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News

Don’t downplay trust issues

COMMENT: The OECD recently published a report with a global outlook on freight transport – the Freight Outlook 2015 – including a forecast for the volumes handled by ports in various regions of the world, but can it be trusted, asks Peter de Langen.
Such forecasts are necessary elements in port development. However, forecasts can also be wrong. A comparison of forecasts from some decades ago with real developments clearly demonstrates this and also shows the relevance of the ‘zeitgeist’: before the oil crisis in the 1970s predictions foresaw continuous high growth; after the crisis and on the back of forecasts of an economic downturn, low growth was the order of the day.
The OECD forecast reflects the belief that trade growth will continue to drive transport and consequently port volumes. North American port volumes are forecasted to increase by close to 400% in 35 years. Volumes in Europe (including Turkey) are expected to rise with a factor of about 2.5, while port volumes in China and India together – albeit it an odd pairing of countries – will increase by a factor of 7.
These results are based on a combination of models that project GDP and trade between countries, turning those into cargo flows in volumes and finally predicting a distribution of volumes over transport modes. This approach certainly is sophisticated, but that does not imply the results are to be trusted. The modelling approach does not capture potential disruptions of past growth patterns. Could 3D printing disrupt supply chain structures? Could initiatives to improve the circularity of commodity flows (more re-use and less waste) change commodity flows in, for instance, the steel and chemicals industry? Or could the ‘sharing economy’ (where we share houses through Airbnb, and cars through Uber or Blablacar and others) impact the need for assets? Studies indicate sharing driverless cars can reduce the number of cars required in major cities by a factor of 5.
There are no answers to these questions, but we do know that people tend to extrapolate past experiences and downplay the effects of potentially disruptive trends. Acknowledging this, I would not put my money in companies that build ports and terminals in North America based on an assumed 400% growth up to 2050. And I would certainly not advocate governments putting taxpayers money in port infrastructure based on the results from a forecasting model alone either.

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Pricing of transhipment by port authorities

COMMENT: How can pricing structures in ports be best explained; are they based on a specific historical trajectory in each port, or based on economic logic, asks Peter de Langen.
The variety of pricing structures is huge. For instance, a substantial amount of charges are paid by shippers in South Africa, contrary to most other countries. In Singapore, virtually all revenues come from port dues and virtually none from land rents in ports or charges to shippers. The opposite is true in many US and Canadian ports; here, the majority of revenues are from land lease agreements. This suggests that ‘history’ may be an important factor.
Prices may traditionally be designed from an administrative logic, and in some cases even be perceived as a kind of tax rather than as a price for a service. In such an environment, huge differences in pricing structures can persist.
The recovery of a certain range of costs (operational and to some extent investment) may often be the most important objective. This implies pricing may not always be based on economic logic. In such cases, changing pricing structures may be attractive.
This issue is relevant for port authorities looking to price transhipment flows. The administrative logic would regard ‘a ship as a ship’ and not price ships differently based on whether the cargo they carry is transhipped in the port.
From an economic or commercial logic, it may make sense to differentiate prices with the lowest price offered to the most price sensitive market segment. In many ports, transhipment cargo (containers, but also crude oil and even dry bulk) is the most price sensitive cargo flow. Furthermore, transhipment flows generate ‘double’ port dues because they move in and out by ship.
Thus, special pricing for transhipment seems worthwhile. Indeed, various port authorities have such special prices for transhipment. As a reference, most airports also have lower prices for transit passengers.
Two questions remain: why haven’t all port authorities developed such pricing structures? And for those port authorities that have special prices for transhipment, have they ‘tweaked’ historically developed pricing structures or have they really taken a fresh look at port pricing?

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COMPLIMENTS AND COMMENTS

COMMENT: The development plan for Hong Kong Port, released December 2014, makes interesting reading for port planners and developers; my compliments to all stakeholders including the consultant BMT Asia Pacific, writes Peter de Langen.
The development plan emphasises Hong Kong’s continued role as a gateway to South China, but also acknowledges that its share of total volumes in this market will continue to decline. Further, it focuses on shifting South China cargo from road to barge, for cost reasons and to reduce the environmental impact of the port activities.
Next, it identifies a market segment (international transshipment) as driver of volume growth, and crucially without inflated forecasts: overall forecasted growth is around 1.5% per year. Finally, it concludes that additional terminal capacity is not an attractive development option. Note that Hong Kong economically-speaking is located in one of the most vibrant parts of the world. Ports in less privileged locations announce higher growth forecasts and start investing, usually public, money on that basis.
However, as an outsider, two issues caught my attention in the Hong Kong report. First, the development plan does not explicitly take an ‘evolutionary’ perspective which in my experience can help ‘frame’ the development plan: Hong Kong, like London, New York and most other world cities, became world cities because of the presence of a port. Hong Kong’s status as largest port serving South China fuelled the growth of trading activities, with very high mark-ups, generating great wealth in Hong Kong.
As a result of this, wages are now relatively high and land is scarce. The decline in market share of port throughput is simply part of the transformation process of the regional economy. The key challenge for Hong Kong is to continue to nurture the less visible port related activities in logistics and trade.
The second issue is the projected evolution of capacity of the existing facilities. The current capacity in the Kwai Tsing Container Basin is 21.7m and is projected to reach 23.4m in 2030. In my view, that seems unrealistically low. Larger ships, a higher share of international transshipment, a higher share of barge transport to South China, advances in supply chain planning, and the increasing role of inland ports as extended gates combined with the next generation of more productive terminal equipment and planning systems promote higher productivity.
What would the impact on capacity be if half of the terminals were modernised before 2030? Given the position of Hong Kong, an alternative view could be that the port should aim for significant productivity growth in the next 15 years, rather than accepting the status quo.

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Compliments and comments

COMMENT: The development plan for Hong Kong Port, released December 2014, makes interesting reading for port planners and developers; my compliments to all stakeholders including the consultant BMT Asia Pacific, writes Peter de Langen.
The development plan emphasises Hong Kong’s continued role as a gateway to South China, but also acknowledges that its share of total volumes in this market will continue to decline. Further, it focuses on shifting South China cargo from road to barge, for cost reasons and to reduce the environmental impact of the port activities.
Next, it identifies a market segment (international transhipment) as driver of volume growth, and crucially without inflated forecasts: overall forecasted growth is around 1.5% per year. Finally, it concludes that additional terminal capacity is not an attractive development option. Note that Hong Kong economically-speaking is located in one of the most vibrant parts of the world. Ports in less privileged locations announce higher growth forecasts and start investing, usually public, money on that basis.
However, as an outsider, two issues caught my attention in the Hong Kong report. First, the development plan does not explicitly take an ‘evolutionary’ prespective which in my experience can help ‘frame’ the development plan: Hong Kong, like London, New York and most other world cities, became world cities because of the presence of a port. Hong Kong’s status as largest port serving South China fuelled the growth of trading activities, with very high mark-ups, generating great wealth in Hong Kong.
As a result of this, wages are now relatively high and land is scarce. The decline in market share of port throughput is simply part of the transformation process of the regional economy. The key challenge for Hong Kong is to continue to nurture the less visible port related activities in logistics and trade.
The second issue is the projected evolution of capacity of the existing facilities. The current capacity in the Kwai Tsing Container Basin is 21.7m and is projected to reach 23.4m in 2030. In my view, that seems unrealistically low. Larger ships, a higher share of international transhipment, a higher share of barge transport to South China, advances in supply chain planning, and the increasing role of inland ports as extended gates combined with the next generation of more productive terminal equipment and planning systems promote higher productivity.
What would the impact on capacity be if half of the terminals are modernised before 2030? Given the position of Hong Kong, an alternative view could be that the port should aim for significant productivity growth in the next 15 years, rather than accepting the status quo.

Categorías: Geen categorie | Etiquetas: | Comentarios: sin respuestas.
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