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Trade liberalisation underpinning strong global push to raise port efficiency

27th February 2015

By: Keith Campbell

Creamer Media Senior Deputy Editor

  

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Worldwide, the main thrust in the ports industry over the past decade or more has been to increase efficiency. Traditionally, ports have been run by engineers and mariners and, in the past, increasing a port’s capacity was achieved by expanding the harbour. “That has changed,” affirms economic and management consultant Jamie Simpson, who specialises in ports. Now, capacity is increased by increasing efficiency.

In part, this is due to significant opposition to port expansion, encountered almost everywhere, and in part it is to reduce costs and so help to boost trade. “Transport is a necessary evil,” he points out, as it adds no value to the products or commodities being shipped. “It’s not a good place to add costs.”

With the liberalisation of trade globally, increasing trade has translated into economic growth for the trading countries. “The more trade is liberalised, the more ports come to the forefront in economic development,” he pointed out. “Ports are really about transport efficiency – being efficient providers of transport services.  . . . The primary function of ports is to enable trade . . . Evidence [from the Organisation of Economic Cooperation and Development] supports the role of ports in economic growth.”

“National growth strategies focused on trade have expansion of port efficiency at their core,” he noted. “Maximum asset yield and efficiency for investment” is a priority almost everywhere: maintain safety while minimising the cost of cargo handling.

Around the world, there have been two main thrusts in improving port efficiency. One is decentralisation: each major port, even if still State-owned, has been set up as an independent company; ports within a single country are now expected to compete with each other. As a result, almost everywhere there is no price regulation of ports: it is not needed. (Virtually the only exceptions to this are Australia, India and South Africa.) Such decentralisation also spreads risk: a major failure by a ports company does not affect all the ports in a country.

The second thrust is privatisation. This normally takes the form of concessioning the port (and not just particular terminals) to the private sector, for a specific time – it can be for as much as 50 years. However, in the UK, some ports, such as Felixstowe and Teeside, have been totally sold off to the private sector. (There are also ports that have always been private-sector enterprises.)

South Africa is one of the very few countries that has not done either of these things. “Here [South Africa], a lot hinges on one company, one organisation, to deliver a lot,” stated Simpson. “Almost everywhere, once the private sector was brought in, the supply elasticity was remarkable.” Efficiency increased significantly and port expansions, where and when required – and which had traditionally been thought of as taking years to execute – were done with “remarkable” speed. “[With the private sector] everything can go very quickly.”

The Port of Hong Kong provides an example of the dramatic increases in efficiency that are possible. The introduction of automation increased the port’s capacity from 350 000 TEUs/y to 800 000 TEUs/y. (A TEU is a measure of container traffic: it stands for Twenty foot Equivalent Unit.) Increasing capacity through increasing efficiency costs much less than expanding a port. “Buying cranes is a lot cheaper than dredging and building quays,” he notes.

Of course, ports do not exist in isolation. Increased efficiency means increased throughput, which, sooner or later, requires expansion of a port’s road an rail links. Who pays for this? In Canada, for example, the Federal and Provincial governments can help (but not totally) fund improvements to a port’s terrestrial transport links, on the grounds that the port benefits the wider economy. On the other hand, in the UK, the Port of Felixstowe had to pay for improvements to the access road to the harbour itself.

Ports, cautions Simpson, do not directly create a lot of jobs. A container port with a capacity of one-million TEUs/y needs only about 600 staff. Bulk handling ports need even fewer people and transshipment ports need the smallest workforces of all. It is in the sectors that support the ports, such as trucking, that the jobs are created – and, of course, in the industries that export and import through them.

“Total through cost is what customers look at,” he highlights. “Ports are the most amazingly simple industry in the world. Almost everyone in the world is doing the same thing. It [the port sector] really has a silver bullet.”

Simpson was addressing a Trade and Industrial Policy Strategies development dialogue seminar in Pretoria.

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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