More than 90 percent of the world’s trade in volume —and about 60 to 70 percent of its value—is carried by sea, according to the United Nations Conference on Trade and Development. But although seaports are critical to countries’ economic development, they must continually evolve to meet a variety of needs from a number of players. Public-private partnerships (PPPs) for container terminals are becoming increasingly popular globally, and particularly in emerging markets, as a way to introduce efficiency and innovation into port operations.
One of the most spectacular developments in the international transport of goods was the introduction of the container in the 1950s. Containers are boxes (most made of steel) that come in standard dimensions of length, width, and height. The first container vessels could carry up to a few hundred containers and maintained services among a number of United States ports, Hawaii, and some Caribbean destinations. Containers caught on fast because they drastically increase cargo handling capacity (in terms of tons per hour), and also protect goods from damage and pilferage.
The Second Revolution
As technology progressed, containers grew in form and function. By the 1970s, the maximum vessel capacity reached 3,000 TEU (a TEU represents a box with the standard dimensions of a 20 foot container). Capacity was limited by the vessels’ width, or beam, which remained at 32.2 meters to allow passage through the Panama Canal locks. This earned them the name Panamax container vessels.
In the mid-1980s, the shipping line APL designed a number of vessels with a width of more than the Panama beam. This was successful because APL’s main trading area was the Pacific Ocean, moving among a number of Asian and U.S. West Coast ports, with no need to transit the Panama Canal. Many of the larger shipping lines followed suit. By the end of this year, Maersk Line will launch the first 18,000 TEU vessel, known as the Triple-E Series.
Even amid such progress, however, the maritime transport world also faces significant problems, such as:
- Over-capacity in container vessels;
- Piracy in a few regions of the world resulting in higher insurance premiums;
- More severe environmental constraints;
- The financial crisis, leading to decreasing trade flows and shifting of countries of origin and destination;
- High fuel prices, resulting in vessels moving with lower speeds (“slow sailing”); and
- The new Panama Canal, which allows the transit of larger vessels, forcing smaller vessels that currently transit the Canal to shift to other trade routes.
All of these elements impact ports, providing a glimpse into their further evolution. For example, as very large carriers (which will mainly sail the Asia-Europe route via the Suez Canal) will call at fewer ports and load and unload more boxes per call, a certain percentage of these containers will have to be transported to regional ports (this is known as transshipment) already handling containers arriving from regional ports.
The high costs of these large vessels will pressure the ports to have state-of-the-art handling equipment and systems, along with the required depth and required quay length to allow the vessel to berth immediately upon arrival. Following this, a number of larger ports on the Asia-Europe route may see much of their transshipment cargoes shift to other ports in the region and thereby be “demoted” to feeder ports status. Ultimately, the smaller ports will then be faced with the arrival of larger vessels.
These shifts and changes will affect the Caribbean basin, Arabian Peninsula, Southeast Asia, the Mediterranean, and Western Europe. In many of these regions there are short run threats of terminal overcapacity from the slowed momentum of terminal expansion and investment plans resulting from the global recession. In some cases, regional terminal utilization may reach over 90 percent by 2016.
Container vessel capacity development: Maximum capacity built each year (Clarksons 2004, Wikipedia, and others)
In the face of these changes, one fact remains clear: ports and terminals that wish the very large container vessels to call will require top-of-the-line facilities and services. This not only requires huge investments in port facilities, quay walls, equipment, and systems, but also the right skills and management. Excellent trade facilitation systems such as customs, inspection, e-commerce, safety, and security round out the new list of must-haves.
But it’s unlikely that traditional ports in many countries can provide these. For this reason, most of the larger (and some smaller, with a throughput of 50,000 TEU) and efficient state-of-the art terminals are now managed and operated under PPP contracts. With these partnerships, port authorities have adopted a new landlord role focusing on infrastructure assets management and market regulation, in addition to their regular statutory functions.
Recent container terminal concession contracts have yielded a number of lessons about this latest leap forward for the industry. For example, limiting the number of variables on which potential bidders base their bid to about two or a maximum of three makes the bid evaluation easier, faster, and more objective. In addition, pre-bid conferences and road shows can help inform and develop the market of potential bidders. Self-regulating contracts protect the private investor and the transaction from the whims of a national regulator. Finally, yearly tariff adjustments for inflation (using a national index or a basket of major international indicies) avoid long and difficult negotiations.
More recent contracts (such as in the Port of Rotterdam) include Bonus-Malus conditions. These terms relate to obligations to decrease hinterland road transport, increase rail and barge transport, increase throughput performance over time, and decrease pollution. Failure to achieve these obligations results in penalty payments from the concessionaire to the landlord, and reaching or surpassing them results in a reduction of charges levied on the concessionaire.
These and other iterations of PPP contracts will continue to change the way port operations are conducted. But even as new technology and global realities require port operations, policies, and partnerships to evolve even further, these islands of world trade will continue in their age-old role: shaping regions economically and culturally, and connecting countries with nothing more in common than the body of water between them.