000 tonnes).

Figure 4: Dry bulk cargo throughput dynamics in the main ports of the Ukraine (in 1000 tonnes).


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Figure 5: Dry bulk dynamics by modality in the main Ukrainian ports (in 1000 tonnes).

Domestic steel mills found other suppliers to import the necessary raw material from overseas. It is expected that the first coking coal specialised facility will be constructed in Yuzhnyi port (at TIS terminal) to be operational by the end of 2016. The supplies of coking coal from Russia will decrease, due to the growing shortage of coking coal in the Russian Federation and the growth of the Russian domestic consumption. In the next few years the USA, Australia and South America will be the major suppliers of coking coal to the Ukraine. The volume of steam coal handled in Ukrainian ports is expected to remain at a level of 16-17 million tonnes per year. No significant changes are expected in the local extracting industry as well as for Russian transit cargo flows. Coal traffic will get redistributed in favour of ports specialised in bulk cargo handling ( Yuzhnyi, Nikolaev, Mariupol, Kerch, Berdyansk, Izmail). The grain market is characterised by a high level of administrative intervention, ie. governmental quotas which led to the revision of the priorities of exportoriented agricultural holdings specialised in soybean, rape seed and corn. Low quotas and high tariffs made the barley crop less attractive for growing, while corn has become ver y attractive due to high economic returns and stable 3 E d i t i on 6 1 : Fe b r u a r y 2 0 1 4

excess demand in foreign markets. The Middle East and Northern Africa are major destination areas of Ukrainian grain exports. In 2011, Saudi Arabia was the largest importer of Ukrainian barley (64 percent of total exported barley), while Egypt was the largest importer of wheat (15 percent) and corn (19 percent). The entire agricultural industr y is characterised by a largescale consolidation and diversification of activities of large agro-holdings. The sugar market is characterised by a high degree of consolidation as a result of assets purchase transactions of Kernel and Ukrland farming sugar companies.

Traffic analysis for Ukrainian ports

Figure 3 presents the evolution of total traffic in the four main Ukrainian ports during the last 10 years. Odessa port is the leading port in volumes followed by Yuzhnyi, Ilyichevsk and Nikolaev. Dry bulk cargoes, which are mainly focused on export and transit (except coking coal which is mainly import and transit), did not suffer such a big decline in 2009 in terms of volumes as general cargoes. The port of Yuzhnyi has the largest dry bulk volume of all Ukrainian ports (see figure 4). Figure 5 examines the evolution of dry cargoes handled in Ukrainian ports. In sharp contrast to most ports in Western

Europe, the Ukranian port system is strongly driven by export and transit flows. Imports do not represent a big share in most ports, while cabotage is virtually absent. Yuzhnyi port mainly specialises in dry bulk cargoes, partly thanks to its deep draft allowing it to accommodate large bulk carriers. Total port throughput in 2011 reached 22.6 million tonnes of which iron ore accounts for 46 per cent, coal 11 per cent, chemicals 26 percent and liquid bulk 17 percent. All dry bulk commodities are export-dependent. Iron ore volumes strongly increased from 2005 onward from 0.5 million tonnes to 10.4 million tonnes. This growth was supported by domestic production and growing export markets. Coal is a commodity which is mainly imported for domestic heavy industries and/or handled as transit cargo mainly from Russia arriving to port by rail. Because of the improved handling facilities in Russian ports and expensive railway tariffs in Ukraine, the coal volumes in port Yuzhnyi started to decline. The chemicals handled in the port have local (eg. carbomide from Odessa chemical port plant) and foreign origins. The transit chemical cargoes are transported to the port from Russia and Belorussian by railway. Grain, iron ore and sugar are the main dry bulk cargoes handled in Odessa. www.por ttec hn olog y.org


Grain volumes fluctuate between 1.6 and 5.2 million tonnes per year, or between 5.4 percent and 19.9 percent of total port throughput. The observed volatility is caused by the seasonality of this cargo, the dependence on the harvest and weather conditions and governmental regulation (export quotas). Although Ilyichevsk hand les less cargo than Odessa, the port volumes are less volatile than in Odessa. Total port throughput in 2011 amounted to 13.5 million tonnes. The main commodities handled include iron ore (26%), black metals (16%), liquid bulk (9%) and containers (16%). The grain volumes fluctuates between 0.8 million tonnes and 3.1 million tonnes. Ilyichevsk has more stable iron ore traffic than neighbouring domestic ports. Iron ore volume grew from 0.9 million tonnes in 2002 to 3.5 million tonnes in 2011. Nikolaev is the smallest port in terms of port traffic but its commodity structure is diverse. Total port throughput in 2011 reached 8.6 million tonnes with the following break-down: grain (28 percent), black metals (16 percent), coal (18 per cent) and liquid bulk (18 percent). In the period 2002-2011, the share of grain in total port activities ranged between 7 percent and 43 percent (0.5 million tonnes to 2.5 million tonnes).

About the author Kateryna Grushevska joined ITMMA (an institute of the University of Antwerp) in 2013 as a PhD student under the BACKIS scholarship programme of the European Commission. She has a masters in Transport and Maritime Economics from ITMMA. Her research activities at ITMMA particularly focus on ports and logistics in the Black Sea region. Theo Notteboom is president of ITMMA, professor at the University of Antwerp, a part-time professor at the Antwerp Maritime Academy and a visiting professor at Dalian Maritime University in China and World Maritime University in Sweden. He has published widely on port and maritime economics. He is also president of the International Association of Maritime Economists (IAME), chairman of the board of directors of the Belgian Institute of Transport Organizers (BITO, an institute of the Belgian Federal Government) and co-director of PortEconomics.eu.


PortEconomics (www.porteconomics.eu) is a web-based initiative aiming at generating and disseminating knowledge about seaports. It is developed and empowered by the members of the PortEconomics group, who are actively involved in academic and contract research in port economics, management, and policy. Since October 2012, Port Technology International and PortEconomics have been engaged in a partnership.

Enquiries ITMMA, University of Antwerp, Kipdorp 59, 2000 Antwerp, Belgium Email: [email protected] or [email protected] Website: www.itmma.ua.ac.be


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