Peter de Langen: +31 (0) 6 11 76 88 77

25 May 2015
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Forward plan to manage transitions

25 May 2015 | 0 Comments | ,

COMMENT: In Antwerp, the closure of the GM plant makes a huge site available for re-development, while in Rotterdam, one of the refineries (currently owned by Q8) is up for sale, writes Peter de Langen.
For the latter, one scenario is a buyer will transform the refinery into a terminal for bulk cargoes.
These cases from the two largest European ports show that both industrial and logistics facilities have a life-cycle. Similar closures of large scale sites in ports have occurred in Groningen, Teesside and Wilhemshafen, to name a few. These closures create re-development challenges for ports.
Compared with new greenfield developments, re-development at the end of the life cycle is more complicated. Outdated infrastructure or industrial sites often remain underused and/or derelict for long periods of time.
The creation of value for new types of users – and society at large – is often hampered by legal and institutional complexities. Questions are raised: such as who is responsible for soil pollution; and does the port authority have incentives to initiate re-development for non-port functions.
Port authorities may need to spend some time thinking through their approach to transitions in ports. Many ports host capital intensive industries based on fossil fuels. In some cases, port authorities may simply wait until plants close down, even if this involves a relatively long period of continued operations of fairly outdated plants.
In other cases, a more pro-active approach may be appropriate. Perhaps infrastructure investments are needed to create new development options? These generally have to be planned well in advance – certainly if government entities are expected to financially contribute. In other cases, co-siting may smooth the transition back to the beginning of the life cycle.
There may also be pricing issues involved: the port may have to secure a healthy return from mature activities to be able to create attractive offerings for activities at the beginning of their life-cycle.
For ports in mature economies, acknowledging the inevitability that some activities will close down sooner or later and developing scenarios on how to redevelop large sites currently occupied by mature industries may be worth the effort.

09 Mar 2015
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Pricing of transhipment by port authorities

9 March 2015 | 0 Comments |

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?

23 Feb 2015
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COMPLIMENTS AND COMMENTS

23 February 2015 | 0 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.