Advanced Port Economics Seminar, University of Antwerp, Institute of Transport and Maritime Management, December 17 2012 Ports, Inland Ports and Logistics.

Advanced Port Economics Seminar, University of Antwerp, Institute of Transport and Maritime Management, December 17 2012

Ports, Inland Ports and Logistics Zones: Governance Issues

Jean-Paul Rodrigue

ProfessorDept. of Global Studies & GeographyHofstra UniversityNew York, USA

1- Terminals and Governance2- The Financing of Intermodal Terminals3- Global Terminal Operators4- Challenges to Terminal governance

Terminals and Governance

Technical and Policy ChangesTransport Terminal Governance

Intermodal Transportation: Emerging Paradoxes

Geographical and functional diffusion of containerization.Massive investments.

Rationalisation (corridors and sites).

New standards, practices and technologies.Increasing returns.

Revolution

Growth Maturity

Incremental changes.Decreasing returns.

Evolution

Consolidation (maritime, rail and trucking). Emergence of large operators.

DeregulationPPP. Supply chain control. Added-value-capture.

Governance

Foreland / Hinterland: An Ongoing Integration Through Containerization

Maritime Shipping• Economies of scale• Setting of maritime networks• Port terminals

Inland Transportation• Rail and fluvial shuttles• Intermodal terminals• Corridors (landbridges)

Intermodal Logistics• Continuity and capacity• Inland ports / logistics zones

Shift in Public Transport Policy Perspective

Conventional EmergingIndependent Modes Intermodal SystemsLocal Economies Regional / Global EconomiesIndependent Jurisdictions (“turf wars”) Coalitions / ConsensusPublicly Funded Public / Private partnershipsUsers (public subsidy) Customers (revenue generation)Build (infrastructure provision) Manage (optimization of existing

resources)Plan (regulations; political signals) Market (deregulations; price signals)

Commodity Chains and Added Value

Commodity chain

Ad

ded

valu

e

Low

High

Manufacturing

R&D Fabrication

DistributionDesign

Branding Marketing

Sales / Service

Concept Logistics

Why Governance of Intermodal Terminals Matters?

■ “The exercise of authority and institutional resources to manage activities in society and the economy. It concerns the public as well as the private sectors, but tends to apply differently depending if public or private interests are at stake.”

■ Terminal assets:• Capital intensive.• Consume land use.• Have externalities (noise, emissions).• Have many stakeholders (port authority,

terminal operators, rail operators, trucking companies, etc.).

Transport Terminal Governance

Ownership (Mostly public)• Focused on

compliance and revenue generation.

• Challenge of rent seeking behavior.

Operations (Increasingly private)• Usage of

concessions.• High

productivity levels.

• Generation of externalities.

PPP

The Main Activities of Landlord Port Authorities

Traffic Management Vessel traffic management (fast turnaround, security, reliability).Management of inbound and outbound inland traffic.Partnership with barge, rail and truck operators for inland distribution.

Area Management Develop transport infrastructures.Provide space for port related activities (expansion or reconversion).Rationalize the land use.

Customer Management Attract new customers.Retain existing customers (satisfaction).Find new added value activities.

Stakeholder Management Influence regulation.Relations with local, regional and national public agencies.

Public and Private Roles in Port Management

Ownership

Port admin.

Nautical management

Port infrastructure

Super-structure

Cargo handling

Pilotage Towage & Mooring

Dredging

Public service port

Tool port

Landlord port

Corporatized port

Public Responsibility

Private service port

Private Responsibility

Freight Cluster Governance

Scale and scope Recognition of the city as a hub / terminal. Multimodal and intermodal. Across jurisdictions.

Actors Recognition of the stakes of various private and public actors. Different forms of ownership and jurisdiction.

Decision taking Consensus and ad hoc. Public-private partnerships. “Coopetition”.

Policy Able to influence and articulate incentives (zoning, public investments, regulations).

Information technologies

Freight community system; coordination and integration of information systems.

Labor Foster training and research needs.

Main Governance Models for Inland Ports

Model Characteristics Implications

Single Ownership A public or a private actor entirely responsible for development and operations.Single vision and conformity to a specific role.

Potential lack of flexibility in view to changes (single mandate).Potential conflicts with surrounding communities.

Public – Private Partnership

Help combine public planning of infrastructures with private operational expertise.Public (local) interests represented.

Tendency to prioritize public interests over private interests.

Landlord Model Public ownership and private operations (a form of PPP).Long term concession agreements.

Managerial flexibility between the owner, the site manager and the operators.Most of the risk assumed by private operators.

The Financing of Intermodal Terminals

Private Participation and Public DivesturePrivatization and Financing Models

Public / Private Partnerships

Main Causes of Public Divesture in the Transport Sector

Fiscal Problems

(we’re broke)

High Operating

Costs (we have few incentives)

Cross-subsidies(profits are

spent elsewhere)

Equalization (everyone must have their fair share)

Lifespan of Main Transport Assets

Car

Container

Con-tainer-ship

Jet plane

Highway

Bridge

Airport

Railway

Port

0 20 40 60 80 100 120 140 160

Average Lifespan

Years

Risk Transfer and Private Sector Involvement in Public-Private Partnerships

Design - Build

Degree of Private Sector Involvement

Deg

ree

of P

rivat

e Se

ctor

Ris

k

Operation & Maintenance

Build-Finance

Design-Build-Finance-Maintain

D-B-F-M-Operate

Concession

PrivatizationPP

P M

odel

s

Conditions for Port Privatization

Bidding process Open and transparent bidding process.

Infrastructures Capacity and quality of port infrastructure as well as for hinterland access.

Regulations Safety and labor conditions.Retrenchment and retraining of labor.

Port authority Landlord model with clear role.

Customs Efficient and transparent procedures.

Privatization and Financing Models

Sale or concession agreement

Divesture part of a political agenda (budget relief).Public sector is forced to sell or lease some of its infrastructures.Infrastructure is transferred on a freehold basis.Requirement; used for its initial purpose.Long term lease (50 – 75 years).Requirement that the concessionaire maintains, upgrade and build infrastructure and equipment.

Concession for new project

Tap new sources of capital outside conventional public funding.Fiscal restraints.Experiment with privatization.Getting the latest technical and managerial expertise for the infrastructure project.

Management contract

Ownership remains public.Management given to a private operator.Through a bidding process.Popular in the terminal operation business (maritime and rail).Efficiency improvements.

Value Propositions behind the Interest of Equity Firms in Transport Terminals

Diversification(Risk mitigation

value)

Source of income(Operational

value)

Asset (Intrinsic value)

Terminals occupy premium locations (waterfront).Globalization made terminal assets more valuable.Traffic growth linked with valuation.Same amount of land generates a higher income.Terminals as fairly liquid assets.

Income (rent) linked with the traffic volume.Constant revenue stream with limited, or predictable, seasonality.Traffic growth expectations result in income growth expectations.

Sectoral and geographical asset diversification.Mitigate risks linked with a specific regional or national market.

Port and Maritime Industry Finance

BrokersFinancial Markets

Investors

Commercial Banks

Mortgage Banks

Merchant Banks

Finance Houses

Leasing Companies

Money Markets

Capital Markets

Equity Markets

Private Placement

Corporations

Private Investors

Investments Managers

• Insurance Companies• Pension Funds• Banks• Trust Funds• Finance Houses

Shipping Companies

Port Operators

Earnings

The Prediction of Future Outcomes

Predictability

Uncertainty

Time

Forecasting Scenarios Speculations

5 years

10 years

New Project

Global Terminal Operators

Global Port Terminal PortfoliosPort Operator StrategiesAdded Value Strategies

Control of Global Container Terminals

1996 2003 20100

100

200

300

400

500

600

700

800

900

Public Sector

Private Sector

Global Opera-tors

Million

TEU

Typology of Global Port Operators

Stevedores Maritime Shipping Companies

Financial Holdings

Horizontal integration Vertical integration Portfolio diversification

Port operations is the core business; Investment in container terminals for expansion and diversification.

Maritime shipping is the main business; Investment in container terminals as a support function.

Financial assets management is the main business; Investment in container terminals for valuation and revenue generation.

Expansion through direct investment.

Expansion through direct investment or through parent companies.

Expansion through acquisitions, mergers and reorganization of assets.

PSA (Public), HHLA (Public), Eurogate (Private), HPH (Private), ICTSI (Private), SSA (Private).

APM (Private), COSCO (Public), MSC (Private), APL (Private), Hanjin (Private), Evergreen (Private).

DPW (Sovereign Wealth Fund), Ports America (AIG; Fund), RREEF (Deutsche Bank; Fund), Macquarie Infrastructure (Fund), Morgan Stanley Infrastructure (Fund).

Vertical and Horizontal Integration in Port Development

Commodity Chain

Port Holding

HorizontalIntegration

Intermediate hub

InlandPortPort

PortRail / BargeDistribution Center

Inland Modes and Terminals

Distribution Centers

Maritime Shipping

Port Terminal Operations

Terminal

Maritime Services

Inland Services

Port Services

VerticalIntegration

Top Twelve Global Container Terminal Operators in Equity-Based Throughput

PSA

Hutchison Port Holdings

DPW

APM Terminals

SPIG

COSCO

MSC

China Merchants

Ports America

Modern Terminals

SSA Marine

Evergreen

0 10 20 30 40 50 60

51.3

36.0

32.6

31.6

19.5

13.6

9.9

8.9

8.1

8.0

7.5

7.0

Million TEUs (2010)

Number of Terminals and Total Hectares Controlled by the Twelve Largest Port Holdings

Hutchison Port Holdings

Port of Singapore Authority

Dubai Ports World

APM Terminals

Eurogate

Ports America

SSA Marine

Shanghai International Port Group

Cosco Pacific

Hanjin

ICTSI

CMA-CGM

0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000

3,248

2,604

2,347

2,038

1,646

1,270

939

734

686

559

466

412

Hectares (2010)

Terminals

47

38

50

42

9

11

20

10

14

13

16

14

Container Terminal Surface of the World's Major Port Holdings, 2010

Container Terminals of the Four Major Port Holdings, 2010

Portfolio by Equity-Based Capacity of Main Global Terminal Operators, 2010

APMT HPH

DPW PSA

Regional Share in the Terminal Portfolio of the Twelve Largest Global Terminal Operators (Hectares, 2010)

Hutchison Port Holdings

Port of Singapore Authority

Dubai Ports World

APM Terminals

Eurogate

Ports America

SSA Marine

Shanghai International Port Group

Cosco Pacific

Hanjin

ICTSI

CMA-CGM

0%20%

40%60%

80%100%

AfricaAustraliaNorth AmericaSouth America / CaribbeanPacific AsiaSouth Asia / Middle EastMediterraneanEurope Atlantic

Inter-firm Relationships in the Three Main Container Ports of the Rhine-Scheldt Delta, 2010

DP World

PSAHUTCHISON PORT HOLDINGS

APM Terminals(AP Moller Group)

ANTWERP

Antwerp Gateway (3)

PSA HNN

MSC Home terminal

CHZ

APM Terminal

ZEEBRUGGE

ROTTERDAM

Rotterdam World Gateway(Maasvlakte 2)

Operational by 2013

ECT

APM Terminal Maasvlakte CMA-CGM (2)

MSC

NYK

Terminal 1(Maasvlakte 2)

Operational by 2014

Minority Shareholding (4)

Waal- and Eemhaven

Delta Terminal

Euromax phase 1

Majorityshareholding

ZIM Line (1)

DP World Delwaidedock

North Sea Terminal

Europe Terminal

Deurganck Terminal

New World Alliance

CYKH Alliance

Antwerp International Terminal (AIT) Shipping Line

(Global) Terminal Operator

Terminal

Shanghai International Port

Group (SIPG)

Albert II-dock north (under construction)

Cosco Pacific

100%

20%

50%

100%

100%

50%

50%

50%

60%

30%

10%

100%

100%

100%

50%50%

100%

42.5%10%

20%

10%

35%

100%

65%

75%

25%

PORT

Financial Holding

Inter-firm Relationships in the Three Main Container Ports of North America, 2010

LONG BEACH

LOS ANGELES

NEW YORK

APM Terminals Port Elizabeth

Port Newark Container Terminal

Maher Terminal

Global Terminal and Container Services

New York Container Terminal

APM Terminals(AP Moller Group)

Maher Terminals

Ports America

100%

100%

Global Container Terminals

100%

Pacific Container Terminal

Total Terminals International

California United Terminals

Pier G Berth

Long Beach Container Terminal

Terminal A

Terminal C60

Global Gateway South

APM Terminals Pier 400

Evergreen Terminal

TraPac Los Angeles Berth 136

Yusen Terminals

West Basin Container Terminal

Stevedoring Services of America

Ontario Teachers' Pension Plan

100%

Cosco Pacific 51% 49%

100%

Hanjin

AIG Highstar Capital

Deutsche Bank RREEF

Macquarie Infrastructure

60% 40%

50%

Hyundai

100%

100%

K-Lines 100%

OOIL 100%

MSC 50%

APL

Evergreen 50% 50%

Yangming

100%

40% 60%

Mitsui OSK 100%

NYK 100%

100%

Shipping Line Terminal Operator Terminal PORT Financial Holding

100%

ZHUHAI

Inter-firm Relationships in the Main Container Ports of the Pearl River Delta, 2010

HONG KONG

Asia Container Terminals

DP World Hong Kong

Hong Kong International Terminals

COSCO-HIT Terminal

Moderns Terminals

Asia Port Services

SHENZHEN

Chiwan Container Terminal

Shekou Container Terminals

Da Chan Bay Terminal One

Yantian International Container Terminals

Zhuhai International Container Terminals

GUANGZHOU

Dongguan Container Terminal

Guangzhou South China Oceangate Container

Terminal

Nansha Container Terminal

Guangzhou Huangpu Xingang Terminal

Guangzhou Huangpu Xinsha Terminal

Nanhai International Container Terminals

HUTCHISON PORT HOLDINGS

PSA

DP World

Cosco Pacific39%APM Terminals(AP Moller Group)

20%

China Shipping Group

40%

50%

50%

50%

ModernTerminals China Merchants

Holdings International

49%

70%

49%

55%

66% 33%

67% 20%

100%

33%10%

10%

80%20%

Shipping Line Terminal Operator Terminal PORT Financial Holding

75%25%

65%

Guangzhou Port Group

Shenzhen Municipal Government

41%

60%

35%

Shenzhen Yantian Port Group

30%

The Strategies of Port Operators

Profitability Increase the profitability of terminal assets; (better equipment, information systems and management). Port management is very lucrative.

Financial Assets Large financial assets and the capacity to tap global financial markets. Terminals as equity generating returns.

Managerial Expertise Experience in the management of containerized operations. IT and compliance with a variety of procedures.

Gateway Access Establishing hinterland access. Creation of a “stronghold”. Provides a stable flow of containerized shipments. Development of related inland logistics activities.

Leverage Negotiate with maritime shippers and inland freight transport companies favorable conditions. Some are subdiaries of maritime shipping companies.

Traffic Capture Capture and maintain traffic for their terminals.

Global Perspective Comprehensive view of the state of the industry. Anticipate developments and opportunities.

Challenges to Terminal Governance

Changes in the Role of Port AuthoritiesSecurity of Global Supply ChainsA Volatile Global Trade Context

Governance Changes in Port Authorities: Competing over the Hinterland

Landlord

Regulator

Operator

• Planning and management of port area.

• Provision of infrastructures.

• Planning framework.

• Enforcement of rules and regulations.

• Cargo handling.• Nautical services

(pilotage, towage, dredging).

Landlord

Regulator

Operator

Terminal Operator(s)

Cluster Governance

• Service Efficiency• Logistical Integration

• Infrastructure and Growth

Management• Terminal-City

Integration

Conventional Port Authority Expanded Port Authority

Port Community System

Port Community

System

Freight Forwarder

CustomsShipping Agency

Port Authority

Inland Carrier

Ocean Carrier

Container Depot

Exporter Importer

Foreland Hinterland

Terminal Operator

Risks in Global Supply Chains

Supply Risks

Demand Risks

Operational Risks

Natural disasters

Extreme weather

Pandemic

Political instability

Trade restrictions

Terrorism

Corruption

Theft and illicit trade

Piracy

Demand shocks

Price volatility

Border delays

Currency fluctuations

Energy shortages

ICT disruptions

Infrastructure failures

Environmental Geopolitical Economic

Technological

Uncontrollable

Influenceable

Controllable

High (>30%)

Average (15-30%)

Low (<15%)

Probability Mitigation

FACTORS

RISKS

Thefts by Type of Cargo and Location, United States, 2010

3%6%9%

8%

4%

23%20%

10%

11%5%1%

Thefts (899 Incidents)

AlcoholAuto / PartsBuilding / IndustrialClothing / ShoesConsumer Care ProductsElectronicsFood / BeveragesHome / GardenMiscellaneousPharmaceuticalsTobacco

29%

7%

5%21%

25%

5%1%6%

Locations (497)

Truck StopsPublic Access ParkingRoasidesUnsecured Terminals / LotsSecured ParkingFictitious PickupDriver TheftOther

Maritime Security Initiatives Implemented by The United States or the European Union

Initiative Type Year Description

Automated Targeting System (ATS)

Cargo screening 1999 Weighted model applied to inbound cargo manifests to assign risk factors.

Customs-Trade Partnership Against Terrorism (C-TPAT)

Certification 2001 Transferring some of the Customs responsibilities to importers and exporters to reinforce overall security levels. Benefits include reduced likelihood that containers of participating firms will be examined.

Container Security Initiative (CSI)

Cargo tracking and screening

2002 Increasing security related to ocean going containers by targeting and screening high risk containers bound for the US before they are loaded.

Megaports initiative Cargo tracking and screening

2003 Installation of radiation detection equipment in key foreign ports. Reducing the illicit trafficking of nuclear and other radiological materials.

24 hour rule Advance cargo information

2003 Implementing the cargo-related information at least 24 hours before a container is loaded aboard the vessel at the last foreign port.

Standards to Secure and Facilitate Global Trade (SAFE)

Certification 2005 Implementing C-TPAT and CSI security practices with foreign trade partners.

EU Authorized Economic Operator (AEO)

Certification 2008 Identifying reliable traders and providing them with trade facilitation measures.

Importer Security Filling and Additional Carrier Requirements (ISF, 10+2)

Advance cargo information

2009 Implementing the collection of cargo-related information by requiring information from both the importer (10 information elements) and the carrier (2 information elements) to be transmitted at least 24 hours before the goods are loaded.

EU Pre-arrival and Pre-departure

Advance cargo information

2009 Advance information on goods brought into, or exported from the Customs territory of the EU (perimeter).

100% scanning Cargo screening 2012? Non-intrusive inspection of 100% of all inbound cargo containers.

Global Maritime Piracy, 2008-2009

West Texas Intermediate, Monthly Nominal Spot Oil Price (1970-2012)

Jan

-70

Jan

-72

Jan

-74

Jan

-76

Jan

-78

Jan

-80

Jan

-82

Jan

-84

Jan

-86

Jan

-88

Jan

-90

Jan

-92

Jan

-94

Jan

-96

Jan

-98

Jan

-00

Jan

-02

Jan

-04

Jan

-06

Jan

-08

Jan

-10

Jan

-12

0

20

40

60

80

100

120

140

China: The Largest Bubble in History?

Iron OreCement

EggsPorkCoalSteelLead

CopperZinc

AluminumNickel

RiceChickensSoybeans

PopulationWheat

GDP (PPP)Oil

Cattle

0% 10% 20% 30% 40% 50% 60% 70%

54.4%53.6%53.6%

49.6%46.9%45.8%

42.1%39.5%38.2%

34.6%31.9%

30.2%25.2%24.9%

19.7%16.6%

13.6%10.4%

6.1%

1.9%2.1%

7.8%8.4%15.2%

4.8%13.7%

9.1%1.8%8.7%

10.1%0.9%11.3%

19.9%4.5%

4.9%19.7%

21.7%6.8%

Share of the World Commodity Consumption, China and United States, c2009/10

ChinaUnited States

Rebalancing in demand

Baltic Dry Index, Monthly Value, 1985-2012

Jan-

85

Jan-

87

Jan-

89

Jan-

91

Jan-

93

Jan-

95

Jan-

97

Jan-

99

Jan-

01

Jan-

03

Jan-

05

Jan-

07

Jan-

09

Jan-

110

2,000

4,000

6,000

8,000

10,000

12,000

Conclusion: Terminal Governance in a New Global Economic Setting

■ Terminal Operators and Port Authorities• New public / private partnerships.• Shifting balance of power (global vs. local).

■ Finding value to capture• New forms of distribution and integration

with transport terminals.■ Finding capital to finance• Governance as a risk mitigation strategy.

■ Governance of global freight distribution• Governance of foreland, hinterland and

supply chains.• Strategies and policies a reflection of the

scale and scope of global supply chains.