Ports in Proximity (Transport and Mobility)

PORTS IN PROXIMITY

Transport and Mobility Series Series Editors: Professor Brian Graham, Professor of Human Geography, University of Ulster, UK and Richard Knowles, Professor of Transport Geography, University of Salford, UK, on behalf of the Royal Geographical Society (with the Institute of British Geographers) Transport Geography Research Group (TGRG). The inception of this series marks a major resurgence of geographical research into transport and mobility. Reflecting the dynamic relationships between sociospatial behaviour and change, it acts as a forum for cutting-edge research into transport and mobility, and for innovative and decisive debates on the formulation and repercussions of transport policy making. Also in the series Railways, Urban Development and Town Planning in Britain: 1948–2008 Russell Haywood ISBN 978 0 7546 7392 7 Transit Oriented Development Making it Happen Edited by Carey Curtis, John L. Renne and Luca Bertolini ISBN 978 0 7546 7315 6 The City as a Terminal The Urban Context of Logistics and Freight Transport Markus Hesse ISBN 978 0 7546 0913 1 Ports, Cities and Global Supply Chains Edited by James Wang, Daniel Olivier, Theo Notteboom and Brian Slack ISBN 978 0 7546 7054 4 Achieving Sustainable Mobility Everyday and Leisure-time Travel in the EU Erling Holden ISBN 978 0 7546 4941 0 For further information about this series, please visit www.ashgate.com

Ports in Proximity Competition and Coordination among Adjacent Seaports

Edited by TheO NOTTebOOM University of Antwerp, Belgium CÉSaR DucRueT, Paris-I Sorbonne University, France PeTeR de LaNgeN Eindhoven University of Technology, The Netherlands

© Theo Notteboom, César Ducruet and Peter de Langen 2009 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise without the prior permission of the publisher. Theo Notteboom, César Ducruet and Peter de Langen have asserted their right under the Copyright, Designs and Patents Act, 1988, to be identified as the editors of this work. Published by Ashgate Publishing Limited Ashgate Publishing Company Wey Court East Suite 420 Union Road 101 Cherry Street Farnham Burlington Surrey, GU9 7PT VT 05401-4405 England USA www.ashgate.com British Library Cataloguing in Publication Data Ports in proximity : competition and coordination among adjacent seaports. -- (Transport and mobility series) 1. Harbors--Location. 2. Harbors--Economic aspects. 3. Harbors--Management. I. Series II. Notteboom, Theo. III. Ducruet, César. IV. Langen, Peter W. de. 387.1-dc22 Library of Congress Cataloging-in-Publication Data Langen, Peter W. de. Ports in proximity : competition and coordination among adjacent seaports / edited by Theo Notteboom, César Ducruet and Peter de Langen. p. cm. -- (Transport and mobility) Includes bibliographical references and index. ISBN 978-0-7546-7688-1 -- ISBN 978-0-7546-9385-7 (ebook) 1. Harbors-Case studies. 2. Competition--Case studies. I. Notteboom, Theo. II. Ducruet, César. III. Title. HE551.P84 2009 387.1--dc22  ISBN 9780754676881 (hbk) ISBN.V)

2009016976

Contents

List of Figures   List of Tables   List of Contributors   Preface  

1 Introduction    Theo E. Notteboom, César Ducruet and Peter W. de Langen

ix xi xiii xxv

1

PART I  CONCEPTUALIZATION OF PORTS IN PROXIMITY 2

Revisiting Inter-Port Relationships under the New Economic Geography Research Framework   César Ducruet, Theo E. Notteboom and Peter W. de Langen

3

Ports in Proximity, Proximity in Ports: Towards a Typology   Peter V. Hall and Wouter Jacobs

29

4

Port Regions and Globalization   César Ducruet

41

5

Path Dependency and Contingency in the Development of Multi-port Gateway Regions and Multi-port Hub Regions   Theo E. Notteboom



11

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PART II  THE GOVERNANCE OF PORTS IN PROXIMITY 6

Proximity and Port Governance   Brian Slack, Elisabeth Gouvernal and Jean Debrie

75

7 Regional Integration and Maritime Range   Arnaud Lemarchand and Olivier Joly

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8

99

Does the EU Port Policy Strategy Encompass ‘Proximity’?   Athanasios A. Pallis and Patrick Verhoeven

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PART III  THE NORTH AMERICAN CASE: CORRIDORS AND GATEWAYS 9

Gateways are More than Ports: The Canadian Example of Cooperation among Stakeholders   Robert J. McCalla

115



Port-hinterland Divergence along the North American Eastern Seaboard   Jean-Paul Rodrigue and Changqian Guan

131

11

Competitiveness of Green Gateways: A Blueprint for Canada   Claude Comtois and Brian Slack

10

151

PART IV  THE EUROPEAN CASE: COORDINATION IN A COMPETITIVE ENVIRONMENT 12

A Best Practice in Cross-border Port Cooperation: Copenhagen Malmö Port   Peter W. de Langen and Michiel H. Nijdam

163

13 Rethinking Proximity: New Opportunities for Port Development. The Case of Dunkirk   Antoine Frémont and Valérie Lavaud-Letilleul

175



14 15 16

Italian Port Authorities Approaching the Post-reform: The Ligurian Case   Claudia Caballini, Laura Carpaneto and Francesco Parola

191

A Geographical Perspective on Port Performance in the United Kingdom, 1999–2007   Anthony Beresford and Stephen Pettit

209

External Influences on the Humber Estuary Ports, the Largest Concentration of Port Activity in the UK   John Mangan, Amy Proctor and David Gibbs

225

PART V  THE ASIAN CASE: MAJOR CHANGES IN PORT SYSTEMS’ HIERARCHIES 17

Port Competition Paradigms and Japanese Port Clusters   Masato Shinohara

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Contents

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18

Port Challenge in Northeast Asia: Korea’s Two-hub Port Strategy  247 Sung-Woo Lee and Geun-Sub Kim

19

Hong Kong in Transition from a Hub Port City to a Global Supply Chain Management Centre   James J. Wang



List of References   Index  

261

273 301

This page has been left blank intentionally

List of Figures

2.1 4.1

Geographical overview of port spatial analysis Correlation between population and container traffic at port city level, 1975–2005 4.2 Gross Regional Product and port traffic by region size, 1996–2006 4.3 National importance of port regions by indicator, 2005 (Unit: %) 5.1 Terminal development options in a port system 6.1 Pre-reform and post-reform status in France and Canada 7.1 The North European maritime range, 1997–2001 7.2 The South European maritime front, 1997–2002 7.3 The Asian maritime front, 1999–2002 7.4 Korean and Japanese maritime ranges, 2001–2005 7.5 North American maritime ranges, 1992–2002 8.1 Diversity of European ports 9.1 The main components of a gateway with its corresponding corridor 9.2 Gateway-corridor model 10.1 A schematic representation of the Eastern Seaboard 10.2 Change in container traffic at Eastern Seaboard port 10.3 Container traffic at main Eastern Seaboard ports, 2007 10.4 From convergence to divergence: the Eastern Seaboard (annual growth rates and share of top four ports, 1985–2007) 10.5 Strong divergence: Montreal and Halifax, 1981–2007 10.6 Factors behind the resurgence of all water services to the east coast 10.7 Eastbound and westbound maritime routes: zone of contestability 10.8 The reemergence of the ‘hinterland factor’: inland corridors 12.1 Cultural differences between Swedes and Danes (according to CEO of CMP) 13.1 The threefold spatial context for a port: network, range and territory 13.2 Typology of ports and interport relationships 13.3 Strategies of actors in terms of interport competition/cooperation 13.4 Dunkirk and its port region 13.5 The ownership web in the Le Havre–Rotterdam range 14.1 Location and traffic portfolio of Ligurian ports 14.2 Gateway container throughput: Ligurian ports vs. Northern range and West Med 15.1 General activity patterns in British ports 15.2 Regional port groupings 1999–2007; England and Wales 15.3 Change in port traffic 1981–1989

21 46 48 49 60 79 91 93 94 95 96 100 116 117 134 136 137 138 140 141 144 148 172 176 179 181 182 188 201 203 210 211 213



15.4 15.5 17.1 17.2

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Change in container port traffic 1989–1999 Change in container port traffic 1999–2005 GDP of Asian countries in 2007 Japan’s trade in containers by counterpart region (unit: million TEU) 17.3 Super hub ports and rural economies in Japan 18.1 Location of Korean Two-hub Ports 18.2 Trade and cargo movements in Northeast Asia 19.1 Value-Added in Hong Kong transport and logistics sector 1996–2005 19.2 Employment in major transport and related services, Hong Kong 19.3 Hong Kong transport and logistics sector: changes in firm size 1981–2005 19.4 Hong Kong exports by mode of transport, 1993–2006 19.5 Hong Kong imports by mode of transport, 1993–2006 19.6 Hong Kong re-exports by mode of transport 19.7 LSP projected 3-year changes in gateway usage 19.8 Global Value-Added Logistics Space (GVALS) model

214 214 238 239 243 248 252 263 264 265 266 266 267 268 269

List of Tables

2.1 Comparison of agglomeration outcomes in NEG and port studies 2.2 Selected studies on port system concentration, 1963–2008 2.3 Selected studies on economic agglomeration at seaports, 1958–2008 3.1 Proximity and ports 3.2 Typology of ports in proximity and proximity in ports 4.1 Correlation evolution between port traffic, population, trade and production at country level, 1990–2000 4.2 Distribution of ports and regional units by country 4.3 Regional specializations and traffic growth, 2000–2005 4.4 Regional specialization and port performance, 2005 5.1 Ranking of major container handling regions in the world (in million TEU) 6.1 Governance of ports in France and Canada 7.1 Factors of port range emergence 8.1 A historical overview of EPP 8.2 Summary of the 2007 Commission Communication on EPP 9.1 Container throughput (million TEU) at Canada’s major container ports 9.2 Membership in the GVGC and HGC 9.3 Vancouver and USA west coast ports’ container throughput (million TEU) 9.4 Estimated Asian–USA trans-Pacific container trade (million TEU) 9.5 International cargo tonnages handled at Eastern Canadian ports, 2005 10.1 Transit Time (in days) between Selected Pacific Asian and East Coast Ports 10.2 Port infrastructure development at the top five east coast ports: The harbour/hinterland duality 12.1 An overview of cooperation between ports based on annual reports 12.2 Cargo turnover at CMP (2006)  12.3 Throughput Malmö and Copenhagen combined (1000 tonnes) 12.4 Key figures of CMP 12.5 Advantages of cooperation 12.6 Division of responsibilities between CMP and other public agencies 14.1 Major typological forms of coordination among ports in proximity 14.2 The vertical fragmentation of power among the major players 14.3 Throughput and added-value per employee

16 18 23 33 39 45 47 50 51 56 78 92 103 104 118 122 124 124 126 143 146 164 167 168 168 169 173 193 196 203

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15.1 Distances and haulage rates, Felixstowe to selected destinations 15.2 Distances and haulage rates, Hull to selected destinations  15.3 Distances and haulage rates, Southampton to selected destinations 15.4 Inland haulage from London Gateway: Distances and projected rates to selected inland destinations 15.5 Regional markets by percentage 16.1 Top ten ports in the UK in 2007  16.2 UK port operator take-overs  17.1 World port ranking in container handling 1980/2006 (in 1000 TEU) 18.1 Historical Process of Korea’s Two-hub Strategy 18.2 Container port ranking in East Asia (unit: ’000 TEUs) 18.3 Comparison of container cargoes throughput between metropolitan and two hub port (unit: ’000 TEUs) 18.4 Concentration of Northeast Asian port range 18.5 Total container growth of Northeast port range (unit: TEU)

220 220 221 221 223 226 229 240 249 251 253 255 257

List of Contributors

Theo Notteboom Theo Notteboom is President of ITMMA (Institute of Transport and Maritime Management Antwerp), an institute of the University of Antwerp in Belgium. He is also affiliated with the Faculty of Applied Economics of the University of Antwerp and a part-time Professor in Maritime Transport at the Antwerp Maritime Academy. He holds a visiting professorship at Dalian Maritime University in China and has given guest lectures at a dozen other universities in Asia, US/Canada and Europe. He has published widely in academic journals and books on transport and maritime economics, transport geography and transport policy, including market organization, spatial developments, maritime transport and inland transportation. His research output covers applications to Europe, Asia/China and North America. He has received seven international awards for his academic work. He is a member of the editorial boards of Journal of Transport Geography, Maritime Policy and Management, Maritime Economics and Logistics and WMU Journal of Maritime Affairs and acts as guest reviewer for a large number of other academic journals. He is Council member of the International Association of Maritime Economists (IAME), Fellow of the Belgian Royal Academy of Overseas Sciences and a member of the boards of directors of BIVEC (Benelux Inter-University Group of Transport Economists) and BITO (Belgian Institute of Transport Organizers).

César Ducruet Dr. César Ducruet has worked since January 2009 as Researcher for the French National Centre for Scientific Research (CNRS) at Paris-I Sorbonne University. His research interests as a geographer include the spatial analysis of transport networks and territorial integration, through the looking glass of urban/regional and port development worldwide, with a special focus on Europe and Asia. His past experiences in South Korea (KRIHS) and the Netherlands (Marie Curie fellow FP6-EIF, Erasmus University) have resulted in several collaborations with many French, Korean, and Dutch colleagues, finalized in numerous book chapters and peer-reviewed journals such as Journal of Transport Geography, Maritime Policy and Management, Geojournal, Geoforum, Urban Geography, Annals of Regional Science, Global Networks, Regional Studies, Transport Reviews, Cybergeo, Mappemonde (editorial board), and L’Espace Géographique. His ongoing interest is the graph visualization of – and application of gravity models to – maritime

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networks through collaboration with computer scientists and physicists. His research networks include S4 (Spatial Simulation for Social Sciences), SPANGEO (Spatial Networks in Geography), International Geographical Union (IGU), and International Association of Maritime Economists (IAME). Finally, he has given regular lectures in Asia (Korea, China) and Europe (France, The Netherlands).

Peter de Langen Prof. Dr. Peter W. de Langen works at the Port of Rotterdam Authority, in the Department of Corporate Strategy as Senior Adviser and is involved in various strategic renewal projects. Furthermore, he works one day a week as Professor of Cargo Transport and Logistics at Eindhoven University of Technology. Previously, Peter worked for almost ten years at Erasmus University Rotterdam, where his PhD was on ‘the performance of port clusters’. He has published articles on port selection, port policy, and international transport and logistics chains in various scientific journals, provided guest lectures at various universities abroad and participated as speaker and session chairman in a large number of (industry) conferences. His main scientific contributions are: 1) application of cluster theories to (maritime) transport, ports and logistics, with specific attention for governance in clusters, 2) the analysis of coordination in (multimodal) hinterland transport chains, 3) analysis of the effects of concession policies, entry barriers and intraport competition and, 4) the analysis of strategies of port authorities.

Anthony Beresford Dr. Anthony Beresford is Senior Lecturer of Logistics and Operations Management at the Cardiff Business School. Prior to his current post, he was Research Associate at the University of Birmingham specializing in developing a road safety system for winter conditions. He has been involved in a broad range of international research and advisory projects including: transport efficiency and trade facilitation in Africa, and transport corridors in Indo-China, both for the UN; and a variety of port expansion projects for UK port operators. Anthony has published over 150 academic papers and reports with many of his papers appearing in front-rank academic journals. His research is currently focused on multimodal transport systems, road traffic management, port operations and policy, and environmental aspects of transport.

Claudia Caballini In 2004 Claudia Caballini obtained her degree in Management Engineering at the Faculty of Engineering of Genoa University in Italy. From 2004 to 2006 she

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worked for Costa Crociere SpA and for a Finmeccanica consulting project where she acquired skills in process reengineering. Since 2007 she has been working at CIELI – Italian Center of Excellence in Integrated Logistics of the University of Genoa, as a PhD student in ‘Transport, Logistics and Territory’. In 2007 she collaborated on the Logistics Regional Plan for the Ligurian Region, where she worked on port systems and Ligurian port railways. Her research activity is mainly focused on intermodality, ports and logistics with a major focus on railway transportation in ports.

Laura Carpaneto Laura Carpaneto graduated in Genoa (Italy) in 2000 and studied for her PhD on EC Transport Policy. In 2004 she became a lawyer and joined a law firm. Her favourite research topics are port, port governance and EC transport law and policy. She is Contract Professor at the Faculty of Law in Genoa (Imperia Campus) and member of the Italian Centre of Excellence for Integrated Logistics. She is author and coauthor of papers and articles in international and maritime law reviews.

Claude Comtois Claude Comtois is Professor of Geography at the Université de Montréal, Canada. He has a degree in Political Science, a Masters in Geography from Laval University and a PhD from the University of Hong Kong for his research in the field of transportation. He is affiliated with the Research Centre on Enterprise Networks, Logistics and Transportation of the Université de Montréal. He has over 10 years experience as transport project director for the Canadian International Development Agency in China. Visiting professorships include more than 15 foreign universities. His teaching and research are centred on transport systems with an emphasis on shipping and ports. He has been involved in consultancy studies on marine policy, intermodal transport and environmental issues. He is co-author of The Geography of Transport Systems, published by Routledge and has published many articles in scientific journals on port and marine transport. He currently supervises a project on sustainable ports and inland waterways.

Jean Debrie Jean Debrie is Researcher at the French National Institute for Transport and Safety Research in the research unit ‘Production Systems, Freight and Logistics’. He holds a Doctorate in Geography (from Le Havre University in 2001). His work concentrates on the organization and morphology of freight networks, in particular the practices of private sector operators and how these impact on institutional

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spaces. He is currently involved in a research program about the process of port decentralization in France and port devolution in Canada He is also involved in a program about the local services of railway freight (economic and territorial perspectives). He lectures at the Paris-I Sorbonne University, the Ecole Nationale des Ponts et Chaussées and the University of Montreal on the subject of transport geography.

Antoine Frémont Holder of the ‘Agregation’ of Geography, Dr. Antoine Frémont is Research Director at INRETS (French National Institute for Transport and Safety Research). His research addresses the role of shipping lines in globalization: the organization of their maritime networks, their involvement in inland services and their role in the logistics chain. He is developing a new research program about logistics in metropolitan areas in relation with ports. His research output has been published in books and academic journals. He participates regularly in international conferences. He is associate editor of the European Transport Research Review and corresponding editor of L’Espace Géographique.

David Gibbs David Gibbs is affiliated with the University of Hull in the United Kingdom.

Elisabeth Gouvernal Dr. Elisabeth Gouvernal is Senior Researcher in the French National Institute on Transport and Security, and head of the research unit ‘Production Systems, Freight and Logistics’. She holds a Doctorate in Economics and Planning. She led a major study on the competitiveness of transport chains for the World Bank and the European Commission. She has held a position in the shipping company CMA-CGM. Her research focuses on maritime transport, the organization of transport chains, multimodality and problems of inland haulage to and from ports. Her present research focuses on port governance and devolution. She has directed two very large surveys in 1989 and 2004 of shippers and the transport chain employing a new methodology. She lectures at the Paris-I Sorbonne University and the Ecole Nationale des Ponts et Chaussées on the subject of maritime transport.

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Changqian Guan Changqian Guan is Associate Professor in the Logistics and Intermodal Transportation Program, Marine Transportation Department, United States Merchant Marine Academy. Previously, he was Assistant Professor at SUNY Maritime College, teaching in both the graduate and undergraduate programs. Prior to his academic career, he had sailed at sea as a deck officer for several years and held several positions with various management capacities in the maritime/ port industry. He has been actively engaged in research and consulting in maritime logistics, port planning, terminal operations management, and infrastructure development for private firms and public institutions. He has also published articles in academic journals and conferences. He provides valuable services to the maritime industry and government agencies such as shipping line, port/ terminal operator, shipyard, port authority, and economic development agency. He is a member of the intermodal terminal design and operations committee, Transportation Research Board, USA.

Peter V. Hall Dr. Peter V. Hall is a Professor in Simon Fraser University’s Urban Studies Program and he is also the Associate Director of the Centre for Sustainable Community Development at SFU. In 2006, he moved to Vancouver from Ontario, where he directed the Local Economic Development Master’s Program at the University of Waterloo. His research addresses the economic development role of seaports, airports, and other public institutions, as well as employment and community development. Before commencing his doctoral studies in city and regional planning at the University of California at Berkeley, he worked in the Economic Development Unit of the Durban Metropolitan Council. This experience led to his doctoral and subsequent research examining the connections between shipping and logistics chains, transport sector employment and the development of port cities. Dr. Hall’s research has been published in several academic journals as well as in edited volumes.

Wouter Jacobs Dr. Wouter Jacobs (1979) is an Assistant Professor at the School of Economics, Erasmus University Rotterdam (EUR). He has a background in spatial planning and holds a PhD in management (2007, Radboud University Nijmegen). His PhD addressed the political-economy of port competition in which he compared developments in Rotterdam, Dubai and Southern California. He currently researches the geographical and economic relationships of specialized advanced services (such as law, insurance, finance) in the international shipping sector. He

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is furthermore involved as Lecturer in (post)graduate courses at EUR and was a visiting scholar at the University of California Los Angeles and American University of Sharjah-UAE. Dr. Jacobs is a member of the board of the Regional Science Association-Netherlands and his research has been published in several international academic journals.

Olivier Joly Olivier Joly is Associate Professor at CIRTAI, Le Havre University in France.

Geun-Sub Kim Dr. Geun-Sub Kim is a Researcher at the Shipping, Port and Logistics Research Department, Korea Maritime Institute, a think tank for developing national policies on port, shipping and logistics. He received his PhD in the area of port competition strategies in 2007. His current research is focused on regional port competition, port development and management, port systems, container shipping and transport networks. He has published a number of articles in academic journals. As a researcher of a public institute, he has participated in numerous projects on port development and logistics networks.

Valérie Lavaud-Letilleul A former student at the Ecole Normale Supérieure (Ulm, Paris), she is holder of the ‘Agregation’ of Geography and Doctor of Geography (PhD from Paris-I Sorbonne University in 2002). She is Associate Professor at the University of Montpellier 3. She works in association with the INRETS (the French National Institute for Transport and Safety Research). She specializes in port and city-port development issues and focuses more specifically on port and non port actors’ strategies in cityports, new scales in port planning, the integration of port activities within coastal areas and more generally speaking, in coastal and marine management. She is currently involved in a research program about the process of port devolution in French ports. She is also involved in a program about the impact of environmental issues in port development. She has published three book chapters and 14 papers in academic or professional reviews.

Sung-Woo Lee Dr. Sung-Woo Lee is a Research Fellow at the Shipping, Port and Logistics Research Centre of the Korea Maritime Institute, a public think-tank in Korea

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specializing in the area of maritime transport and international logistics. He has been involved in various governmental projects, many of which are associated with urban planning and port development. He was previously affiliated with the Centre of Urban Planning and Environmental Management at the University of Hong Kong as a visiting researcher. His interests include managerial and strategic aspects of international logistics and maritime transport, port-city interaction and globalization. He is a member of International Association of Maritime Economists and is a guest editor of International Development Planning Review.

Arnaud Lemarchand Associate Professor in Economic Sciences, he is also director of the Department for Economic and Social Sciences (AES/ECO Gestion) at Le Havre University. His research areas include labour economics, port economics and history, urban economics, labour mobility and housing problems. His recent publications include ‘Travail mobile et habitat non-ordinaire dans les villes portuaires’ in ‘Le logement précaire en Europe’ and ‘Entre l’échelle et le hasard: la gouvernance: districts, rangées, conteneurs’ in ‘Ville productive et mobilisation des territoires’.

John Mangan John Mangan holds the Peter Thompson Chair in Logistics, Management Systems Group, University of Hull Business School. He is also the Director of the University of Hull Logistics Institute and a guest lecturer at the Irish Management Institute and at a number of other universities. He has worked previously at University College Dublin and seven years at the Irish Management Institute. He received a Fulbright Scholar to Boston College in 1997 and taught the international logistics course on MIT’s MLog programme in 2004. John has extensive teaching experience and consulting experience in SCM, logistics, procurement and transport across a range of sectors for a variety of organizations. He chaired the Irish Government Task Force on transport logistics in 2001. His research is focused on global logistics. Within this context he is particularly interested in maritime economics and also the link between global logistics and economic development. He has published in a variety of journals.

Robert J. McCalla Robert (Bob) McCalla is Professor of Geography at Saint Mary’s University in Halifax, Canada and Adjunct Professor in the Maritime Affairs Program at Dalhousie University. His research and teaching interests are in maritime transportation. He has published in journals such as Journal of Transport Geography, Canadian

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Geographer, Maritime Policy and Management, Geoforum, and Tijdschrift voor Economische en Sociale Geogra.e . He is the author of Water Transportation in Canada (1994) (Halifax: Formac). He served for four years as an External Examiner of the World Maritime University (Malmö, Sweden) and Shanghai Maritime University. Dr. McCalla was born in Windsor, Ontario, Canada. His BA degree is from the University of Western Ontario; his PhD is from the University of Hull, England where he was a Commonwealth Scholar.

Michiel Nijdam Michiel Nijdam has worked as a Port and Transport Economist at Erasmus University Rotterdam since 2001. He is active in teaching, academic research and contract research. He specializes in port economics and studied various aspects of ports and maritime transport, such as port pricing, entrepreneurship, and port competition. With regard to contract research, he participated in research on comparing European seaports, European policies and regulations in seaports, and entrepreneurship in maritime industries. He is working on a PhD thesis on the performance of the maritime industry in the Netherlands.

Athanasios A. Pallis Thanos Pallis is Assistant Professor at the Department of Shipping, Trade and Transport, of the University of the Aegean, Greece and the holder of a Jean Monnet grant on European Port Policy (since 2003; renewed in 2008). He is a Fulbright Scholar (2008–2009) at the Centre for Energy, Marine Transportation and Public Policy (CEMTPP), Columbia University, New York, US. He also holds an Adjunct Professor post at the Centre for International Trade and Transportation (CITT), Dalhousie University, Halifax, Canada (since 2007), and lectures at the University of Antwerp, ITMMA (since 2006). Thanos has authored 24 journal papers and has presented over 50 peer reviewed papers in international scientific conferences, and was a speaker/session chairman at nearly 30 more professional and scientific conferences. He is a member of the Council of the International Association of Maritime Economists (IAME) and Secretary General of the Hellenic Association of Maritime Economists. He is also a leading member of the Port Performance Research Network (PPRN), and active member of the Special Interest Group Ports and Maritime Transport, World Transport Research Society, the University Association for Contemporary European Studies (UACES) and the European Level Interests Representation (ELIR) Group.

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Francesco Parola Francesco Parola started his studies in Maritime and Transport Economics at the University of Genoa in Italy, where he received his bachelor degree in early 2001. During his PhD studies he has been visiting researcher at the Center for Maritime Economics and Logistics of the Erasmus University in Rotterdam. He defended a doctoral thesis about the strategies of transnational container terminal operators in the port reform era. His favourite research topics are liner shipping, maritime logistics and port governance. Currently he is Researcher at the ‘Parthenope’ University in Naples, Lecturer at the Faculty of Economics in Genoa, contract Professor at the Italian Naval Academy in Livorno, and Member of the Italian Centre of Excellence for Integrated Logistics. He is author and co-author of many papers and articles in conference proceedings and peer-reviewed international journals.

Stephen Pettit Dr. Stephen Pettit graduated with a BSc Honours degree in Maritime Geography from Cardiff University in 1989 and in 1993 he was awarded a PhD from the University of Wales. He is currently a Lecturer in the Logistics and Operations Management Section of Cardiff Business School. In the last decade he has been involved in a number of transport related research projects. Notably, he was involved in a groundbreaking project for the Department of Transport, studying the requirements for people with seafaring experience within the UK. He has also worked on various international transport projects for EU DGVII (DGTREN) including the economic value of shipping to the UK economy, an analysis of the cost structure of the main TEN ports and Work Organization in Ports. He has produced around 90 academic papers, conference papers and reports on his transport related work.

Amy Proctor Amy Proctor’s doctoral research reflected critically upon the concept of ecoindustrial development as a tool for promoting sustainable industrial development in the UK. The thesis evaluated the extent to which public-private partnership represented a shift towards more effective forms of governance for sustainable development at a local and regional level. After completing her PhD in 2005, she worked in Newcastle as a research officer in local government for a year before returning to Hull and academic research in 2007, to take up a position as a Research Associate in the Department of Geography. Her research interests include regional policy and governance (particularly issues relating to the governance of sustainable development), critical reflections on the role of industrial ecology and

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eco-industrial parks in local and regional development, city regionalism and the role of city regions in a national and international context.

Jean-Paul Rodrigue Jean-Paul Rodrigue is an Associate Professor in the Department of Global Studies and Geography at Hofstra University, New York. His research interests primarily cover issues related to freight transportation, logistics and globalization, particularly over North America and Pacific Asia. His recent work is focusing on the integration of maritime and inland freight distribution systems. Dr. Rodrigue, as project director, contributed to the development of a high impact web site about transport geography (which became a textbook in 2006) and was chair of the Transport Geography Specialty Group of the American Association of Geographers (2004–2006). He also acts as the Van Horne Researcher in Transportation and Logistics.

Masato Shinohara Masato Shinohara is Professor of Maritime Economics and Logistics at the School of Marine Science and Technology, Tokai University, Japan. He is a Graduate of the Faculty of Economics at Osaka City University. His PhD degree was granted by the Erasmus University Rotterdam in 2006. He started his shipping career at Mitsui OSK Lines and assumed numerous management positions during his 28 year service, including directorship of Mitsui OSK Finance PLC (1991–1993) and managing directorship of MOL Logistics Netherlands BV (1998–2000). From 2001 to 2004, he was an Independent Management Consultant and Researcher at Erasmus University Rotterdam. Since 2004, he has been in his current position. He is also a member of Shizuoka Prefecture Ports Strategic Committee and the board of directors of the Tokyo MOU Secretariat. His research area covers maritime economics, port management and cross-cultural supply chain management. He is author of European and Japanese Logistics Paradigms: An Explorative and Comparative Study of the Dynamics of Logistics Management (2006) (Tokyo: Maruzen Planet).

Brian Slack Brian Slack is Graduate of the London School of Economics and McGill University, and his academic career has been anchored at Concordia University, Montreal. A transport geographer with an interest in container shipping and intermodal transportation, he has published widely on these topics and has occupied visiting academic positions around the world. His present research focuses on three areas:

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port governance and devolution, shipping and sustainability, and the cultural dimensions of container shipping.

Patrick Verhoeven Patrick Verhoeven is Secretary General of the European Sea Ports Organisation (ESPO) which groups more than 800 port authorities in the maritime Member States of the European Union and neighbouring countries. Based in Brussels, the organisation acts as the principal interlocutor of the port sector with the institutions of the European Union. Patrick Verhoeven holds a Masters Degree in Applied Economics from the University of Antwerp where he is currently preparing a doctoral thesis on port governance reform in Europe.

James Jixian Wang James Jixian Wang is Associate Professor at the School of Geography, the University of Hong Kong and Fellow of Chartered Institute of Logistics and Transport (Hong Kong). He was born and grew up in Beijing, and received his BA in Economics from the People’s University of China, his Masters from the University of Hong Kong, and his PhD from the University of Toronto. His research area is Transport Geography, with special interests in port city development and transportation in China. He has published widely in international journals, and is on the editorial boards of Journal of Transport Geography and Transportmatrica. He is the principal editor of the book Ports, Cities, and Global Supply Chains published by Ashgate in 2007. As a consultant for port city development, he has participated in more than 25 port city planning projects in China for the past 10 years.

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Preface

In December 2007, the Institute of Transport and Maritime Management Antwerp (ITMMA) of University of Antwerp and the Department for Regional, Port and Transport Economics of Erasmus University Rotterdam jointly organized a conference on the theme ‘Ports in proximity’. The theme of ports in proximity is highly relevant: while most of the port users are international companies, most ports are governed by local institutions. While competition between ports is healthy and contributes to port efficiency, cooperation between ports, and especially ports in proximity, may be beneficial for port authorities and port users alike. The topic is especially relevant in the Rhine-Scheldt Delta, a region where the two largest ports of Europe (Rotterdam and Antwerp) are located, as well as other large European ports such as Ghent, Zeebrugge and Zeeland Seaports. The ports of Antwerp and Rotterdam are market leaders partly because of their marketorientation and their commitment to operational excellence, good governance and a well-balanced stakeholder policy. At the same time, the ports strengthen each other through the competitive process, but also by fully benefiting from existing synergies between the two large port complexes. While competition among the ports in the Delta remains fierce, various forms of cooperation and coordination have developed over the years. For instance, cooperation between Rotterdam and Zeeland Seaports in the joint exploitation of port land, cooperation between the Flemish ports mainly in the field of marketing and cooperation between Port of Rotterdam and Port of Amsterdam in the area of Port Community Systems. While it is still unclear to what extent and how cooperation will develop, it is certain that the Rhine-Scheldt Delta will remain an important laboratory for this type of research. For this reason, we both were happy to support this conference, and participate in the industry event, where issues in ports in proximity where discussed among port authorities, market players, government representatives and academics. This book builds on the papers presented at the conference. It contains a state of the art of academic research on ports in proximity. The contributions in the book provide many relevant insights and international cases such as Korea’s two hub strategy, Japan’s port policy, Hong Kong’s transformation to a logistics coordination centre, Canada’s gateways policy and Copenhagen Malmö’s cross border merger. These insights are relevant for port managers and the port industry alike. We hope that this book will provide an interesting read for researchers, policy makers and practitioners, but also for students that may be interested to

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learn more about this fascinating topic. We certainly encourage and will continue to support more academic interest in these and other issues in seaports. Hans Smits, CEO of Port of Rotterdam and Eddy Bruyninckx, CEO of Port of Antwerp Rotterdam and Antwerp, 2009

Chapter 1

Introduction Theo E. Notteboom, César Ducruet and Peter W. de Langen

In many coastal areas ports are located in proximity to each other. Location qualities, demand characteristics and actors’ strategies define the potential of locations to develop port functions such as transhipment activities, warehousing/distribution, port related manufacturing activities, trading and value-added logistics. The growth in cargo volumes around the world has allowed smaller or new ports to enter the global scene and to start competing with large established ports. The interaction between ports constitutes an important research topic. In many studies that focus on the analysis of seaports located in the same region, authors have avoided considering ports individually while attempting to look at groups of ports forming larger functional or spatial units. The often complex linkages in the governance and management of port areas and terminals within the same port system receives much attention in academic literature. Wang and Slack (2000) analyse the complex port interactions in the fast growing Pearl River Delta. Cullinane et al. (2005) discuss competition between Shanghai and Ningbo in the Yangtze Delta. Several chapters in Cullinane and Song (2007) are dedicated to competition, cooperation and governance issues in the Yangtze Delta, the Pearl River Delta, Singapore and Tanjung Pelepas and the South-Korean twin hub Busan and Gwangyang. The port governance book edited by Brooks and Cullinane (2006) also discusses the situation in many European gateways. Charlier (1996) and Notteboom (2007a) pay special attention to the Benelux seaport system. Marti (1988) zoomed in on the Pacific load centres on the North American west coast, while Starr (1994) and Shashikumar (1999) discuss port dynamics in North American gateways along the east coast. However, the diversity of local contexts motivates the search for generalization and conceptual synthesis, which is one goal of this book. Ongoing economic integration, including integration of value chains, transport infrastructure and tax laws may create a case for cooperation and coordination between ports in different regions or countries. While most port users are international companies (this applies to shipping lines, see Heaver et al. 2000, terminal operating companies, Slack and Fremont 2005, and forwarding companies), many ports are still strongly ‘territorially constrained’, e.g. the institutional structure of such organizations prevents investments outside their ‘territory’. This territory is often a municipality. Some ports have actively aimed to develop port networks (Van Klink 1997), with the aim to strengthen the competitive position of the ‘home port’. Furthermore, these port networks are often not the



Ports in Proximity

result of the strategy of the port authority, but an issue of the port community at large (De Langen and Chouly 2004). This internationalization of all types of port users leaves many ports as ‘pawns in the game’ (Slack 1993) and leads ports to reconsider their spatial scope. Consequently, ideas of port competition and coordination have emerged (Song 2003). This book aims to unravel the factors contributing to the dynamic development of ports in proximity. Adjacent ports are typically fierce competitors, a competition that often contributes to the strong market positions of the respective seaports. However, the relationship between adjacent ports has also grown stronger in the sense that port executives as well as the private sector stress that, while maintaining a healthy competition, opportunities for cooperation and coordination can be further explored. This book not only provides an overview of the state-of-the-art of research in this field, but also sets an agenda for further research on ports in proximity. Consequently, the book develops a clear academic view on opportunities for cooperation and identifies avenues for further joint research which is useful to ports in proximity all over the world. The book aims to provide multidisciplinary insights on ports in proximity. Throughout the book, concepts of strategic management, supply chain management, port and transport economics and economic and transport geography are applied to offer an in-depth understanding of the processes underlying spatial and functional dynamics in port systems. The book also discusses policy outcomes and implications relevant to port systems all over the world. By doing so, the book aims to advance research in the fields of the interaction (competition and coordination) between adjacent seaports in a logistics-restructured environment and the implications for port governance structures and policy makers. The first part entitled ‘Conceptualization of Ports in Proximity’ provides a methodological and conceptual background to the main themes of this book. Chapter 2 by César Ducruet, Theo Notteboom and Peter de Langen discusses the potential to apply insights from New Economic Geography (NEG) to ports. The authors demonstrate that NEG has moved beyond traditional economic geography in the early 1990s by applying a modelling approach to the explanation of changing spatial structures, and by attempting to put economic geography in the economic mainstream. By bringing together international trade theories, micro-economic theories, and spatial analysis, it proposes a renewed framework explaining the uneven distribution of activities across geographical space, understood in terms of agglomeration, dispersion, and regional integration. The chapter identifies two important issues where NEG can be applied to ports: the changing concentration of traffic within a port system, and the uneven agglomeration of economic activities around port areas. In Chapter 3, Peter V. Hall and Wouter Jacobs deal with the question of how proximity influences relationships between ports and among major port users. They argue that proximity within and between ports in this global age cannot be understood in geographic terms alone. Proceeding from the position that

Introduction



proximity is important for learning, innovation and resolving collective action problems, they discuss five dimensions of proximity in the ports context. Each of these dimensions must be appropriately balanced; too much proximity can be as harmful to innovation and collective action as too little proximity. Focusing on the geographic dimension, the authors differentiate between proximity within ports and between ports, so generating a typology of four ‘ports in proximity’. Each type faces particular challenges with regards to port innovation and upgrading. Given the importance of port infrastructure and hinterland connections, institutional proximity emerges as a key dimension. Chapter 4 by César Ducruet proposes clarifying the concept of ‘port region’ by synthesizing dispersed elements from various disciplines such as transport geography and regional science. He retains the idea that the port region is a regional area where economic structure is influenced by port activities and the port sector. One interesting finding from the data analysis on OECD port regions is that in general, specialization in the industrial sector has a negative influence on traffic size and growth compared with regions specialized in the tertiary sector or which concentrate economic wealth and unemployment. Such evidence provides useful insights on the impact of globalization (e.g. shift of manufacturing to lessdeveloped countries) on the role of ports in developed countries on a regional level. Chapter 5 by Theo Notteboom aims to unravel the factors contributing to the dynamic development of multi-port gateway regions and multi-port hub regions. Two questions lie at the heart of this contribution: what mechanisms drive port system development and why do distinctive port systems follow other development paths? The chapter provides a discussion on existing models on port system development and particularly analyses the role and sources of path dependency and contingency in port system dynamics. The author concludes that a certain degree of path dependence in the development of ports at a regional scale exists, but the sequence of events makes a difference for the outcome. Port development processes also show a certain degree of contingency. Strategies and actions of market players and other stakeholders may deviate from existing development paths. Part II of the book extends the discussion on ports in proximity to the level of port governance. The contribution by Brian Slack, Elisabeth Gouvernal and Jean Debrie deals with the relationship between proximity and port governance (Chapter 6). The authors consider some of the issues raised by port decentralization drawing upon the examples of two national cases, France and Canada, where different but parallel processes have taken place. It is demonstrated that in the case of France, regional governments play a larger role today in port administration which we suggest may lead to a greater degree of cooperation between the ports under each regional government. In contrast, Canadian ports have devolved to purely local agencies, without any regional and very limited national control. The chapter puts forward the hypothesis that governance proximity, defined as the relational distance separating the port authority from the government tier exercising jurisdiction over



Ports in Proximity

the port, can play a very important role in shaping port policy orientations. The authors conclude that proximity in port governance is an important factor shaping cooperation and competition, but may under certain circumstances give rise to very different results. Chapter 7 deals with regional integration and the concept of a maritime range. Arnaud Lemarchand and Olivier Joly argue that ranges are key elements in a new understanding of emerging interdependences through globalization processes and the new modalities of cooperation and competition. This calls for a new analysis of the insertion of port city economies within maritime ranges, based on existing port studies. One of the key research questions put forward relates to the way containerization and globalization influenced the emergence of maritime ranges. The contribution of Athanasios A. Pallis and Patrick Verhoeven (Chapter 8) scrutinizes the relevance of the concept of proximity in the European context. Based on a critical review of many EU official documents on port policy and of the literature on port development, they assess some key European policies such as the integration of transport systems, sustainable port development and level playing field. They underline important gaps between theory and practice, such as the preference given to bigger ports, the lack of investment in port infrastructure and intermodal solutions, and the lack of horizontal coordination among neighbouring seaports. Of course, the consciousness about such issues exists, but has appeared in EU official reports relatively recently. Therefore, the authors suggest referring to air transport policies, and to develop specific instruments fostering the advantages of proximity, such as guidance on the application of environmental legislation and state aid guidelines. The third part of the book contains the first set of case-studies: three chapters discuss contemporary issues in the North American gateways and corridors, which form key constituents of the ports in proximity discussion in the region. Robert J. McCalla in Chapter 9 proposes a thorough review of the concept of ‘gatewaycorridor’ in which he includes the political, jurisdictional, and private/public dimensions influencing port development. Using Canada as an ultimate example, the chapter demonstrates which factors make the Asia-Pacific gateway successful and the Atlantic gateway less successful. Besides classical factors such as spatial organization and legacy of the past, the work of Robert McCalla makes clear there is a lack of coordination among different parties in the Atlantic case. So far, the Asia-Pacific gateway has been more able to answer important challenges such as the growing Pacific trade while profiting from the prominent position of Vancouver as a naturally eligible gateway port for the region. He concludes that a successful gateway should be planned early by multiple actors beyond local boundaries while involving private players in a concrete way. After discussing recent changes inflicted by containerization on port competition and the organization of port hinterlands, Chapter 10 by Jean-Paul Rodrigue and Changqian Guan argues that a process of divergence is currently taking place at the Northeast American seaboard. Traffic distribution and growth is modified by new challenges for ports and new strategies of carriers. Their conceptual approach

Introduction



based on port site, shipping networks, port policy, hinterland and supply chain management provides a clear picture of the situation at Northeast American ports. Evidence is drawn upon recent traffic statistics by port and by range (i.e. St. Lawrence, Upper, Mid and Lower ranges). Changes in global services on the world map and in local policy directions in a context of port regionalization have led to a drastic redistribution of forces among concerned ports, showing the usefulness of the concept of divergence in port studies. Chapter 11 by Claude Comtois and Brian Slack provides a critical reflection about gateways in light of the economy/environment nexus. As it has become increasingly recognized that environmental concerns can also be beneficial to economic players themselves, the chapter proposes an application to the case of port gateways. Such approach provides a good complement to McCalla’s chapter because it widens the definition of the gateway to dimensions such as air and telecommunications networks passing through a given port or corridor, beside land and sea networks. Their new definition also embraces trade flows and specialized activities, calling for an integrated approach. Following a review of some cases of negative gateway impacts, the proposed solutions include internal efficiency, unimpeded accessibility, capacity expansion, and the emergence of new practices. Such reflection provides full support to the successful Asia-Pacific Gateway project led by the Canadian government. Part IV consists of five chapters elaborating on regional cases in Europe: Dunkirk in France, the Ligurian ports in Italy, a Danish-Swedish port combination and two cases for the UK port system. The case of Copenhagen Malmö Ports presented by Peter de Langen and Michiel Nijdam in Chapter 12 is both unique and offers an example of best practice. The authors offer a useful overview of existing multi-port organizations in the world, insisting on the fact that most of them have not emerged through bottom-up initiatives. Without any doubt, the CPM project has emerged from two geographically adjacent main partners, benefiting from historical relations and locating within a vast cross-border urban region. Therefore, sharing culture and knowledge has facilitated the implementation of this unique project, while common practice already existed before the merger of the two medium-sized ports Copenhagen and Malmö in 2001. Despite some legal and political difficulties, the project has successfully lowered costs through capacity sharing. In the end, the authors conclude that such integration of two port authorities is not likely to happen anywhere else due to the specificity of the case, such as low pre-existing competition and a common threat due to bridge construction. Embarking on geographical proximity and competition as prime factors, Chapter 13 by Antoine Frémont and Valérie Lavaud-Letilleul provides a critical assessment of the case of the French port Dunkirk. Ideally located in Northwest Europe, Dunkirk shows a remarkable example of a little-known port situated in a medium-sized industrial city strongly hit by changing economic cycles. Based on a review of port development processes worldwide, the authors propose a conceptual synthesis of the possible relations between a mega-port and a secondary port



Ports in Proximity

within a given area. Possible solutions to the domination of a huge gateway like Antwerp are highlighted without ignoring the specificities of Dunkirk as a staterun port, having little synergy with adjacent ports, and suffering from industrial crisis and isolation. Signs of change locally and regionally call for a rethinking of the position of Dunkirk, notably in light of pressures felt at competing ports such as Zeebrugge in Belgium. Chapter 14 presents a case study of Ligurian ports in Italy. Different ports are located in close proximity in Liguria: Genoa, La Spezia and Savona. The chapter demonstrates the current legal and institutional structure is not adequate for dealing with the challenges faced by the ports. Consequently, Claudia Caballini, Laura Carpaneto and Francesco Parola make a plea for a further decentralization of the Italian ports (that currently are managed rather centrally) as well as the establishment of a platform for cooperation in the Ligurian region. Chapter 15 provides a case from the UK. Anthony Beresford and Stephen Pettit discuss competition between ports in the UK. They show the relevance of inland transportation costs in port competition and also suggest that ports located outside metropolitan areas may benefit from congestion and high prices for road transport from ports in congested areas. Chapter 16 by John Mangan, Amy Proctor and David Gibbs discusses the influence of external factors on the role of ports. The contribution in particular focuses on the ports along the Humber Estuary, the largest concentration of port activity in the United Kingdom. The chapter considers the impact of various disparate external influences on the Humber ports (economic activity in the UK, changes in ports ownership, and developments in port-centric logistics) and how these might impact the ports into the future. As such, the chapter aims to give the reader an insight into some of the disparate issues currently impacting the ports sector generally in the UK. After these European cases, Part V of the book discusses cases from Asia. Masato Shinohara discusses port competition and Japanese port clusters. He describes a fundamental transition in Japan, away from a focus on competition of Japanese ports with gateways in China and Korea, and towards more attention for a balanced development of the port system, with more attention for regional ports. Sung-Woo Lee and Geun-Sub Kim discuss Korea’s two-hub port strategy in Chapter 18. They suggest that Korea’s policy of developing two hub ports has made Korea an important gateway in North-East Asia. They suggest further integration between the two ports would add to Korea’s competitiveness. In the short term, this may take the shape of joint projects to improve flows between the two ports, while in the longer run, a unified governance structure for both ports is suggested. In the last chapter, James J. Wang discusses the transition of Hong Kong from a hub port city to a global supply chain management centre. The case of Hong Kong shows that containers shift easily between ports. Thus, ports in metropolitan areas, that have to ensure that economic activity related to logistics activities remains in

Introduction



the hub-city while no longer aiming to maximize port throughput. This is certainly a relevant insight for the development of ports in large gateway regions. The contributors to this book and the case-studies presented in this book are from different parts of the world and different disciplinary backgrounds. We sincerely hope the book will provide our readers with multiple perspectives and fresh ideas on how to evaluate and solve current issues in multi-port regions around the world. We hope this book contributes to the ongoing policy discussion in many parts of the world on sustainable inter-port relations that not only add value to the port users, but also guarantee a development pattern respecting societal and environmental goals and objectives. Finally, we would like to express our acknowledgements to the Series Editors, Professors Richard Knowles and Brian Graham and the anonymous reviewers for their supportive and constructive comments.

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PART I CONCEPTUALIZATION OF PORTS IN PROXIMITY

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Chapter 2

Revisiting Inter-Port Relationships under the New Economic Geography Research Framework César Ducruet, Theo E. Notteboom and Peter W. de Langen

Introduction Port geographers and port economists all look basically at the way a port develops and performs. While this may seem rather trivial, the simple fact that 90 percent of world trade volumes are ensured by maritime transport is in itself a sufficient argument assessing the importance of ports in shaping the world economy. The core intention of port specialists is thus to explain why some ports grow while others stagnate or decline. The complexity of the answer stems from the intermingling of multiple historical, geographical, economical, and political factors on various scales. Throughout port studies, particular attention has been paid to the study of inter-port relationships. Just like cities became conceptually defined as elements in urban systems rather than isolated elements serving their dedicated region (Pumain 1982), ports have become identified as parts of port systems (Robinson 1976). This new way of thinking opened many research opportunities in the fields of competition, cooperation, and integration. It has improved our understanding about how different ports accommodate different traffic but also how port activities impact – and are influenced by – local and regional economic growth. However, port research has become too much industry-specific, as recent works point at the need to be better integrated within economic geography as a whole (Hall et al. 2006; Olivier and Slack 2006). In this chapter, the New Economic Geography (henceforth NEG) is seen as a possible bridge through which such integration may be envisaged. The NEG has distanced itself from traditional economic geography in the early 1990s by applying a modelling approach to the explanation of changing spatial structures, and by attempting to put economic geography in the economic mainstream (Krugman 1998). By bringing together international trade theories, micro-economic theories, and spatial analysis, it proposes a renewed framework explaining the uneven distribution of activities across geographical space, understood in terms of agglomeration, dispersion, and regional integration.

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Ports in Proximity

Following a brief synthesis of NEG core ideas, notably about the development of transport nodes, this chapter confronts it with two important sets of port research: the changing concentration of traffic within a port system, and the uneven agglomeration of economic activities around port areas.

Agglomeration and Dispersion Forces: The NEG Approach General Framework: Scales, Accessibility, Costs The main purpose of economic geography is to explain the uneven distribution across places on various geographical scales (Anas et al. 1998). Agglomeration of firms or populations occurs due to unequal levels of accessibility to spatially dispersed markets (Fujita and Thisse 2002). This accessibility depends on trade costs – of which transaction costs, tariff and non-tariff costs, transport costs, and time costs – that are inherent to exchanges across locations (Behrens 2006; Spulber 2007). While the analysis of the consequences of decreased distance-related costs on the spatial economy have been made on a national level (Bairoch 1997), NEG is designed to operate on a sub-national or regional level, with special reference to interregional relationships. NEG focuses primarily on the trade-off between increasing returns in production and transport costs (Koopmans 1957; Krugman 1995). It also borrows from human geography the law of Tobler (1970) according to whom ‘everything is related to everything else, but near things are more related than distant things’. This principle has been given remarkable relevance with regard to the emergence of core-periphery patterns during the industrial revolution due to falling transport costs. Based on such principles, NEG proposes an alternative approach to the neoclassical model that neglects the interpretation of international (and interregional) discrepancies. It proposes a framework aiming at determining the nature and intensity of agglomeration and dispersion forces that push and pull both consumers and firms (Papageorgiou and Smith 1983), together with the interplay between such forces and transport costs (Krugman 1991). The difficulty is to ascertain whether regions with large markets will always attract more firms than regions with small markets. Indeed, the concentration of firms may result in intensified local competition and decreasing profits, causing a dispersion force from the core to the periphery. Dispersion may be challenged by the home market effect deriving from the size advantages of the core region (Helpman and Krugman 1985; Combes et al. 2008a). In a context of economic integration as in the European Union, firms are likely to exploit intensively scale economies while avoiding geographical isolation in the periphery, leading to increased agglomeration in the core region. This explains why improving transport infrastructure may exacerbate regional disparities and lead to over-agglomeration in the core region (Ottaviano and van Ypersele 2005). Complementarily, interregional flows are also composed of individuals (e.g. workers and consumers). According

Revisiting Inter-Port Relationships

13

to Krugman (1991), the increase in market size leads to a higher demand for manufactured goods, then to an over-agglomeration of firms, and to a push of nominal wages. As a result, the greater variety of local products leads to lower local prices, resulting in increased real wages and, in turn, in-migration of new workers, giving birth to a core-periphery pattern. The snowball meltdown occurs when wages decrease in the destination region, while new workers (who are also new consumers) increase the demand for manufactured goods and, thus, for labour, resulting in the spatial dispersion of firms and workers. One main principle to retain from NEG is that high transport costs create spatial equality by sustaining the dispersion of activities, while low transport costs foster core-periphery inequalities by fostering their agglomeration (Krugman 1991; Fujita et al. 1999; Combes et al. 2008b). It is assumed that individuals are less footloose than firms, because individuals need more complex networks of interaction that are available only in agglomerations. A very important aspect of NEG is that it considers the planner and the market as being equally concerned by the issue of agglomeration. For both public and private players, agglomeration may be socially efficient, notably if the inhabitants of the periphery are guaranteed a good access to firms’ products. Such issue has motivated the analysis of skills distribution across regions (Duranton and Monastiriotis 2002; Combes et al. 2008), notably showing that agglomeration leads to low prices and low wages due to the fact that the net effect is negative when transport costs take intermediate values. Another important aspect of NEG is the diachronic approach to the relationship between growth and location. The growth of the global economy depends on its spatial organization (Fujita and Thisse 2002). More precisely, the change from dispersion to agglomeration fosters innovation. Recent studies (Tabuchi and Thisse 2002a) demonstrate that the relation between agglomeration degree and transport costs results in a bell-shaped curve of spatial development, in which the second phase marks the re-dispersion of the manufacturing sector while noneconomic factors become dominant. In fact, these non-economic considerations tend to make residents stickier, especially in rich economies. However, given the fact that living costs (e.g. land rent, commuting and housing costs) increase in the city or region accommodating newcomers (Fujita 1989), dispersion occurs only if transport costs become lower than commuting costs (Tabuchi 1998; Ottaviano et al. 2002). Morphological changes in US cities that lead to polycentric urban areas are directly driven by the succession of agglomeration and dispersion (Anas et al. 1998; Henderson 1997; Cavailhès et al. 2007). The complementary forces of agglomeration and dispersion also affect intrafirm organization (Krugman and Venables 1995). Due to rising incomes in the core region resulting from agglomeration, firms may find it advantageous to relocate some activities to the periphery to benefit from lower wages, resulting in dispersion (Puga 1999). This fragmentation process can be possible only when transport costs and communication costs have reached a sufficiently low level (Feenstra 1998; Spulber 2007; Leamer and Storper 2001). Nevertheless, it results in a separation

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between firms’ strategic functions in the core, and firms’ production functions in the periphery (Fujita and Thisse 2006; Robert-Nicoud 2008; Faini 1999). Transport Nodes and Agglomeration Economies As stated by most NEG specialists, ports naturally gave birth to centres of economic activities. Fujita and Mori (1996) propose a new framework analyzing whether a given port may create endogenous urban and economic growth. In this framework, the competitive advantage of the industries located around the port, and the quality of the transport link between the port and the core region are key determinants of local growth. As a result of their model, a port in a peripheral region is likely to attract second-order activities (e.g. manufacturing) while higher-order activities remain concentrated in the core region. Two main research directions are investigated by the NEG: general theories on the agglomeration dynamics at transport nodes, and empirical verification of the effect of port efficiency on transport costs and trade. Intermediate locations and the development of hub cities The emergence of so-called ‘hub cities’, which can be port cities or non-port cities, is depicted by NEG as a fundamental result of the agglomeration power of transport nodes. This phenomenon is mostly due to shrinking transport costs and declining trade barriers within countries and across regions on various scales, resulting in the necessity of concentrating trade flows at intermediate locations (Glaeser and Kohlhase 2004). During the first stages of transport development, infrastructure tends to naturally select already existing and well established economic centres (Fujita and Mori 2005). In a later stage, technological improvements in the transport industry combined with the aforementioned factors provoke the emergence of intermediate locations called hubs. This is confirmed by Behrens (2007) for whom ‘transportation hubs are very likely locations for cities to emerge, even if they are not centrally located’. In the work of Konishi (2000), the hub city is an intermediate location that emerges due to economies of scale and technological improvements of transportation. Between an agricultural city ‘A’ and an industrial city ‘B’, the hub city ‘C’ is likely to be used as a third location to reroute transport flows. This location may develop into a new city due to the demand for transhipping and handling commodities, which in turn attracts workers and, therefore, stimulates population agglomeration: ‘as the volume of trade between hubs increases, more workers are needed in order to meet labour demand for shipping and handling commodities, resulting in population agglomeration at such hubs’. Tabuchi and Thisse (2002b) underline the limitations of the core-periphery model by arguing that agglomeration forces are commodity-specific and therefore depend on a certain degree of regional specialization. Notably, heavy industries and industries producing goods with high transport costs are more agglomerated than light industries and industries with lower transport costs.

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For more convenience, Behrens et al. (2006) explore the opposing forces exerted on remote regions possessing a transportation gate. On the one hand, remoteness makes imports and exports more costly, thus reducing the locational appeal of the port and region to firms and workers. On the other hand, remoteness provides a shelter for local markets from foreign competition, thus increasing the locational appeal of the port or region. Therefore, a transportation gate does not always attract industries, because it can act as a channel threatening domestic firms through international competition. What makes their work innovative is that the authors take into consideration the level of economic and spatial integration of gateway regions. This provides a multi-scalar approach about how the specific properties of transportation gates modify the spatial structure of their adjacent region, depending on wider factors such as international trade barriers and intranational trade costs. Empirical investigations and policy relevance  In general, NEG specialists provide aggregated measures of general trends that should apply for a large set of locations that are not differentiated. Yet, their results shed important light on the dynamics in which ports operate. Behrens et al. (2006) show to what extent transportation gateways favour coastal economies versus landlocked countries by reducing distance to trade partners thus creating economic wealth in terms of GDP growth. They elaborate their results based on former studies on the role of coastal gateways in overall transport costs. For instance, the study of Limao and Venables (2001) on US imports and exports shows that in general, coastal countries enjoy 50 percent less transport costs than landlocked countries. This result may vary depending on the improvement of the infrastructure quality, thus making trade partners theoretically closer or more distant. In the same vein, Clark et al. (2004) evaluate the role of seaport efficiency in terms of infrastructure and cargo handling services quality, showing that shipping costs would reduce by 12 percent when port efficiency is improved from the 25th bottom percentile to the 25th top percentile. In their study of Brazilian shipments, Haddad et al. (2006) also show to what extent the level of port efficiency determines for an important part the relative distance (and cost) between trading regions and countries. Some studies also focus on the impact of port policies on maritime transport costs: Fink et al. (2002) demonstrate that liberalizing port services would be equivalent to decreasing maritime transport costs by 9 percent. Other studies such as the one of Overman and Winters (2005) on UK shipments show the impact of European integration on the traffic shifts to the Southeast of the UK from other UK regions. Finally, other studies that are not directly related to maritime transport or ports also provide useful evidence about the interplay between transport costs, agglomeration, and dispersion forces. Bosker et al. (2007) confirms that the spatial organization at the top of the bell-shaped curve corresponds to the ‘blue banana’ in Europe. For the French case, Combes and Lafourcade (2007) identify that a 30

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16

Table 2.1

Comparison of agglomeration outcomes in NEG and port studies NEG theories

Traffic distribution within port systems

Advantages of agglomeration

Innovation, importance of noneconomic factors

Traffic stability, commodity variety, added-value

Disadvantages of agglomeration

Regional disparities, lock-in effect of established core regions on the periphery Lower wages, available land, shelter for local markets Remoteness, higher transport costs

Congestion, lack of space

Over-agglomeration in the core, increased transport costs

Peripheral port challenge, diseconomies of scale in large load centres, port competition, technological revolution, carrier selection, hub strategies

Advantages of dispersion

Disadvantages of dispersion Factors of coreperiphery shift

Nautical accessibility, land for port expansion, niche market Lack of hinterland coverage

Ports as locations for economic activities Captive local market, economic diversity (tertiary), economies of scale Environmental nuisances

Extended gateway (logistics), specialization Greenfield development, haphazard urbanization Globalization, urban growth, portcity separation, waterfront redevelopment, free-zone or growth pole development, landuse conflicts

percent drop in generalized transport costs would spread employment more evenly across regions but this would result in rising agglomeration within regions. In the end, results of NEG applications are very consistent and relevant, notably with regard to policy making. For instance, a major outcome is that the development of more efficient transport infrastructure would exacerbate regional disparities, a result opposite to what transport authorities expect (Fujita et al. 1999). The European regional policies, for example, keep being based on the idea that developing corridors will help remote regions to develop (Midelfart-Knarvik and Overman 2002; Vickerman et al. 1999).

Revisiting Inter-Port Relationships

17

Ports and Agglomeration Dynamics Seaports and NEG Theories The main difficulty in applying NEG theories to seaports is the difference in nature between the units of analysis: the region and the city are places for firms, workers, and residents to locate and prosper, while ports are basically intermodal connection points between different transport systems. However, it is possible to analyze ports through the NEG framework by considering the simple fact that large ports coexist with small ports. Because not every port can become a global hub or gateway, it is important for geographers to understand the factors fostering port growth – and decline. Table 2.1 provides a comparison of the implications of spatial agglomeration (and dispersion) within three main approaches: the NEG general approach, the distribution of traffic within a port system, and the location of economic activities around port areas. While this comparison indicates that NEG and port studies have much in common in terms of conceptual investigations and empirical evidence, NEG models have never been applied systematically, for example to address the issues below: • • • •

Bigger port cities are more likely to suffer from congestion and traffic decline than smaller port cities; Traffic growth stimulates value-added and regional development in the port area; Port-city separation and land-use conflicts harm port growth; New terminals on greenfield sites create economic development.

Far from applying NEG models to port studies, the remainder of this explorative chapter proposes a synthesis of the existing literature on the two aforementioned topics. Traffic Concentration in Port Systems One dominant issue of port geography and economics is the evolving concentration of traffic among sets of ports worldwide (Table 2.2). This issue is of particular relevance for the study of agglomeration and dispersion forces in NEG theories. Port traffic covers approximately 90 percent of world trade volumes, but such figures reach higher proportions in the case of export-led states (e.g. 99 percent for South Korean international trade). Based on Table 2.2, the main factors explaining the lack of NEG-like models in this study field may be explained as follows. The changing significance of performance factors over time In earlier studies, the size of the hinterland and the role of ports as natural gateways at the head

Ports in Proximity

18

Table 2.2

Selected studies on port system concentration, 1963–2008 Concentration factor(s) Inland transport corridors

Deconcentration factor(s)

Author(s)

Year

Area

Taaffe, Morrill and Gould

1963

Africa

Rimmer

1967a, 1967b

Australia, New Zealand

Inland transport corridors

Kenyon

1970

United States

Metropolitan dominance (New York)

Hinterlandforeland changes

Ogundana

1971

Nigeria

Sustained port dominance

Port diffusion, diseconomies of scale

Hilling

1977

Ghana

Spatial consolidation and rationalization

Hayuth

1981, 1988

United States

Development of large load centres, intermodalism

Peripheral port challenge

Slack

1985, 1990

United States

Level of intermodalism

Port selection by carriers

Barke

1986

General

Hoare

1986

United Kingdom

European integration, national connectivity

Charlier

1988

Belgium

Stable structure of port hierarchy

Airriess

1989

Indonesia

Exogenous development through hinterland penetration

Kidwai

1989

India

Kuby and Reid

1992

United States

Congestion, lack of space for further expansion

Traffic specialization

New port construction (bulk) Technological innovations, disappearance of smaller ports

Revisiting Inter-Port Relationships

19

Todd

1993

Taiwan

Export-led policy and growth poles

Starr

1994

United States

Hoyle and Charlier

1995

East Africa

Economies of scale in liner shipping, decreased port calls Concentration of investments

Charlier

1998

Benelux

Hinterland development (railway), port selection (Zeebrugge)

Notteboom

1997

Europe

Traffic shifts to medium-sized (new) ports

Wang

1998

Hong Kong, China

Technological advance of Hong Kong

Port competition, congestion, modal shift, high handling costs

Hoyle

1999

Kenya

Primate city polarization (Mombasa)

New port development

Brunt

2000

Ireland

Metropolitan dominance (Dublin)

National development plans

Balanced regional development

Wang and Slack 2000

Pearl River Delta

Carriers’ pressures, port policy

Slack and Wang 2003

Asia

Strategies of transnational operators

De and Park

2003

World

Port competition, new technologies

Notteboom and Rodrigue

2005

Developed countries

Development of ‘off-shore’ hubs and inland terminals

World

Urban growth, regional port competition

Ducruet and Lee 2006

Ports in Proximity

20

(Table 2.2 continued) Notteboom

2006a

Europe, North America

Stability of concentration

Notteboom

2006b

East Asia

Frémont and Soppé

2007

North European Range

Stable traffic concentration

Shipping line concentration

Ducruet

2008

Northeast Asia

Hub dependence

Military control, logistics barriers

Lee, Song and Ducruet

2008

Hong Kong, Singapore

Technological differentials, efficient planning policy

Congestion, lack of space, port competition

New port development

Source: Adapted from Ducruet et al. (2009).

of inland transport corridors were depicted as the main factors explaining traffic volumes. However, with the core-periphery shifting factors summarized in Table 2.1, traffic growth may occur regardless of hinterland size and accessibility. Regional integration and port competition give more importance to nautical accessibility and technological performance within the port. The location nearby core economic regions is far less important than in the past. Yet, there is an overlap between old and new factors of port performance. This is perfectly matching NEG theories for which performance is a trade-off between increasing returns to scale and transport costs. New terminals stemming from the peripheral port challenge are never really far from already established transport corridors, as seen in Zeebrugge and Felixstowe cases that are both close to core regions and traditional gateways (e.g. London, Antwerp). Seaports with good nautical accessibility and well located as prime loading/unloading gateways such as Le Havre may under-perform due to the lack of efficient hinterland access towards core economic regions. The exogenous character of port development  With the growing decisional power of shipping lines, forwarders, and intermodal operators on supply chain spatial design through horizontal and vertical integration, the fate of ports is increasingly dictated from outside. Indeed, Goss (1990) clearly indicated that the risk of port policies is to lean towards over-capacity while traffic may shift only due to the decision of some firms, as seen in many cases such as Maersk Line shifting from Singapore to Tanjung Pelepas (Malaysia). Albeit recent work has computed shipping lines’ decision-making processes (Yap and Lam 2006), no model has resulted from the empirical investigation yet that would be applicable anywhere in the world. In addition, the large literature on container terminal

Revisiting Inter-Port Relationships

Figure 2.1

21

Geographical overview of port spatial analysis

efficiency seems to totally ignore that such efficiency mostly depends on the quality of hinterland connections. Container terminals are often considered as isolated entities functioning with their own cargo handling equipment, regardless of their relation with other transport modes. Although this has been well addressed in a recent work based on the Rotterdam experience (Horst and De Langen 2008), it has not yet been studied systematically. Thus, the difficulty comparing ports is the necessity to include in the analysis the decisional and managerial dimensions that go far beyond the responsibility and the territory of the port itself. The interplay of multiple actors on various geographical scales  In complement to the aforementioned realities, the complexity of contemporary port development stems from the intervention of multiple actors such as transport companies, port authorities, and governments involved in port planning. One dominant school of

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Ports in Proximity

thinking is led by scholars such as Slack (1993) for whom ports have become pawns in the game of such global transport players that insert ports in their networks according to firm-centred considerations (advantageous location, handling costs, and technical efficiency). As a result, there is a need to rethink ports as groups of terminals with their own individual logics, notably with the globalization of port terminal operations (Slack and Frémont 2005; Olivier and Slack 2006). Intra-port competition among terminals and operators in large load centres has become as important as inter-port competition (Pallis et al. 2008). Thus, terminal, port, port city, port region, country, hinterland, port system, and foreland interplay through a complex synchronization (Figure 2.1) while some port activities, such as logistics, shift to inland locations (Notteboom and Rodrigue 2005). As mentioned in the review of NEG theories, some spatial dynamics may be commodity-specific, as seen in the geography of automobile imports at US ports (Hall 2004). This makes it difficult for scholars to decide which player and which scale dominate in the development of a given port, and thus to generalize the results to every port in the world. The preference of NEG theories for the regional scale is thus difficult to apply directly to port studies since ports are intermediate locations between different territories and scales. The growing importance of political factors  Although such factors have always played a role in the decision-making process of port development, there is a growing recognition that sole economic factors are not sufficient to explain current port dynamics. Port selection by ocean carriers is better explained by subjective criteria rather than infrastructural characteristics (Ng 2006). Performance differentials between Los Angeles and Long Beach that are situated in the same urban agglomeration can only be explained by historical and political factors (Jacobs 2007a). In the case of Dubai, factors of centrality and intermediacy within the Middle Eastern port system have contributed to the success of the globalization policy of Dubai World Ports (Jacobs and Hall 2007). For Hong Kong, the transition from hub to gateway directly stems from more flexible relationships with China (Wang 1998), and strategies of terminal operators in mainland China such as Hutchinson (Airriess 2001) based on cultural and political relationships (Olivier 2006). In a constrained economy such as North Korea, port development occurs mostly through Chinese support due to war risk, while the country becomes increasingly hub-dependent on South Korean ports due to the good centrality and intermediacy of the latter for accessing the outside world (Ducruet 2008a). Although it remains impossible to infer direct causal relationship between governance structure and port performance worldwide (Goss 1990), the changing fortunes of ports are very much influenced by governance models (Brooks and Cullinane 2007).

Ports and the Location of Economic Activities Since NEG theories confer to transport nodes – of which ports – the property to generate economic growth and urbanization, it is very interesting to confront them

Revisiting Inter-Port Relationships

Table 2.3

23

Selected studies on economic agglomeration at seaports, 1958–2008

Author(s)

Year

Area

Agglomeration forces Central location

Weigend

1958

General

Bird

1963

United Kingdom

Taylor

1974

New Zealand

Containerization

Bird

1977

General

Vigarié

1979

General

Witherick

1981

Southampton

Vigarié

1981

Europe

Vallega

1983

General

Stern and Hayuth

1984

Middle East

Gateway functions Port-city interdependence Multiplier effects MIDAs, growth poles Indirect porturban growth Traffic growth at remote ports

Brocard

1988

General

Kidwai

1989

India

Hoyle

1989

Murphey

1989

Developed countries Asia

O’Connor

1989

Australia

Omiunu

1989

Nigeria

Slack

1989a

Canada

City size

Slack

1989b

Montreal, Hong Kong

Locational bound of port services in CBDs

Dispersion forces

Technological revolution, congestion of the urban core

Long-distance relationships through sea lanes (foreland)

Waterfront redevelopment Functional diversification of the urban economy City size

Central place functions

Lock-in effect of the inland core economic region Competition between port city and nonport city New port construction Port expansion, portcity spatial separation Loosening of port functions

Urban growth

Urban redevelopment, firm turnover

Ports in Proximity

24

(Table 2.3 continued) Warf and Cox

1989

New York

Metropolization

West

1989

Goss

1990

Developed countries General

Amenity of the waterfront Economies of scale

Campbell

1993

General

Gripaios and Gripaios Lever

1995

Plymouth

Regional diffusion of economic benefits Port-city separation

1995

Europe

Wealth differentials

Fujita and Mori

1996

General

Economies of scale

Pesquera and Ruiz Gleave

1996

Developed countries Africa

Gordon

1997

Developed countries

Tertiary development Spatial fix of CBDs Waterfront redevelopment

Van Klink

1998

Rotterdam

Port network

Gripaios

1999

Dekker et al.

2003

United Kingdom Rotterdam

Langen de

2003

Rozenblat et al.

2004

United States, South Africa, Netherlands Europe

Lugt van der and Langen de Notteboom and Rodrigue

2005

Asia

2005

Developed countries

Ducruet and Lee

2006

World

Jo and Ducruet

2007

Northeast Asia

1997

Direct and indirect benefits

Changing commodity mix High land rents

Lock-in effect of already existing centres Environmental impact New industrial districts Low accessibility and social diversity of old port areas Diseconomies of scale, subharborization Transport function decline Environmental impact and congestion

Ports as clusters of economic activities Relative accessibility Export-led logistics Corridors, extended gateways Tertiary sector development Transit trade, free-zone

Deindustrialization, unemployment Import-led logistics Depolarization, decentralization Urban growth, lack of space Remoteness, embargo

Revisiting Inter-Port Relationships Lee and Ducruet

2008

Hong Kong, Singapore Asia

Global urban functions Lee, Song and 2008 Efficient Ducruet planning policies Grobar 2008 United States National economic growth Source: Realized by authors based on various sources.

25 Cross-border integration High rental costs at the CBD Regional negative impacts

with the long-standing works of port scholars on this issue. Although the overview cannot be exhaustive, it shows some results of port studies about the direct impact of port activities on local and regional economies (Table 2.3). Some common trends and points where further collaboration between NEG and port specialists seems fruitful can be listed as follows. The fading spatial fix of port locations The attraction of economic activities by ports is nowadays questioned by a number of scholars (Hesse 2004). During the colonization period outside Europe, and during the current global shift of the manufacturing sector from developed to developing countries, ports seem to be prime locations for such activities. However in developed countries, most models of port-city evolution have shown the growing functional and spatial separation between ports and port cities. New terminals do not seem to create such urbanization and economic growth, as seen in the case of transhipment hubs, outports and gateways. Numerous case studies and spatial models show how economic activities related to seaports tend to shift from Central Business Districts and ‘sailortowns’ to outer locations such as inland distriparks, free-zones and multimodal platforms due to high land rents and lack of space within the traditional industrial port city. Without public intervention, the systematic developmental effects of new port development are highly questionable. Therefore, while NEG theories seem a-temporal, their applicability to any period of time is questionable due to the importance of specific contexts. In turn, port planners shall not ignore the simple realities of spatial organization when it comes to expect such developmental effects. Port policies should be accompanied by relevant regional development policies that also respond to the contemporary requirements of modern supply and logistics chains. The growing literature on port devolution clearly indicates the need for smaller ports to be embedded within their adjacent territories through public intervention (Debrie et al. 2007). One main problem is the quantification of port economic impacts on a large scale for international comparison, but this is limited due to discrepancies of methods, sources, and outcomes, mostly due to the lack of detailed datasets on port-related activities at urban and regional spatial units (McCalla et al. 2004; Ducruet 2008b). The regional variations of port-economic relations  Following the previous issue, it seems that port geographers neglect the practice of universal modelling

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due to the specific regional context in which ports operate. The regional models of hinterlands proposed by Lee et al. (2008) show that in Europe, the continental concentration of core economic regions limits the economic development of coastal gateways, while in the rest of the world, port and urban hierarchies tend to better overlap. Thus, the port-economic relationship differs greatly from one region to the other. In Europe, the core-periphery pattern exerts a lock-in effect on higher-order activities so that port locations are comparatively less attractive for businesses. In the rest of the world that is dominated by maritime nations, port and urban development are tied together. Nevertheless, common trends are observable such as the rise and decline of port functions within urban economies over time (Ducruet and Lee 2006). Traffic growth at efficient port nodes may not automatically result in economic benefits for the outlying territory in the same way from one region to another. In faster-growing economies such as emerging countries (e.g. Brazil, China and India), new port development is accompanied by new town policies and the development of adjacent industrial districts. In developed economies where population and economic growth is lower, new terminals have limited impact; the new generation of transhipment hubs in southern Europe developed on the ashes of former growth poles without solving existing social and economic problems such as unemployment and remoteness (e.g. Gioia Tauro, Sines, Fos and Taranto). This indicates the need to consider different developmental paths in the evolution of port cities, such as tertiarization in the developed world and industrialization in the developing world. The specificity of commodity chains  Some activities are more port-related than others. While some empirical studies in various countries indicate that basic daily freight-related activities locate in virtually every port, higher-order activities tend to follow the urban rather than the port hierarchy. For instance, activities with most added-value for local and regional economies, such as banking, insurance, brokering, consulting, also called Advanced Producer Services (APS) are not directly attracted by transport nodes because the logic of their spatial fix is more organizational than physical. In turn, port locations have attracted much heavy industry, notably in Europe during the 1960s before the oil crisis, at a time when economies of scale at coastal locations could provide increasing returns to scale for production while reducing transport costs to import raw materials and export manufactured goods. Some ports specialized in the development of petro-chemical complexes (e.g. Rotterdam) while others integrated the port function within their diversified urban economy (e.g. Hamburg). Nowadays, increased globalization has made such patterns more complex, resulting in footloose behaviour of multiple commodity and value chains in which ports remain elements amongst others (Robinson 2002). Therefore, there is a growing need to understand which ports may attract which commodity chains, and how.

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27

Conclusions In this chapter we have demonstrated how the New Economic Geography (NEG) can act as a possible bridge for a better integration between economic geography literature and port studies. We have demonstrated that NEG has distanced itself from traditional economic geography in the early 1990s by applying a modelling approach to the explanation of changing spatial structures, and by attempting to put economic geography in the economic mainstream. By bringing together international trade theories, micro-economic theories, and spatial analysis, we proposed a renewed framework explaining the uneven distribution of activities across geographical space, understood in terms of agglomeration, dispersion, and regional integration. This chapter confronted NEG with two important sets of port research: the changing concentration of traffic within a port system, and the uneven agglomeration of economic activities around port areas.

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Chapter 3

Ports in Proximity, Proximity in Ports: Towards a Typology Peter V. Hall and Wouter Jacobs

Introduction Over the past 50 years, the maritime transportation sector has been profoundly transformed through the processes of containerization and economic globalization. Indeed, it is hard to conceive of one without the other (Levinson 2006). These changes have been profoundly spatial, affecting the functional and strategic relationships between producers, consumers and the numerous transportation intermediaries that connect them. It is clear that these changed spatial arrangements have implicated ports in more spatially extensive yet increasingly integrated systems: what Robinson (2002) calls supply chain systems or what economic geographers call commodity chains or production networks (Gereffi et al. 2005; Henderson et al. 2002). This perspective on the forces influencing ports is proving useful in thinking about the decision-making processes and strategic choices of dominant port actors (see Wang et al. 2006). Recognition of the importance of global supply chain systems builds on scholarly work on consolidation in the container shipping industry and the rise of new global players, such as terminal operating firms (Slack et al. 2002; Olivier and Slack 2006; Jacobs and Hall 2007). It builds on work examining the regional hinterlands and regional co-operation of port authorities (Heaver 1995; Song 2003; Notteboom and Rodrigue 2005). And, it is informing work on supply chain strategies for ports seeking to capture added value (De Langen and Pallis 2006; Hall and Robbins 2007; Wang and Olivier 2006). Given this attention to the place of ports in global supply chains, one may get the idea that spatial proximity has ceased, or certainly is ceasing, to be an important factor in the port and maritime industry. In the past, proximity within ports was regarded as an asset in the close choreography that constituted the port cluster. This is a point that has been made by Martin and Thomas (2001) in reference the ports’ terminal operating community, and by de Langen (2003a) in his study on the role of leader firms and their suppliers in local port clusters. Yet, if proximity within ports has been seen as an asset promoting internal coherence and collective action, proximity between ports was viewed as a liability to the external competitive positioning of the port. Close proximity in the same port

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30

range resulted in regional contests between ports to attract container lines. These contests were especially intense during the middle decades of containerization, once the technology had become (relatively) standardized and economies of scale became the critical competitive asset. In this environment, ports found themselves as mere pawns in a great game (see Slack 1993; also Hayuth 1981; McCalla 1999a). The point is that spatial proximity assumed a salience in the conceptualization of ports before containerization, and in the period during which this technology diffused. Is it still the case that proximity is important, and if so, in what sense? We want to suggest that despite the recognition that ports are nodes in competing supply chain systems, it would be a mistake to assume that proximity has ceased to matter. This point is emphasized by economic geographers more generally who have come to realize the importance of external relationships to local clusters in the process of industrial innovation and upgrading (Coe et al. 2004; Bathelt et al. 2004; Lagendijk and Oinas 2005). In other words, ports cannot successfully insert themselves in global supply chains if they ignore the relationships that make innovation and collective action possible. The structure of our argument is as follows. First we tackle the concept of ‘proximity’ by making use of recent literature in economic geography. Proximity has not only a spatial connotation, but exhibits more dimensions. Further, more or less proximity is not necessarily positive for port development and competitiveness. This exploration will help us to understand the complex and changing relationships among port actors within and between ports. Based upon this, we develop a typology which seeks to identify the strategic challenges that ports face with respect to proximity. We end with some brief conclusions.

The Multiple Dimensions of Proximity Economic geographers have pointed out the great irony that globalization has actually made proximity even more important to economic development processes (Storper 1997). We find Boschma’s (2005) formulation of this position to be most useful. Boschma accepts that innovation and learning are vital components of successful economic development in the contemporary world, and he argues that proximity is a necessary condition for innovation and learning. However, he shows that spatial proximity is not the only or indeed the most important form of proximity for these learning processes; the only form of proximity that is a necessary precondition for learning is cognitive proximity (referring to the extent to which actors share a knowledge base), since this is what allows interactive learning to take place. However, other forms of proximity can help learning: • •

Organizational proximity: the way in which control is exercised between actors through command or contractual means; Institutional proximity: the rules, norms, conventions, regulations that

Ports in Proximity, Proximity in Ports

• •

31

govern relationships between agents; Social proximity: the extent of trust in the relationship between actors; Geographic proximity: the spatial distance between actors and their activities.

In Boschma’s perspective these four dimensions of proximity are mechanisms that may promote cognitive proximity, but they are not substitutes for it. Additionally, geographic proximity can promote organizational, institutional and social proximity, hence indirectly helping these mechanisms to promote cognitive proximity. Other forms of proximity can also be substitutes or complements for each other in the learning process (e.g. social proximity provides trust that may substitute for organizational distance; or institutional proximity defines clear rules that may complement shared cognitive structures). Finally, Boschma argues that all dimensions of proximity must be appropriately balanced to support innovation. For example, too much cognitive distance between actors means that they may not understand each other, but too little cognitive distance means that they may not be open to new ideas. In more general terms thus, too little proximity means that the co-ordination and trust necessary for the risk-taking involved in innovation is not present; instead there is likely to be opportunistic behaviour by agents that makes others wary. And, too much proximity means that the willingness and incentives to engage in environmental scanning and to create new relationships may not be present; in organizational terms this is commonly referred to as bureaucracy, in institutional terms, this is lock-in. We refer to this as the ‘too-little, too-much’ perspective on proximity because we view proximity as a set of dynamic relations that individual agents constantly monitor and seek to adjust. While individual actors may desire a particular degree of proximity to others, it makes no sense to speak of a single general optimal level of proximity in a world where things change continuously. In other words, proximate relationships are constantly in flux due to corporate strategies, new technologies and market developments. It is worth highlighting that the question of competition is intimately tied up with this too-little, too-much perspective on proximity. In principle, competition provides an incentive for agents to exchange information and experiment with new processes and products. Clearly, too much organizational proximity in the form of monopolization undermines the prospects for these potentially beneficial effects of competition. This problem has been recognized in the port industry where problems of spatial monopoly are compounded when a single tenant or user dominates a port (De Langen and Pallis 2006). In contrast, competition between agents that are socially, organizationally or institutionally isolated can lead to further deterioration in the relationships that do exist, thus undermining prospects for learning, innovation and upgrading. This is the problem of opportunism, and the race to the bottom. For example, it is arguably the case that the challenges of dispersing new technological (e.g. low emission engines) and organizational (e.g. gate booking) systems to reduce the environmental impact of the short-haul trucking industry

32

Ports in Proximity

in the Los Angeles basin have been confounded by the radically decentralized and competitive nature of the local industry. More hierarchy (organizational proximity) or regulation (institutional proximity) may in fact aid innovation here. In other words, competition can either support or undermine processes of learning and innovation depending on the nature of existing proximities.

Proximity and Ports How can we use these ideas to understand whether and how proximity may be influential in the maritime port sector in the current era? Our review has indicated that proximity between individuals and organizations (actors) is important because it supports processes of learning and innovation that are crucial to competitiveness in an economic environment of heightened global flow. However, proximity itself is not exclusively geographic, and other forms of proximity may be equally or more important. In order to explore what this general theoretical statement means in the ports context, we need to be clear on (1) who are the actors in the ports sector, (2) what innovation and learning mean to these actors, and (3) what proximities are most salient to the actors seeking innovation and learning. Actors in the port context include logistics chain actors (ocean carriers, terminal operators, surface transporters, and labour) and supply chain actors (shippers, freight forwarders and shipping agents). Most of the logistics chain actors are private operators, seeking to increase the amount of value created through port activity, and to increase their share of value added. It is important to understand that these private operators do not assume static or fixed roles; indeed, they have undergone rapid transformation through vertical consolidations and changing ownership relations. One source of power for dominant logistics chain actors is the ability to choose between ports; when they can, they are able to extract value from place-bound actors, in particular, labour, public or private terminal operators and some shippers. However, large shippers of containerized cargo have sought to strengthen their bargaining position by, for example, lobbying for the confidential contracts permitted by the United States Ocean Shipping Reform Act of 1998 (Shashikumar and Schatz 2000; FMC 2001). In addition, because of the ecologically sensitive territory ports share with other users, ports, especially those located in metropolitan regions of democratic societies, have become highly regulated spaces. Thus, we include in our list of actors, port authorities, infrastructure providers and regulators, and local polities, which include the local communities, and national and sub-national governments that have a stake in port development. For these public actors, value creation and capture from logistics activity is only one goal that must be balanced against other objectives. Second, the actors seek to create and capture value through innovation, but this concept has a particular meaning in the ports context. In the port context where the product is a transportation service, innovation includes new technologies and processes for handling and moving cargo, but it also includes mechanisms

Table 3.1

Proximity and ports Organizational Integration of port users, structure of global transport firms

Institutional Port governance, inter-port relations and higher-level institutional relations

Social Extent of trust in the relationships between actors

Capture/dominance by key actor

Lock-in, e.g. rules shaped to favour dominant tenants

Unwillingness to connect to global supply chains; overembeddedness

Entry barriers; opportunism, e.g. tenant switching

The problems of too little proximity

Lack of understanding

Transaction costs; spatial monopoly, e.g. high tariffs, port–city tension

R&D agenda Industry-wide platforms; inter-firm labour mobility; online port community systems

Variable or unclear rules fail to solve collective action problems in infrastructure provision Port mergers and regional co-operation agreements

Opportunism and short-term approaches to supply chains

Potential solutions

Supply chain integration and efficiency problems; risk of ‘hold up’ in adoption of innovations Loosely coupled systems with high technological integration

Port cluster strategies

Institutional checks and balances; co-siting within port; hinterland infrastructure

The problems of too much proximity

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Cognitive Extent which supply chain actors share a knowledge base that is a basis for learning, innovation and upgrading Free riders, information overload

Key dimension

Geographic Intra-port capacity and congestion; inter-port distance and connections

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Ports in Proximity

for planning, implementing, upgrading, managing and operating infrastructure systems. The concept of the critical asset, advanced by Cox (1997), and applied to the port context by Robinson (2002) is useful here, because it draws attention to the importance of control over logistics chain infrastructure. As such, the ability to secure infrastructure upgrading and investment, and then to exploit these enhancements, are key elements of value creation and capture in the ports context. Sometimes the assets are private (e.g. value adding processing services in the auto carrier industry, see Hall and Olivier 2005), but in the port sector they are often collective (for example, dredging, land distribution systems, environmental mitigation). The collective importance of infrastructure to port innovation is another reason why public sector actors have remained influential as regulators, planners and coordinators in most ports around the world (Brooks 2004; Slack 2007). We are now ready to consider which proximities are most salient to the actors that seek innovation and upgrading in their ports. We consider each dimension in turn, with a summary provided in Table 3.1. Cognitive Proximity Advanced economic interaction in the form of innovation and upgrading implies a certain degree of cognitive proximity. This type of proximity refers to a shared knowledge base among actors and the capacity of these actors to absorb new knowledge in such a way they can learn from each other. The integration of ports in global supply chains implies an increasingly global diffusion of knowledge and practices in the port industry. We can clearly observe this process in ports where global terminal operating firms (i.e. HPH, PSA and DP World) have entered local stevedore markets. The international offshoot of the local port authority of Dubai, DP World, has been aggressively exporting its knowledge about terminal management to underperforming ports such as Constanza in the Black Sea and, closer to home, the port of Abu Dhabi. Earlier, the Dubai-based terminal operator learned from the shipping line SeaLand which held the management contract at Dubai’s Jebel Ali port until the formation of the Dubai Ports Authority in 1991 (Jacobs and Hall 2007). There remain some important pitfalls that have to be recognized. First, too much cognitive proximity might lead to a lack of creativity and lack of appreciation of what potentially are complementary bodies of knowledge. On the other hand, too little proximity among actors will result in a lack of understanding of the possibilities of new technology or information. Second, too much proximity also increases the risk of involuntary knowledge spill-overs by which competitors can acquire valuable information without compensation. As such, too much proximity might result in the problem of free-riders. Third, too much proximity might lead to cognitive lock-in that will obscure the view of new technologies or new market possibilities. These problems might be overcome through organizational (e.g. setting up external relations through contractual relations) and geographic (e.g. co-location of related and unrelated industries) forms of proximity. However,

Ports in Proximity, Proximity in Ports

35

too strong external relations could also provoke segmentation among the local members of a cluster in which the global flagship companies start to dominate the local milieu (Bathelt et al. 2004: 48). Therefore, organizational proximity (e.g. more integrated global operating firms) may itself become a problem for cognitive proximity if local actors lose the ability to develop a shared system of knowledge acquisition. Creating cognitive proximity is difficult, but ITdriven port community systems that more easily and more efficiently transmit codified knowledge about transhipments, vessel movements, storage capacity, and the state of play at terminals might lay the foundation for tacit knowledge exchanges. Organizational Proximity Organizational proximity internal to the port can provide benefits as it creates contractual interdependencies, reduces uncertainty and lowers transaction costs. However, too much organizational proximity among actors within the port can result in bureaucratic structures or in (private) monopolies that dominate the port agenda. Examples of this can be found where port regulation and management are highly centralized within the state, as has been the case in South Africa where the National Port Authority and South African Port Operator still form part of the national transportation organization, Transnet. Another example where both port services and regulation remain in the hands of the port authority is Dubai. Too little organizational proximity results in opportunism among port actors or unclear responsibilities. For example, hinterland transport providers such as barge-operators, feeders or trucking companies repeatedly interact with the terminal operators when picking up or bringing in cargo. However, in many ports, the hinterland transporters are not contracted by the terminal operators; typically they are contracted by the shipping lines or shippers/forwarders. The shipping lines in turn are contracted by the shippers or freight forwarder. These contractual relationships might result in opportunism (Van der Horst and De Langen 2008). Shippers do not know the terms of the contract between the carrier and the operator and hence do not know the exact amount the shipping lines pay for the terminal handling services. A second issue is that the hinterland transporters are in a legally weak position with regards to the terminal operators whenever the latter makes mistakes or causes delays, since they do not interact on the terms of a contract. Organizational proximity furthermore affects the inter-port relationships where container operating firms have acquired strategic positions in several ports across a port region. For example, DP World holds lease concessions in Antwerp and Tilbury through its acquisition of P&O Ports. It has also recently acquired the concession for a terminal at Rotterdam’s Second Maasvlakte, and it holds strategic positions in the hinterland, namely the inland terminal depot of Germersheim, Germany. All these facilities enjoy more organizational proximity with each other than with other players within the same ports, which may eventually lead to a particular division of labour among these facilities in the regional distribution of goods and

36

Ports in Proximity

within the supply chains they facilitate. As such, organizational proximity in some cases provides a strong force of inter-port integration, increasingly displacing geographic and institutional forms of proximity. Institutional Proximity In this regard, institutional proximity assumes a special significance as a mediating variable for ports in close proximity to other ports. Institutional proximity is closest among ports that share the same funding, planning and regulatory regime; typically this occurs when ports are in the same national and local states. For example, although the ports of Los Angeles and Long Beach are still administrated separately by their respective cities, they are both regulated by the California State Tidelands Trust of 1911 and subject to the same funding and environmental legislation (Erie 2004). Evidence of how institutional proximity acts to foster cooperation there includes the ports’ joint action to reduce container free storage time at the terminals in order to create valuable space and reduce congestion (Jacobs 2007b), the development of the Alameda Corridor, and the two port authorities’ active support for the PierPass Program that was set up by the terminal operators in both ports and which aims to stimulate trucking in off-peak hours. In comparison, being located within two different countries, the ports of Rotterdam and Antwerp still remain subject to two different regulatory regimes. However, both are increasingly subjected to the rules of the game set up by the European Union. A lack of understanding of the different institutional regimes that exist at different places might also restrict trans-national investors or global flagships companies in their capacity to interact with local actors within the port cluster (internal), which in turn prevents the diffusion of universal operational standards or best practices (cf. Gertler 2001). Too much institutional proximity within a port expresses itself through too many rules, procedures and red tape. For example, in early 2001 shipping lines calling at Rotterdam complained about the time consuming customs procedures, prompting the port authority to coordinate improvements with the Dutch customs department. Ultimately, too much institutional proximity might lead to lock-in and where port actors lose their capacity to anticipate new developments and technology, as illustrated by the fate of the port of San Francisco (Levinson 2006: 193). Too little institutional proximity within a port might lead to opportunistic behaviour by port users in terms of the environment and the exploitation of labour, contributing to legal and other forms of conflict among users. Social Proximity A level of social proximity among actors within a port might be beneficial for learning, as it establishes trust, reduces transaction costs and facilitates cooperation. This is essential when investments in potential risky innovations are required by supply chain partners. However, too much social proximity can also be harmful

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37

to the competitiveness if alternative sources of information are systematically excluded (Uzzi 1997). For example port regulators and dominant private service interests with social relationships that are too intimate may engage in a noncompetitive dance of protectionism, political favouritism and rent seeking – or even worse – nepotism and corruption. An example from Rotterdam is when the municipal council (prior to the corporatization) granted the director of the municipal port authority a far reaching mandate to make investment decisions. Without any formal checks and balances, the mandate was based upon the trust that the director would act in the best interests of the port. Under this mandate the director provided bank guarantees worth €150 million to financially troubled local company that eventually went bankrupt. Here, too much social proximity led to too little institutional proximity in terms of formalized checks and balances. Geographic Proximity It is important to draw a distinction between intra- and inter-port geographic proximity. The former refers to the relationship between actors that share the same port complex, while the latter refers to relationships between actors that share the same coastal range and hinterland. Being located within one and the same port implies by rule a high degree of geographical proximity in the form of co-location. Port actors experience the same physical conditions of the port in terms of accessibility and infrastructure such as sufficient depths of port channels or modal split, although within some ports conditions may vary, for example, due to the presence of locks or constrained channels. Co-location within a port implies an advantage in terms of positive, spatially related externalities. However, too much geographic proximity within a port might also result in negative side effects. Although it is hard to prove empirically, informal barriers to entry such as denial of access to technology, information and other ‘club goods’ ultimately results in closed circuits that are hard for new players and ideas to penetrate. Geographic proximity in the form of congestion costs or increased land prices might also result in firm relocations or might act as a barrier against new and small firms locating within the cluster (De Langen and Pallis 2007). On the other hand, too little geographic proximity within a port might result in the lack of positive externalities such as no returns to scale, limits to inter-firm labour transfer or increased transaction costs. A port authority, as the owner of land and allocator of sites, can facilitate and stimulate co-location of similar economic activity within the port and even press for co-siting. Co-location has the advantage that actors enjoy increasing returns to scale while at the same time more easily monitor competitor’s performance. Cositing is even more localized and creates benefits among complementary economic activity through sharing the costs of energy and utilities. Geographic proximity has clear significance with regards to inter-port relationships. Too little inter-port proximity is associated with spatial monopoly. In contrast, ports that are in close geographic proximity are effectively in competition

38

Ports in Proximity

with each other for cargo, clients and private investments. So, too much interport geographic proximity may result in opportunism, primarily in the form of major tenants switching (or threatening to switch) ports. For example, Maersk moved from Long Beach to Los Angeles in 2001 where it was granted the newly developed Pier400 Terminal (Jacobs 2007a). In the era of global supply chains, both remote ports and those in close proximity to others need to pay particular attention to hinterland access. A key question thus for ports in proximity is whether they can solve their collective problems with respect to landside infrastructure. If they can, geographic proximity may become an advantage.

Towards a Typology The various dimensions of proximity interact to shape the development trajectories of ports. Although geography is only one dimension of proximity, we do regard the distinction between inter- and intra-port geographic proximity as especially useful for providing advice to policy-makers. When combined with the multidimensional distinction between high and low proximity, a four-part typology of ‘ports in proximity’ emerges. Note that we shift our language here from ‘too muchtoo little’ to ‘high-low’ to reflect that we are now describing a multi-dimensional continuum composed of different dimensions of proximity that may substitute and complement each other. Table 3.2 reflects the two dualisms, namely (1) the geographic dimension of inter- versus intra-port proximity, and (2) the multidimensional notion of high versus low proximity. The typology identifies four possible outcomes for ports. Type 1 – Low intra-port proximity and low inter-port proximity: this type of port lacks sufficient internal coherence between actors to develop collective solutions to problems of infrastructure upgrading and innovation. With little inter-port proximity, while such a port may not be penalized by external competition, it is unclear where the incentives will come from to address internal structural problems. This has been the case in South Africa’s dominant container port, Durban, where the national government retains control over container terminal operations, and has not interacted well with private operators and local government (Hall and Robbins 2007). These ports may lack the knowledge, competitive incentives and capital for successful infrastructure upgrading. A Canadian port with some of these characteristics is Prince Rupert; isolated and only recently experiencing improved relationships between port operators and CN Rail. Type 2 – Low intra-port proximity and high inter-port proximity: this is the port that will be a victim of opportunism, with key players exploiting the lack of internal coherence and the threat of moving next door to extract concessions. We would expect to see lots of switching between these ports, resulting in a race to the bottom that benefits the more mobile actors at the expense the less mobile ones. We expect these ports to be competitive only on the basis of cost. Examples of

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39

such ports can be found in the Caribbean basin competing for hub status. Another example comes from the ports of Algeciras and Tangiers on both sides of the Straits of Gibraltar that are both run by APM Terminals. While these two facilities could complement each other, apparently they maintain very few links with other actors in either port. Type 3 – High intra-port proximity and low inter-port proximity: this is the port that will run the risk of becoming locked into a single or small number of dominant players. The dominant players enjoy spatial monopoly protection from competition, and because of their close organizational and social proximity to other port actors, may be able to engage in a form of lock-out. Eventually, lockout leads to lock-in. An example of a port facing this challenge is Richards Bay in South Africa (Hall 2000). The port was developed in the 1970s for coal and other bulk exports. Recent efforts to capture more value in the regional economy and to increase containerized cargo movements have faced numerous challenges ranging from the reservation of large land parcels for processing industries, to the exclusive nature of port–city planning forums. Type 4 – High intra-port proximity and high inter-port proximity: we conclude that this is the least-worst scenario for ports in the age of global supply chains. There is a risk here of destructive competition, but with appropriate institutional arrangements, such ports can co-operate to address hinterland infrastructure issues while maintaining a degree of internal coherence and specialization. Examples of ports in this position are the adjacent San Pedro Bay ports of Los Angeles and Long Beach. We are aware that proposing a typology is an undertaking associated with some pitfalls. It is not our intention to provide an all-encompassing and static typology into which we can allocate every port in the world. Furthermore, the different types may not be mutually exclusive in all cases, and it is possible that some ports can be positioned in more than one type depending on the commodity mix or supply chain under consideration. However, this typology does draw attention to the need to critically and dynamically assess the dangers and opportunities that lie behind proximity and ports. Table 3.2

Typology of ports in proximity and proximity in ports

Low Intra-port proximity High

Inter-port proximity Low Type 1: Many disparate actors lacking common purpose, without mission clarity and coherence Type 2: Dominating player(s) have potential for spatial monopoly, lock-out

High Type 3: Problems of opportunism and switching of key players, race to the bottom Type 4: Risk of destructive competition; potential for mix of specialization and collaboration

40

Ports in Proximity

Conclusions Proximity within and between ports within this global age cannot be understood in geographic terms alone. The processes of horizontal and vertical integration in the maritime ports industry over the last fifteen years have changed the interrelationships between ports and ports users considerably. Global supply chains are systems that imply more tightly choreographed systems of flows. As a functional matter, this implies more organizational proximity. This increased organizational proximity through integration among (often geographically distant) actors is itself a solution to inefficiencies in supply chains that resulted, partly, from differentiated knowledge bases among actors. As such, integration has led to increased cognitive proximities among those same distant actors on how to develop and manage ports and their infra- and superstructures. While these processes yielded advantages in the transfer of technology and optimization of logistics operations in global supply chains, they have outpaced regional institutional mechanisms and displaced existing locally-embedded social relationships. In the short run this may not be problematic for ports as the advantages of increased organizational and cognitive proximities secure local access to increased cargo volumes, private investment and technology. In the long run, however, this can constrain the innovative capacity of ports and the willingness of competing actors to solve collective action problems. For these reasons, we conclude with the observation that port policy makers need to pay special attention to maintaining a balance between organizational integration and the other dimensions of proximity. Port authorities can foster cognitive and social proximity by stimulating information exchange and face-toface contact among port actors through the organization of trade fairs and industry meetings, and even pursuing their own Research and Development agenda. Since supply chains seek to serve more extensive and non-exclusive geographic areas, successful ports will be those that can co-operate with other geographically proximate ports to provide infrastructure that serves otherwise competing supply chain systems. Hence, institutional proximity, including shared governance, funding, legal and regulatory systems, that allow rapid resolution of hinterland infrastructure problems is becoming a more important point of competitive advantage.

Chapter 4

Port Regions and Globalization César Ducruet

Introduction In an age of rapid coastal industrialization and urbanization, the general manager of the Port of Antwerp (Vleugels 1969) expressed an optimistic view: ‘port regions seem always to have been at an advantage when compared to those regions which not situated by the sea or on rivers’. Since then, increased globalization has revealed the fallacy of such deterministic arguments defining seaports as naturally growing areas. Neoclassical theories on growth poles and industrial location fell short explaining the decreasing regional benefits derived from seaports, notably when observing the limited local impacts of containerization (Vallega 1996). Although ports may still be seen as structuring elements within their surrounding urban region (Wakeman 1996), their economic ties with the outlying regional economy seem to diminish (Boyer and Vigarié 1982; Grobar 2008). However, we lack of a consistent definition of the port region (Guillaume 2001) that would help understanding the regional challenges of contemporary port development and provide a base for comparing various contexts. The first part of this chapter explores the existing definitions of the port region, both in terms of its geographical extent and of the underlying relational process between port and region. The second part reviews some possible methodologies for analyzing and comparing port regions of different countries, notably based on OECD’s territorial database. The third part proposes a comparison of port regions based on two distinct geographical levels. Finally, conclusive remarks open the discussion for further research. The Definition of Port Regions The Port Region, a Coherent Concept? The region: a relevant spatial unit for the study of ports?  Geographers have defined various types of regions except the port region. Throughout port studies, the relevant spatial unit outside the port area has varied over time, resulting in a variety of functional levels such as the Maritime Industrial Development Area (Vigarié 1981), the European estuary (Brocard et al. 1995), and the Extended Metropolitan Region (Rodrigue 1994). Such levels are often analyzed separately

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Ports in Proximity

and successively from the local to the international, as seen for instance in the cases of Zeebrugge (Charlier 1988) and Marseilles (Borruey and Fabre 1992; Bonillo 1994) providing a critical assessment of national port policies, regional growth pole strategies and local planning constraints. Another distinct approach emphasizes the emergence of new territories of port governance and port development whose dimensions vary depending on the players involved and the projects at stake (Kreukels 1992; Hoyle 1996; Rodrigues-Malta 2001, LavaudLetilleul 2007). Finally, some scholars consider that port activities do not belong to a specific spatial level because they integrate transport chains and networks on various scales simultaneously (De Roo 1994; Frémont and Ducruet 2004; Ducruet 2005; Debrie et al. 2005). While such variety has considerably enriched our knowledge on port development, it has also prevented the emergence of a consensus about the definition of the port region concept. There is no definition of the port region in human geography dictionaries. Searching for this term on Internet provides limited results: only one work related to seaports (Fleming 1988) appears on the fifth page, and it describes a specific context (i.e. the role of Portland port as a planning entity for the entire port region) rather than defines the concept itself. The port region remains a broad term, and is rarely given central concern by scholars, as seen in the limited score of port region compared with other regions (e.g. administrative, urban, agricultural, economic, and industrial). While research is dominated by a hierarchical approach (e.g. city, metropolitan, central, core and capital regions), the port region is less explored than coastal, border, peripheral, remote, maritime and gateway regions. Only very specific regions such as political, trade and creative regions have fewer results than the port region. Throughout port studies, the port region has a better position, as it scores higher than port range, port district and port hinterland but it scores less than port city and port terminal. Overall, the port region seems to be a rather descriptive term with no clear content or operational explanative power, recalling other unidentified real objects (Brunet 1997) such as medium-sized cities. The perception of ports by scholars themselves is one possible explanation to this theoretical lack. The critique of the dominant central place theory constitutes the starting point of the works of James Bird (1977; 1983) for whom gateway functions make port regions and port cities different from other regions and cities. Indeed, ports were often excluded from regional classifications as in taxonomic geography (Vallega 1983), while most geographers consider functional regions to be structured and polarized by cities: ‘seaports in general have been under-examined in recent regional development literature’ (Hall 2003). Although Bird’s works have given ports a wider recognition throughout urban and regional geography, his efforts remained hindered by the absence of a thoroughly elaborated theory or model. Thus, the port region still remains a multifaceted concept embracing different realities such as the economic area around a port (i.e. the port region stricto sensu), the logistics area connecting the port (i.e. the hinterland), and the

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area in which inter-port relations take place (i.e. façade, range or system of ports): those are explored in the following sections. Port regions as port hinterlands  Port region and port hinterland may be confounded in the same simple definition of a piece of land immediately next to and inland from the coast, which geographical coverage may vary extensively: ‘it seems difficult in practice to give an exact definition of a port region (…) It can in some cases stretch beyond national borders’ (Vleugels 1969). The port region can be distinguished from the hinterland based on its specific economic structure: it is a ‘district in which the port is situated and the economic life of which is to a great extent determined by the activity carried on by the port and in the port area’ (Vleugels 1969). The hinterland, as part of the port triptych (Vigarié 1979), is only defined by a group of locations connected to the port through related goods flows. Distant locations may not be influenced by port activities directly and thus may not be considered part of the port region. Hinterland differs from city-region (i.e. daily commuting area polarized by an urban centre) because it comprises all connected locations, whereas port region and city-region are limited to an area within which the economic influence of the core (port or city) is predominant. However, the lack of precise data on inland freight movements often hampers a clear cartography of hinterlands (Charlier 1979; McCalla et al. 2004a). Hinterlands have reached beyond port regions mostly due to improvements in transport systems’ connectivity. The trend of port regionalization indicates an increasing complexity with the shift of logistics activities inland within a greater seaport region (Notteboom and Rodrigue 2005) and the haphazard development of satellite terminals in the vicinity of ports and inland cities (Slack 1999). Such changes have definitely eroded the ‘rule of thumb (…) which averred that the amount of cargo handled by the port was strictly proportional to the number of clients in the area surrounding it’ (Todd 1993). Numerous examples confirm this process, as seen in the United Kingdom (Hoare 1986) and ex-USSR (Thorez 1998), but it seems that less-open economies keep a close association between port traffic and regional economies (Ducruet and Jo 2008). Port regions as port systems  The port region may also be considered as a port system, or a system of two or more ports (and terminals), located in proximity within a given area. A review of three decades of port system analysis shows a growing stability or even a decreasing traffic concentration due to several factors such as carriers’ strategies and congestion in large load centres (Ducruet et al. 2009). One typical example of a port system is the port range as defined by Vigarié (1964) in his work on the North European range. The port range differs from the maritime façade since the latter is more descriptive (a coastal alignment of ports) while the first is more systemic (a coastal system of ports). Thus, a range assumes that the given ports enjoy not only geographical proximity but also functional interdependence through sharing sea and land services. The conditions of crystallization ‘of formerly disjointed ports into a ports system rests ultimately

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on the conditions of trade, conditions which wax and wane in correspondence with global business cycles’ (Todd 1993). Also crucial are local and regional characteristics but they are often ignored by port specialists who tend to consider the port as an isolated entity connected by cross-border networks. The following section will complement this overview with more specific works on the linkages between port activities and regional economies. Ports and Regional Development Ports as enablers of economic development The vast literature on ports and regional development can be classified in two categories. The optimistic approach sees the port as an engine for local and regional economic growth, while for the pessimistic approach, ports simply respond to demand through the physical transfer of freight flows. This echoes the lively debate about whether infrastructures foster or follow development (Rietveld 1989). The optimistic approach defines ports as growth poles and enablers of economies of scale for production and trade and, therefore, they provide comparative advantages to regions and cities where they are located (Fujita et al. 1999; Clark et al. 2004). This general statement based on location theories implies that port efficiency creates more economic benefits because it will allow more cargo throughput, while ‘inefficient ports (…) may place a country or region further away from sources of cheaper inputs or markets for good produced’ (Haddad et al. 2006). Earlier empirical studies have shown the importance of multiplier effects locally and regionally in developing countries (Omiunu 1989) and developed countries (Witherick 1981). The pessimistic approach puts in question local and regional benefits of port investments (Goss 1990) and the structuring effects of transport infrastructures (Offner 1993). This is particularly true in the case of ports located away from core economic regions (Stern and Hayuth 1984; Fujita and Mori 1996). Improved hinterland connectivity and handling efficiency may accentuate the tunnel effect defined by lower local benefits and higher throughput volumes destined to distant areas. Several scholars have observed the negative effects of traffic growth locally such as congestion and lack of attractiveness (Mc Calla 1999b; Rodrigue 2003; Rozenblat et al. 2004; Grobar 2008). Several cases indicate a large drop in port-related employment in recent decades, as seen in Liverpool, Plymouth and Hamburg city-regions, due to the weakening spatial fix of transport nodes for manufacturing activities, the reorganization of port traffics and hinterlands and the changing location patterns of port-based service economies (Damesick 1986; Gripaios 1999; Hesse and Rodrigue 2004). A moderate approach proposed by Vallega (1983) interprets port development and regional development as two distinct processes with episodic and indirect interactions. This approach has been much complemented by the works of De Langen (2004) about ports as clusters of economic activities. Far from drawing a direct line between port activity and industrial development, the concept of

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port cluster depends on institutional arrangements and on the presence of leader firms in particular economic activities. The remainder of this chapter opts for this moderate approach. Measuring port-region interdependence Several studies have attempted measurements of port-related benefits on local and regional levels, using a wide variety of methodologies, but while ‘the regional planner is interested in the benefits that a port brings to a city or region (…) the difficulty resides in quantifying the benefits’ (Bird 1971). Port impacts studies have flourished since the 1950s in the United States and elsewhere (Hall 2003) with many case studies measuring the multiplier effects of port activities on surrounding areas (Taylor 1974; Witherick 1981; Omiunu 1989). Regional development literature has extensively focused on performance (Porter 2003) but with few works related to transport infrastructure or port activities (Rietveld 1989). Due to the lack of comparable data internationally, such measures are often limited to national datasets on regional units, as seen in the study of De Langen (2007) on US port regions providing a statistical definition based on the dominance of port-related industries in a given county or state. The work of Vigarié (1968) on the maritime dependence of countries simply divided deadweight tonnage by population. A better option is to compare seaborne traffic with demographic or economic characteristics (Table 4.1). Based on 116 maritime countries, figures show significant correlations with trade and GDP. Correlation with population is lower but stable, while it decreases with trade volume. This may stem from traffic concentration at transit and hub ports in several countries (e.g. Italy, Spain, Malaysia and Jamaica) during the 1990s, causing imbalance between trade flows and transhipment flows. Also, the improvement of continental transport, through logistics systems, land bridges and intermodal solutions, cause a higher complexity in transport systems and contributes to increased dissociation between economic and transport patterns. For the local level, Figure 4.1 shows that port traffic and demographic size underwent two distinct periods: association (1975–1985) and dissociation (1990– 2005). This confirms the increased flexibility of transport systems and trade routes worldwide and the combined effects of urban constraints (e.g. lack of space for port Table 4.1

Correlation evolution between port traffic, population, trade and production at country level, 1990–2000

Population Trade GDP 1990 2000 1990 2000 1990 2000 Tonnage 0.654 0.669 0.867 0.758 0.856 0.802 Containers 0.579 0.589 0.840 0.767 0.782 0.830 Source: Author, calculated from United Nations (2000), International Road Transport Union (1996) and Containerisation International (various years). Traffic type

Ports in Proximity

46

 

























    Figure 4.1









Correlation between population and container traffic at port city level, 1975–2005

Source: Author, adapted from Ducruet and Lee (2006).

development), port planning initiatives (e.g. new port and terminal development) and shipping lines’ strategies (traffic concentration, port selection, and route rationalization). Although large urban concentrations continue concentrating the world’s major container flows worldwide, the rise of hub ports in the 1990s has dramatically altered the traditional and symbiotic port-city relationships (Ducruet and Lee 2006). While general trends can be highlighted using basic local or national attributes, more research is needed on the regional level based on the aforementioned definition of the port region.

An International Comparison of Port Regions Selecting Regions and Indicators The OECD Territorial Database The OECD Territorial Database (TDB) was created to assist the OECD Territorial Development Policy Committee and its Working Party on Territorial Indicators. Data collection is undertaken by the Territorial Statistics and Indicators Unit, in the OECD Directorate of Public Governance and Territorial Development. Statistics are collected through the National Statistical Offices of OECD member countries and Eurostat. Its main

Port Regions and Globalization

Table 4.2

47

Distribution of ports and regional units by country

Country

Number of small port regions

Number of large port regions

Number of container ports

Belgium Netherlands Greece Poland Portugal Ireland Denmark Germany Canada France New Zealand Turkey Mexico Australia South Korea Finland Sweden Italy Norway Spain United Kingdom Japan United States Total

2 2 3 2 3 4 5 5 5 6 7 7 10 11 10 9 8 16 9 17 23 26 28 218

1 1 3 2 3 2 2 4 5 6 2 7 8 7 6 3 6 12 5 8 9 9 20 131

2 2 3 3 3 4 5 5 6 7 8 8 11 13 13 14 15 16 18 22 27 31 42 278

Source: Author, calculated from OECD TDB and Containerisation International.

objective is ‘to provide an internationally comparable database for the analysis of economic, institutional and environmental issues at the sub-national level’. Data are drawn from censuses on population and housing, labour force surveys, household surveys, social security accounts and regional accounts. In the end, the main advantage of the database is to provide harmonized data covering about 2,200 regions within 30 OECD member countries. Available indicators exist on two geographical levels, T3 (small units) and T2 (large units), from 1980 to 2006. Port traffic is collected from two different sources: Lloyd’s Marine Intelligence Unit (sum of container vessel capacities), and Containerisation International (port container throughputs). Traffic is agglomerated by regional unit depending on the location of container ports (Table 4.2). Although other traffic such as general cargo or solid bulk would better relate with the size and dynamism of regional economies

48

Figure 4.2

Ports in Proximity

Gross Regional Product and port traffic by region size, 1996–2006

(Charlier, 1994), container traffic is more widely available internationally. In addition, container traffic in TEU is a good measure of port performance and competitiveness. Preliminary results: container traffics versus regional indicators  Figure 4.2 shows correlations between container traffics and gross regional product (GRP) in 1996 and 2006 for each spatial scale. Correlation is higher for larger regions in 1996 (0.49 and 0.36), probably due to better spatial homogeneity and wider hinterland coverage than smaller regions. Correlations decreased in 2006 for both spatial scales (0.20 and 0.21) for the same reasons than in Figure 4.1. The results are also distorted by imbalances between port traffic and economic weight. For instance, some regions generate more traffic than their economic size would predict, as seen with Upper Normandy (Le Havre), Gyeongnam province (Busan), Liguria (Genoa, La Spezia), Nova Scotia (Halifax) and Colima (Lazaro Cardenas). They are often large gateways connecting inland core regions with maritime networks (e.g. Paris, Seoul, Rome, Montreal and Mexico). Due to the lock-in effect of urban systems, these gateway regions remain poorly attractive despite their strategic situation. Conversely, the economic weight of some regions exceeds by far their port traffic. It is the case for several US states (e.g. Florida, California and Texas) but also of Asian regions such as Kanto (Tokyo-Yokohama), Seoul-Gyeonggi (Incheon), Stockholm, Istanbul, Roma and Noord-Holland. In such regions, the port function is very secondary compared with other functions in the tertiary sector, while many freight movements occur inland instead of by

Port Regions and Globalization

Figure 4.3

49

National importance of port regions by indicator, 2005 (Unit: %)

sea. This analysis confirms the reciprocity between regional economies and port activities, but this association has become more complex and less direct than in the past. Therefore, further analysis may focus on relative characteristics rather than absolute weights. One simple statement is that port regions differ by their relative demographic and economic weight nationally (Figure 4.3). In continental countries, the share of port regions remains low, such as in Poland, Germany, Mexico and France. The opposite case is composed of countries which main cities locate on their dominant

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Table 4.3

Regional specializations and traffic growth, 2000–2005

Unemployment concentration

Service specialization

GDP concentration Small regions

Industrial specialization

Small regions

Average growth of container traffics

Large regions

Large regions

Large regions

Small regions

Large regions

Small regions

Regions

All higher/ 0.89 0.64 0.87 1.16* 1.05 1.71 1.19* 0.89 all lower 10 higher/ 1.39* 0.49 1.59* 1.94* 1.32* 3.18 1.73* 1.10 10 lower 20 higher/ 1.16* 0.81 0.99 1.62* 0.78 2.02 1.89* 0.74 20 lower 30 higher/ 0.84 0.72 0.78 1.24* 1.00 1.49 1.41* 0.88 30 lower 40 higher/ 0.82 0.70 1.18* 1.32* 1.13* 1.71* 1.41* 1.17* 40 lower 50 higher/ 1.04 0.74 1.00 1.27* 0.97 1.62 1.37* 1.22* 50 lower Sources: Realized by author based on OECD TDB and Containerisation International. Note: Values higher than 1.1 are marked with an asterix*.

coastline (e.g. New Zealand, Ireland, Australia, Japan, United Kingdom, Norway, Denmark, Finland, Sweden, South Korea and Greece). The intermediate profile shows a balance between port regions and other regions (e.g. Italy, Portugal, Spain, Turkey, United States, Canada, Belgium and the Netherlands). Depending on such configurations, port regions embrace varying degrees of political priorities. In addition, economies which concentrate at port regions do not necessarily possess big ports (e.g. Scandinavia), while continental countries may have developed large gateways (e.g. Germany). The Analysis of Port–Region Linkages Traffic growth and regional specialization  This analysis wishes to highlight some possible correspondence between traffic growth and regional characteristics. Regional data is changed to location quotients as a means to accentuate the specificity of port regions compared with the national trend in four indicators: employment in the industrial sector, employment in the service sector, unemployment and gross regional product. In Table 4.3, results correspond to the ratio between average traffic growth rates in port regions with high location quotient and average traffic growth rates in port regions with low location quotient. Values higher than one indicate a higher growth when

Port Regions and Globalization

Table 4.4

Regional specialization and port performance, 2005 RCI Labour force

Regional areas

Oceania Northwest Europe Southwest Europe Northeast America US Gulf coast Northwest America Scandinavia and Baltic Southeast Europe Northeast Asia British Isles

All regions

51

Smaller regions Larger regions Smaller regions Larger regions Smaller regions Larger regions Smaller regions Larger regions Smaller regions Larger regions Smaller regions Larger regions Smaller regions Larger regions Smaller regions Larger regions Smaller regions Larger regions Smaller regions Larger regions Smaller regions Larger regions

RCI Population

Unem.

GDP

Indus.

Serv.

Unem. GDP

0.11*

-

-

-

0.74*

-

Indus.

Serv.

-

-

0.72* 0.16*

-0.68 † 0.77*

0.05 -0.20 †

-0.36 0.50*

0.69* 0.17*

-0.68 † 0.06 0.79* -0.23 †

-0.36 † 0.52*

0.45* 0.17*

0.85* -0.19 †

-0.57 † -0.47 †

0.72* 0.24*

0.43* 0.14*

0.88* -0.60 † -0.16 † -0.45 †

0.75* 0.24*

0.09 -0.03

-0.15 † -

-0.35 † -

0.15* -

0.03 0.20*

-0.10 † -0.30 † -

0.15* -

0.18* -0.21†

-0.10† -

-0.11† -

0.16* -

0.17* -0.10

-0.10 † -0.12 † -

0.17* -

0.47* -0.53†

0.11* -

-0.17 † -

-0.03 -

0.55* 0.23* -0.51 † -

-0.07 -

-0.13 † -

-0.19† -0.07

0.11* 0.11*

-0.46 † 0.04

0.57* -0.06

-0.17 † 0.12* -0.06 0.10*

-0.46 † 0.04

0.57* -0.07

-0.33† 0.41*

0.13* -0.22†

0.40 -0.24 †

-0.21 0.02

0.38 -0.37 † 0.09 0.35* -0.21 † -0.29 †

0.41* 0.17*

0.10* -0.02

-0.34 † -0.12 †

0.74* 0.17*

0.29* 0.16*

0.06 -0.11†

0.29* -0.08

0.02

0.04

-0.42† -0.01

0.61* -0.05

-0.29 † -0.17 †

0.11*

0.15*

-0.28 †

-0.24 † 0.12*

-0.30 † -0.12 †

0.80* 0.18*

0.30* 0.05 -0.13 † -0.09

0.04

0.03

0.33* 0.04

-0.43 † 0.62* 0.01 -0.03

-0.31 † -0.15 †

0.35* 0.04

0.28*

0.08

-0.27

0.28*

0.11* -0.01

0.18*

Note: Coefficients higher than 0.1 are marked with an asterix, and coefficients lower than -0.1 are marked with a †. Source: Author, calculated from OECD TDB and Containerisation International.

port regions are more concentrated or specialized than the rest of their country, while values lower than one indicate lower port performance. Although this methodology faces the ‘risk of attributing to port-related differences what are in fact differences in regional economic structure’ (Hall 2003), it avoids the

Ports in Proximity

52

problems comparing directly regions having distinct economic structures. One clear result is the lower port performance in regions with a specialization in the industrial sector. Conversely, regions with higher unemployment and which concentrate gross product and services enjoy higher traffic growth in general. Those results confirm the general trends faced by port regions in developed countries: •

•

•

Globalization: the weakened role of industrial areas stemming from global shifts of factories to less-developed countries due to cheap labour, shrinking transport costs and deregulation. Western traditional coastal regions for export are facing economic crisis resulting in less demand for international transport; Containerization: the negative effects of technological improvements (e.g. containerization), port competition, and selection (e.g. hub and spoke strategies, traffic concentration and service rationalization) with dramatic drops in port-related benefits; Tertiarization: the polarization of advanced regional economies, notably those concentrating economic wealth (GRP) and for which the availability of higher-level and knowledge-based activities has become more important than manufacturing or heavy industries. Higher purchasing power and consumption levels tend to foster traffic growth, of which the import of manufactured goods from emerging economies.

Towards a transcalar analysis of port regions Making use of the relative concentration index (RCI) is a fruitful method when comparing ports in terms of specialization and performance rather than volume or weight (Ducruet and Lee 2006). For the two distinct datasets of smaller and larger port regions, it divides the percentage of container traffics of a port region by its share of population or labour force within its belonged macro-region. This index is interpreted in this study as a revelatory of the performance of ports in relation to their macro and micro regional environments. For every port region, the higher its relative concentration index, the more concentrated are container traffics compared to its demographic or economic concentration. This RCI is compared through correlation coefficients to the different specializations of the port regions within their country as in previous section (Table 4.4). For both regional scales, there is a confirmation that industrial specialization goes with lower port performance. For smaller port regions, most European port regions, except Scandinavia and Baltic, show a negative correlation with industrial specialization, notably in the Southwest. Specialization in the service sector has significant correlation with port performance in Western Europe and, to a lesser extent, in Northeast Asia. An interesting difference within Europe is the different role of GDP in port performance, negative in the South and positive in the North. One possible explanation is that port performance in southern European port regions is more recent and has taken place within more deprived or peripheral areas

Port Regions and Globalization

53

due to traditional urban site congestion. Notably, Southeast Europe (e.g. Eastern Italy, Greece, and Turkey) has a stronger relation between port performance and unemployment surplus. For larger port regions, trends are often similar to those of smaller port regions, but the better data availability brings out more evidence of port-region interaction. For instance, although the British Isles share the similar negative relation with industrial specialization with other macro areas in Europe, port performance is more likely to happen within areas where unemployment is lower, i.e. Southeast England, as opposed to other port regions where de-industrialization and social crisis go together. It confirms indirectly the increased polarization of London within this large port region of GRP and service concentration. This is also the case for Northwest America and Scandinavia and the Baltic, where the relation with unemployment is negative and for the latter, unlike other macro areas, where the relation with industrial specialization is positive. Perhaps, the very scarcity of industrial activities outside port regions may explain this different trend. In other macro areas, port performance may have more easily shifted from traditional industrial regions to more sophisticated and accessible service port regions.

Conclusion The regional environment in which container ports operate greatly matters. Ports are not isolated entities connecting to virtual value chains. They are part of a regional economy and the evolution of the regional economy strongly affects the performance of the port. In particular, industrial specialization constitutes a weakness for port performance in an age of globalization. Conversely, service specialization and the concentration of economic wealth foster traffic. This confirms recent studies about the shift to post-fordist economies, defined by flexibility and the importance of knowledge-based activities such as education (De Langen 2007). Whether the relationship between port activities and regional environments is direct or indirect obviously needs further research and better analytical tools. Intense globalization that provokes industrial shifts across macro regions and, in turn, rising unemployment – notably in OECD countries, also affects port activities and the way ports get inserted in trade and transport networks. This research could have paved the way towards a critique of a large literature that considers transport players and networks as increasingly disconnected from the characteristics of the territories in which they are embedded. Indeed, regional (and also local) milieus do influence, at least partially, the competitiveness of ports in a global environment. In turn, weaker economic rents of regions (Kaplinsky 2004) tend also to weaken the performance and competitiveness of container ports.

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Chapter 5

Path Dependency and Contingency in the Development of Multi-port Gateway Regions and Multi-port Hub Regions Theo E. Notteboom

Introduction Many port terminals around the world act as gateways to extensive inland logistics networks. A gateway is a network point that acts as an entrance to another network. Hayuth and Fleming (1994) and Van Klink et al. (1998) defined gateways as nodal points where intercontinental transport flows are being transshipped onto continental areas and vice versa. Often there is more than one gateway giving access to a specific region. In some cases there is no coordination between the ports concerned, the hinterland is highly contestable as several neighbouring gateways are vying for the same cargo flows. A multi-port gateway region is defined as a port system with an outspoken gateway function. Other port terminals mainly rely on their role as turntables or hubs in extensive maritime hub-and-spoke/relay/interlining networks. Using the terminology of Hayuth and Fleming (1994), these hubs rely heavily, sometimes completely, on traffic flows that are distantly generated by the interaction of widely separated places and stimulated by the port’s en route location or intermediacy. A multi-port hub region is defined as a port system with an outspokenly hub function. In many studies on the analysis of seaports located in the same region, authors have attempted to group ports together to form larger functional or spatial units. Fleming (1997) presented an alternative world container port ranking by making some selective and imaginative combinations to define regional load centres such as Tacoma/Seattle and Los Angeles/Long Beach. The locational relationship to nearby identical traffic hinterlands was one of the criteria used to cluster adjacent load centres. In our terminology both Seattle/Tacoma and Los Angeles/Long Beach could be considered as multi-port gateways regions. The often complex linkages in the governance and management of port areas and terminals within the same multi-port gateway or hub region received quite some attention in academic literature. Wang and Slack (2000) analyzed the complex port interactions in the fast growing Pearl River Delta. Cullinane et al. (2005) discussed competition between Shanghai and Ningbo in the Yangtze Delta. Several chapters in Cullinane and Song (2007) are dedicated to competition, cooperation and governance issues in the Yangtze Delta, the Pearl River Delta, Singapore and

Table 5.1

Ranking of major container handling regions in the world (in million TEU)

Cluster

Container ports

Distance (*)

1985

R

1990 R

1995

R

2000

R

2002

R

2004

R

2005

R

2006

R

2007

R

Pearl River Delta

Hong Kong, Shenzhen, Guangzhou, Zhongzhan, Jiuzhou

130 km

2.34

3

5.37

3

13.74

1

24.26

1

29.83

1

40.16 1

44.85

1

49.95

1

55.98

1

Malacca Straits

Singapore, Port Klang, Tanjung Pelepas

340 km

1.70

6

5.56

2

12.98

2

20.66

2

24.00

2

30.41 2

32.78

2

35.88

2

40.27

2

Yangtze River Delta

Shanghai, Ningbo

180 km

0.20

8

0.47

9

1.69

8

6.51

7

10.47

7

18.56 3

23.27

3

28.78

3

35.50

3

RhineScheldt Delta

Rotterdam, Antwerp, Zeebrugge, Amsterdam

105 km

4.20

1

5.62

1

7.74

3

11.38

3

12.34

3

15.59 4

17.36

4

18.67

4

21.37

4

Bohai Bay

Dalian, Qingdao, Tianjin

350 km

0.20

9

0.55

8

1.68

9

4.84

9

7.17

9

11.16

13.76

6

16.86

5

20.37

5

7

San Pedro Bay

Los Angeles, Long Beach

10 km

2.25

4

3.71

4

5.40

4

9.48

4

10.63

5

13.10 5

14.19

5

15.76

6

15.67

6

Korean Twin Hub

Busan, Gwangyang

135 km

1.16

7

2.35

7

4.50

6

8.22

5

10.53

6

12.81 6

13.28

7

13.79

7

14.93

7

Helgoland Bay

Hamburg, Bremerhaven, Wilhelmshaven

95 km

2.15

5

3.13

6

4.41

7

7.03

6

8.49

8

10.52 8

11.86

9

13.31

8

14.80

8

Tokyo Bay

Tokyo, Yokohama, Shimizu

50 km

2.46

2

3.37

5

5.16

5

5.63

8

5.52

10

6.59

N.A.

10

N.A.

9

N.A.

9

Note: *Farthest distance between competing ports in the cluster.

9

Ports in Proximity

58

Tanjung Pelepas and the South-Korean twin hub Busan and Gwangyang. The port governance book edited by Brooks and Cullinane (2007) also discusses the situation in many European gateways. Charlier (1996) and Notteboom (2007a) paid special attention to the Benelux seaport system. Marti (1988) zoomed in on the Pacific load centres on the North American west coast, while Starr (1994) and Shashikumar (1999) discussed port dynamics in North American gateways along the east coast. This chapter aims to unravel the factors contributing to the dynamic development of multi-port gateway regions and multi-port hub regions. Two questions lie at the heart of this contribution: what mechanisms drive port system development and why do distinctive port systems follow other development paths? The first section briefly presents the main multi-port regions in the world. The second part provides a theoretical discussion on existing models on port system development, while the next section contains a conceptual discussion on path dependency and contingency in port system dynamics. The last heading analyzes sources of path dependency and path disruption in multi-port regions.

Multi-port Gateway Regions and Multi-port Hub Regions Table 5.1 provides a list of the main multi-port gateway and hub regions in the world with regard to container handling. The share of gateway traffic in total container throughput tends to differ quite significantly between the gateway regions. The Singapore region primarily acts as a sea–sea transhipment platform (i.e. mainly hub function not gateway function), whereas for instance the seaport system in the Yangtze Delta is a true multi-port gateway region giving access to vast service areas in the Delta and along the Yangtze river. Moreover, some multi-port gateway regions feature a high density of port terminals in a small geographical space, while other regions cover larger areas with inter-port distances of up to 350 km. Typical containerized multi-port regions not listed in Table 5.1 include: •

•

•

•

The multi-port gateway region at the Southeast coast of the UK where Felixstowe, Southampton, Thamesport, Tilbury and in the near future also London Gateway serve London and the surrounding economic heartland of the United Kingdom. Containerized volumes reached around 7.2 million TEU in 2007 compared to 4.8 million TEU in 2000; The central Mediterranean region with transhipment hubs such as Gioia Tauro, Cagliari, Malta and Taranto (6.65 million TEU in 2007, 3.72 million TEU in 2000); The northwestern Italian port system (Genova, Savona, La Spezia and Livorno) serving north Italian economic centres such as Milan and Turin (4.03 million TEU in 2007, 2.95 million TEU in 2000); Le Havre-Rouen giving access to the Seine basin and beyond, but also with some transhipment activity (2.8 million TEU in 2007, 1.6 million TEU in 2000);

Path Dependency and Contingency

•

• •

•

•

59

The Straits of Gibraltar with established transhipment and interlining hub Algeciras and newcomer Tanger Med. Algeciras recorded a container throughput of 3.41 million TEU in 2007 compared to 2 million TEU in 2000; The East med combined gateway/hub ports of Port Said, Damietta and Alessandria; The estuary of the Rio de la Plata in South America with main ports Buenos Aires and Montevideo gives access to the extensive hinterlands in Uruguay and Argentina (2.31 million TEU in 2007, 1.41 million TEU in 2000); The Panama Canal ports of Colon, Balboa and Cristobal mainly serving as hubs on either the Atlantic or the Pacific side of the Canal (3.85 million TEU in 2007, 1.36 million TEU in 2000); The northwestern port system in North America comprising ports such as Vancouver, Fraser, Seattle and Tacoma (6.66 million TEU in 2007, 4.38 million TEU in 2000).

These multi-port gateway and multi-port hub regions all have gone through a distinctive historical development pattern. These regions share the notion of having more than one port involved in containerized cargo. The next section elaborates on existing spatial models with respect to the mechanisms driving the development of such port systems.

Existing Models on Port System Development A wide-ranging and long-standing literature in port geography exists on the spatial development of seaport systems in relation to maritime and hinterland networks. One of the classic works is Ogundana (1970) on seaport evolution in Nigeria. Another classic is Taaffe et al. (1963) which suggests an increasing level of port concentration as certain hinterland routes develop to a greater extent than others in association with the increased importance of particular urban centres. The geographical system would evolve from an initial pattern of scattered, poorly connected ports along the coastline to a main network consisting of corridors between gateway ports and major hinterland centres. The resulting port concentration can cause degradation of minor ports in the network. The models of Barke (1986) and Hayuth (1981) are quite similar, though they introduced a process of port system de-concentration caused by the growth of former non-hub ports and the emergence of new ports. A distinction should be made between de-concentration within a port (situation B in Figure 5.1) and de-concentration within a port system (situation C and D in Figure 5.1). The first type basically refers to the infrastructural extension of port areas away from the historical core to less urban downstream sites conform to the initial ideas of the Anyport model as described in Bird (1970). Scale expansion in shipping and the

Ports in Proximity

60 $ ,QLWLDOVLWXDWLRQ

6($

% 1HZWHUPLQDO GHYHORSPHQW LQH[LVWLQJSRUWV

& 1HZWHUPLQDOVDORQJ WKHZLGHUFRDVWOLQH

' 1HZWHUPLQDOVSRUWV QHDUH[LVWLQJSRUWV

/$1'

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Figure 5.1

Terminal development options in a port system

use of new transhipment technologies are some of the factors that have resulted in the abandoning of older port sites. The second type, i.e. deconcentration within a port system, occurs when some of the existing cargo is shifted from large ports to smaller or new ports, or when the large load centres only absorb a small portion of the container growth in the port system. This phenomenon of the peripheral port challenge has received quite some attention in literature (Hayuth 1981, Slack and Wang 2002, Notteboom 2005 and Frémont and Soppé 2007). The peripheral port challenge concept thus implies that those ports which existed before the container revolution and invested early in the new technology are gradually losing market share to new or upgraded ports which try to gain load centre status. The challenge of the periphery thus supports the transition of a single-port gateway region to a multi-port gateway region. Notteboom and Rodrigue (2005) made two extensions to the models discussed above. The first extension relates to the integration of offshore hubs: Freeport (Bahamas), Salalah (Oman), Tanjung Pelepas (Malaysia), as well as Gioia Tauro, Algeciras, Malta, Taranto and Cagliari in the Mediterranean to name but a few. These hubs tend to have an excellent nautical accessibility and often have land for future expansion. Terminals are typically owned, in whole or in part, by carriers which are efficiently using these facilities. In the framework of this chapter, it is necessary to underline that the creation of offshore hubs does not occur in all port systems. Some port systems seem to offer the right conditions for the emergence of a multi-port hub region with more than one transhipment hub (e.g. the central Med).

Path Dependency and Contingency

61

Other port systems do not feature any offshore hub development. In the US, many impediments in American shipping regulations gravitating around the Jones Act have favoured a process of port system development with limited (feeder) services between US ports and the absence of US-based transhipment hubs (Freeport in the Caribbean to a limited extent takes up this role). Also Northern Europe up to now does not count any real transhipment hub, let alone an ‘offshore’ hub. Hamburg, the North European leader in terms of sea-sea flows, has a transhipment incidence of merely 40 percent, far below the elevated transshipment shares in the main south European hubs (85 percent to 95 percent). It is generally expected that the transhipment shares in newcomer ports Flushing and Wilhelmshaven might slightly exceed 40 percent. The only concrete plan for a real North European offshore hub relates to a proposed transhipment facility at the natural deep-water harbour at Scapa Flow in the Orkney Islands. Baird (2006) argued that alternative port sites such as Scapa Flow could provide a superior and more competitive location from which to support the fast expanding transhipment markets of northern Europe. Notwithstanding such a plea, market players have not adopted the idea of bringing a north offshore hub into reality. The second extension relates to port-hinterland dynamics. The formation of a multi-port gateway region might also involve inland centres. Notteboom and Rodrigue (2005) introduced a regionalization phase, thereby referring to the expansion of the hinterland reach of the port through a number of strategies linking it more closely to inland freight distribution centres. The phase of regionalization brings the perspective of port development to a higher geographical scale, i.e. beyond the port perimeter. The port regionalization phase is characterized by a strong functional interdependency and even joint development of a specific load centre and (selected) multimodal logistics platforms in its hinterland, ultimately leading to the formation of a regional load centre network. Another point that needs to be raised relates to the perspective used in the spatial models. The models outlined above focus on cargo concentration at the level of a container port system. This is clearly something other than concentration of cargo at the level of the liner networks of individual carriers (Cullinane et al. 1999) or global terminal operators. From a shipping line’s perspective, the economies of scale in all parts of the port triptych (shipping, port and inland operations) would favour a very limited number of load centres in a region. The advantages of concentrating cargo in only one or a few ports of call would be stronger at the level of a shipping line than at the port level, simply because not all carriers will choose the same load centres in their liner service networks. Along the same lines, Frémont and Soppé (2007) argue that port concentration has taken a new form which is that of shipping line concentration characterized by the setting up of dedicated load centres. The above demonstrates that the development of a port system and the emergence of multi-port gateway and hub regions are far more complex than mere cargo concentration patterns as suggested by the earliest models.

62

Ports in Proximity

Mechanisms of Path Dependency and Contingency in Port System Development The models on port system development portray a high degree of path dependency in the development of ports at a regional scale. Port systems would follow a similar evolutionary development path. Future events are not independent from past events and the sequence of events makes a difference for the outcome. It can be argued, however, that port development processes also show a certain degree of contingency. Strategies and actions of market players and other stakeholders may deviate from existing development paths. Both path dependency and contingency explain why port systems around the world do not develop along the same lines or follow the same sequence of stages as suggested in the models on port system development. Ports are subject to open economic systems based on market-based principles in which economic actions not necessarily follow universal laws. The result is some level of disparity among port system developments around the world. Every new terminal produces change in the existing port system and has an impact on the formation of the next terminal. But sometimes, this can lead to path disruption and a seemingly random development. If we argue that the outcome of port system development is dependent on a mix of path dependency and contingency, then it is highly interesting to identify those mechanisms that lead to path dependency and those that lead to path disruption or even path destruction. Three basic principles drive evolutionary port systems: selection, retention and variation (see also Nelson and Winter 2002 and Glückler 2007 for the terminology used). Selection Selection relates to the competitive process that selects winners and losers in port systems and to the formation of competitive and or cooperative linkages between the actors in a port system. The outcome of selection processes is not only depending on the external selective environment (exogenous), but also on the strategic intentions and actions of the actors involved (endogenous). Exogenous developments affecting ports are well documented in literature (see Notteboom 2006a for an overview): globalization and trade patterns, supply chain dynamics and logistics integration and transport deregulation to name but a few. Endogenous factors can relate to, for example, concession procedures and decisions, internal market competition or the strategies of port players. To give an example: a shipping line might set up a joint venture with an incumbent terminal operator in a specific port because of exogenous change (e.g. customers’ demand for freight integration) but also because of endogenous changes (e.g. the terminal operator has become attractive for the shipping line because of its success in securing a long-term concession for a prime terminal location in the port). Selection processes can occur among incumbent actors in the port system (e.g. established terminal operators)

Path Dependency and Contingency

63

but also in relation to new entrants with no previous links to the port system (e.g. a financial holding acquiring a terminal facility). Retention Retention refers to the structural mechanisms that cause new developments to reinforce the existing port hierarchy in a port system. Past choices have a structural effect on the natural inclination for new tie selection to reproduce and reinforce an existing system. Path dependency in the development of gateways and hubs might be increased by some behavioural mechanisms influencing the interaction among actors in the port system. One of these mechanisms is preferential attachment. The actors in a specific port system with many ties are more likely to receive new ties in the future. For example, a terminal operator with a strong track record in serving the hinterland regions of a gateway port has a good position to establish new customer relationships or relationships with other actors in the market. Embedding is another mechanism strengthening path dependency. The mechanism of embedding assumes that future ties form around existing strong ties by processes of trust. Preferential attachment and embedding can lead to selfreinforcing effects whereby established load centres become even more dominant in a port system. Other human behavioural aspects that have an impact on the interactions between relevant actors and the development of a port system include inertia, bounded rationality and opportunism. These aspects can emerge at all levels of interactions between all actors involved (between port authorities and terminal operators, between shipping lines and terminal operators, between shippers and shipping lines and so on.). Some examples: shippers sometimes impose bounded rational behaviour on transport operators, for example in case the shipper asks to call at a specific port or to use a specific land transport mode. Opportunistic behaviour of economic actors or informal commitments to individuals or companies might lead to non-cost minimizing decisions. Carriers might stick to a specific port as they assume that the mental efforts (inertia) and transactions costs linked to changes in network design will not outweigh the extra costs of the current nonoptimal solution. The three above-mentioned behavioural factors thus contribute to sub-optimal decisions. They often trigger retention mechanisms and thus potentially reinforce existing port hierarchy patterns in a gateway or hub region. Variation Variation refers to a set of endogenous mechanisms that enables novelty and path disruption in the development of a port system. Variation is strongly linked with contingency as it counterveils against existing trajectories and against the retention mechanisms outlined above. Variation can lead almost overnight to a new hierarchy in a port system or to a new competitive setting among terminal facilities.

64

Ports in Proximity

The concept of variation refers to endogenous mechanisms, so unravelling path disruption in port system development demands an analysis of those changes that come from within the maritime and port setting.

Sources of Path Dependency and Path Disruption in Multi-port Regions Selection, retention and variation mechanisms steer all levels of port system development. In view of keeping the discussion tangible, the following sections zoom in on some key issues in the development of multi-port gateway and hub regions: (1) the search for accessibility, (2) strategic actions of market players and (3) proximity issues. Path Dependency and Path Disruption in the Search for Accessibility The location of ports and terminals is driven by the accessibility to spatially dispersed markets. Accessibility has generally been defined as the ease with which activities may be reached from a given location using a particular transportation system (Morris et al. 1979). It is a measure for the quality of access of a certain location to a number of other locations. Exogenous and endogenous factors can lead to changes in the requirements for accessibility in the triptych forelandport-hinterland (i.e. maritime access, terminal access and hinterland access). Endogenous changes can trigger a variation mechanism and as such constitute potential sources for path disruption or even path destruction in the development of a port system. Port terminals compete for accessibility. The success of established ports in the competitive process is determined by their performance and accessibility in terms of productivity, cost factors, time factors, reliability issues and capacity issues not only in the port, but throughout the port triptych (Huybrechts et al. 1999). When accessibility needs in the market change at the infrastructural level, the transport level or the logistical level, some port terminals might be pushed out of the market and new port terminals or previously non-containerized ports might enter the market. Accessibility problems in established ports are often at the core of the peripheral port challenge phase in port system development and can as such contribute to path disruption and formation of multi-gateway port regions (see also Figure 5.1 earlier in this chapter). A wide range of local constraints can impair the growth and efficiency of the established load centres. The lack of available land for expansion is among one of the most acute problems, an issue exacerbated by the deepwater requirements for handling larger ships and the accessibility needs imposed by new types of liner service networks. Increased port traffic may also lead to diseconomies as local road and rail systems are heavily burdened. Environmental constraints and local opposition to port development are also of significance.

Path Dependency and Contingency

65

There are however some retention mechanisms that might prevent a decay of established ports and give the large load centres a good position in view of further consolidating their function in the spatial hierarchy within a port system. Newcomers and accessibility  Accessibility issues also affect newcomers which try to establish themselves on the market. Hence, the hinterland connections of smaller ports and new load centres in a start-up phase remain rather precarious. Smaller ports and new terminals find themselves confronted with a vicious circle in the organization of hinterland transportation. The small-scale container volumes do not allow to install frequent block and shuttle trains to the more distant hinterlands. Because of the inability to serve a substantial hinterland, the major shipping lines do not include these ports in their liner services. One way for smaller container ports to escape this vicious circle is by seeking connection to the extensive hinterland networks of the large load centres through the installation of shuttle services either to rail platforms in the big container ports or to master rail hubs in the hinterland. Reputation and the market power of large incumbent load centres  The push for new infrastructures in established seaports and the connecting maritime and land corridors is often supported by processes of preferential attachment and embedding among market players. In some parts of the world this has led to a select group of ‘must’ ports of call with a strong reputation (e.g. Singapore and Rotterdam). These ports benefit a lot from self-reinforcing processes of cargo consolidation via a high interconnectivity and a high sailing frequency to all parts of the world. The belief of market players in the future potential of such ports is typically high, and this trust in the market in itself gives a strong incentive to port authorities and government agencies to keep on guaranteeing a favourable accessibility profile. Newcomers and smaller ports generally lack such an enviable market status. The power exerted from these sorts of mechanisms can not be underestimated. It could be argued that preferential attachment and embedding processes can seriously affect the entry of newcomer ports in the market and slow down changes in the port hierarchy in multi-port gateway regions. For example, everybody seems to agree on the fact that new ports will only stand a chance in the highly competitive Le Havre–Hamburg range when they are developed at coastal deepwater locations (cf. Flushing or Wilhelmshaven projects). Nobody seems to embrace the idea of adding a new upstream load centre (Baird 1996). Still, major European upstream ports Antwerp and Hamburg remain highly successful and have even gained market share from their downstream/coastal counterparts. These two upstream ports represent about 46 percent of the terminal capacity that will be added in the Havre–Hamburg range in the period 2005–2015 (Notteboom 2007a). We argue that part of the success of Hamburg and Antwerp emanates from decades of preferential attachment and embedding processes both at the level of market players, and at the level of political and public support. These mechanisms support a strong believe in their future growth potential and attract

66

Ports in Proximity

massive investments from public authorities (dredging programs, dock and quay construction) and private port players (container terminals and logistics solutions). It is highly doubtful whether any initiative to create a new upstream port in the range would get similar support. Stakeholder relations management  Securing terminal capacity and land infrastructure within a reasonable timeframe has become a major competitive factor in port systems. The time needed to develop port and inland infrastructure has increased considerably in the last decades because of painstaking legal procedures and the broad involvement of stakeholders in the planning process. This is most apparent in Europe and North America. Larger load centres have built up a richer experience in dealing with port planning issues. Newcomers in the container market or smaller ports might have less experience, which might show to cause serious delays or even a halt to any large terminal development. The ongoing (long) debate on the Westerscheldt Container Terminal in Flushing (the Netherlands) serves as an example. The experience level in terms of stakeholder relations management can serve as a retention mechanism supporting the role of established incumbent ports. Port-inland (re)configuration  Port regionalization as outlined earlier in this chapter can be considered as a variation mechanism leading to a new form of node partnering within a multi-port gateway region: the regional load centre network. The transition towards the port regionalization phase is a marketdriven process that mirrors the increased focus of market players on logistics integration (Notteboom and Rodrigue 2005). Port regionalization leads to path disruption at the level of the ties between nodes and brings port development beyond the port perimeter. Established ports in a multi-port gateway system can partially circumscribe local constraints and accessibility problems by externalizing them by linking up more closely to inland centres. For example, all ports in the Le Havre–Hamburg range have to some extent embraced the idea of port regionalization. However, some ports like Antwerp for a long time stayed at the sideline when it came to inland terminal developments and the creation of logistics zones along hinterland corridors, while other ports such as Rotterdam were more active in this field. In practice, mainly private market players are involved in setting up these types of cooperative networks. Port authorities have created room for forms of indirect co-operation, for example through joint marketing and promotion, which are less binding and require less financial means. The path disruption potential of a port regionalization process is primarily dependent on the way the partnering between ports and inland ports unfolds. Heavily-burdened large load centres which successfully build a regional load centre network around the port might be able to stop or even reverse peripheral port challenge processes.

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Path Dependency, Path Disruption and Strategic Actions of Market Players The development of a port system is highly dependent on the strategic decisions of market players. It was stated before that the interactions between market players can be strongly affected by preferential attachment and embedding mechanisms. Preferential attachment and embedding mechanisms can to some extent be weakened by the search of many actors for diversity of relations (not all eggs in the same basket). For example, shipping lines might want to spread the risk by making sure that their liner services do not all call at the same base port. The tension between preferential attachment and embeddedness on the one hand and diversity of relations on the other hand also plays when shipping lines and terminal operators join forces to develop and operate new container terminals. Global terminal operators are increasingly hedging the risks associated with the footloose transshipment business by setting up dedicated terminal joint ventures. The relation between PSA and MSC provides a good example. The recent linkages include the MSC Home Terminal in the Belgian port of Antwerp (50/50 jointventure), a BOT-arrangement in the Portuguese port of Sines and the MSC PSA Asia Terminal in the Pasir Panjang area in Singapore (50/50 JV). Notwithstanding the existence of a certain degree of multi-connectivity between shipping lines and global terminal operators (e.g. case MSC above), shipping lines can and often do make a totally different choice for the next node, even within the same multi-port gateway region. An example from the Rhine-Scheldt Delta: carrier CMA CGM has a shareholding of 35 percent in the CHZ terminal in Zeebrugge, part of PSA’s terminal network. At the same time, CMA CGM teamed up with PSA’s rival DP World in the Antwerp Gateway terminal (10 percent shareholding) and in the future Rotterdam World Gateway (DP World/ New World Alliance/CMA-CGM) at phase 2 of Maasvlakte 2. Business relationships in general remain rather footloose and opportunistic in nature and this diversity of relations impacts on the evolutionary development of a port system. For the remainder of this section, we elaborate on the strategic actions of terminal operators. In the last ten years, the container handling industry has been characterized by massive consolidation, vertical integration and the formation of terminal networks operated by international stevedoring groups such as DP World, Hutchison Port Holding, PSA and APM Terminals (Notteboom 2002a and Drewry Shipping Consultants 2003a). The emergence of global terminal operators has created path disruption in the sense that the focus of port competition started to shift from port authorities to private terminal operators who are trying to establish terminal networks. Slack (2007) rightly referred to the terminalization of port competition in this respect. The impact of this variation mechanism on the spatial and functional dynamics in multi-port gateway and hub regions is significant. Instead of port competition between clearly-defined port areas with spatial boundaries (nodes), competitive forces are shifted to groups of spatiallydispersed but functionally-integrated terminals in different ports (networks).

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On top of this, the large terminal operators are becoming more footloose in spatial terms as their network approach loosens the former strong ties with one particular seaport. We have moved away from a situation where each individual terminal in a multi-port gateway region had another terminal operator, to multiple presence of a handful of operators throughout the port system. Multi-port gateway regions now often feature commercial linkages and cooperation between port terminals, complemented by intra-port competition. In many cases, global terminal operators in upstream ports have extended their operations to medium-sized or new coastal container ports in the same multi-port gateway region in order to offer the customers a more differentiated product range. This process opened the way to an operator-induced specialization among the terminals operated by the same group. In many cases, major terminal operators in established load centres became chief instigators of competing peripheral port developments in the same multi-port gateway region. The extent to which global terminal operators are able to generate path disruption, by spreading their terminal activities over more than one port in the same multi-port gateway region, is depending on their success rate in entering the respective local terminal markets. In many ports around the world, concession agreements between landlord port authorities and terminal operators constitute a key legal entry mode in seaports (De Langen and Pallis 2007). National and supranational legislation, port privatization schemes and legal disputes with regard to irregularities in concession policy have made competitive bidding the most common procedure used in concession granting today (Notteboom 2007b). This implies that local terminal operators in principle can no longer rely on any form of shelter-based policy of a local or national authority. As a result, some local players who used to rely on ‘protection’ by local authorities are now exposed to competition from experienced global players who seek to secure capacity all over the world. In the best case the local players could engage in a joint-venture to operate the concession. In other cases, local players were take-over by global players or were forced to reorient their focus to niche markets or other types of terminal operations. The final decisions of port authorities in the awarding of key terminal concessions can have an unanticipated effect on the development path in and between multi-port gateway regions. Some examples in the Rhine–Scheldt Delta illustrate this complex process of action-reaction. Case 1: Seaport Terminals  In the late 1980s, Seaport Terminals was one of the main container terminal operators in Antwerp next to Hessenatie and Noordnatie. In 1989, Furness sold Seaport Terminals to Katoen Natie. Seaport Terminals wanted to secure its future development potential by aiming for the concession of one of the two new Scheldt terminals in Antwerp. However, the Europe Terminal (opened in 1990) was granted to Hessenatie and the Noordzeeterminal (opened in 1997) to Noordnatie. After a series of unsuccessful legal actions against both decisions of the Antwerp Port Authority, Seaport Terminals moved its attention

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to the coastal port of Zeebrugge in the 1990s. Mother company Katoen Natie obtained a concession to operate the new Flanders Container Terminal (FCT). Many saw the move to Zeebrugge as a way for Seaport Terminals to hit back on Antwerp. The Antwerp container activities of Seaport Terminals were sold to P&O Ports in 2000. While everybody expected an intense competitive battle between Zeebrugge and Antwerp, Katoen Natie/Seaport Terminals never succeeded in reaching a reasonable utilization rate at FCT (at certain moments occupation at the stacking area was less than 10 percent of the design capacity). However, Katoen Natie had a watertight concession contract that enabled the company to keep the terminal underutilized for several years. After a long legal battle, Katoen Natie finally pulled out of container terminal activities in Zeebrugge. Case 2: Maersk/APM Terminals  When Maersk acquired the container operations of Sea-Land in 1999, the company also took possession of the Delta Sea-Land Terminal in Rotterdam. The fully automated and dedicated Delta Sea-Land terminal opened its doors on the Maasvlakte in 1993 and later became DDN – Delta Dedicated North. Maersk reached an agreement with ECT in the beginning of 1999 to dedicate a part of the Delta Multi User terminal (DMU) to Maersk vessels. The dedicated Maersk Delta terminal opened its doors in 2000. The whole DMU terminal was later transferred to Maersk Delta b.v., a 66/33 joint venture between Maersk Sealand and ECT. The gradual acquisition of ECT by Hong Kong based Hutchison Port Holding led to an intervention of the Merger Task Force of the European Commission. This intervention resulted in Maersk Delta to become a fully-owned dedicated terminal for Maersk. A few years later, this terminal at the northern side of the container peninsula at Maasvlakte was taken up in the portfolio of the group’s new subsidiary APM Terminals. Following a DG Competition decision on the joint exploitation of the new Euromax terminal in the port of Rotterdam by ECT and P&O Nedlloyd (case M.3576 of 2004) and following the later acquisition of P&O Nedlloyd by Maersk Line, the exploitation of the Euromax terminal was awarded to ECT (opened in 2008), while the AP Moller group was awarded the first concession on Maasvlakte 2. Today, APM Terminals is facing some serious capacity issues in Rotterdam. The existing facility is reaching full capacity and the new 3.5 million TEU terminal at Maasvlakte 2 will only be available in 2014 at the earliest. Maersk made an attempt to enter the Antwerp container business as a candidate for one of the phases of the Deurganckdock. The eventual winners were PSA HNN (west side of the dock) and the Antwerp Gateway consortium (east side). However, the Antwerp Port Authority initially left the door somewhat open for the Danish group. Should Maersk Line meet with the proposed conditions for further volume growth in Antwerp, then Maersk Line would be able to dispose exclusively of a to be defined terminal site at the Deurganck Dock. The AP Moller group was more successful in Zeebrugge. In October 2004, MBZ announced that APM Terminals has been named the preferred bidder for the concession to manage and operate the former Flanders Container Terminal. The decision was partly

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based on investment commitments and the related opportunities for increasing the volume in the port. The terminal with a design capacity of 2 million TEU resumed operations in 2006 and gives Maersk Line some room for growth in the Rhine–Scheldt Delta. The cases of Seaport Terminals and Maersk/APM Terminals demonstrate that the competitive development in the multi-port gateway region of the RhineScheldt Delta is highly depending on a complex of missed and successful bids for terminal concessions in combination with a set of merger and acquisition moves in the terminal operations industry and liner shipping. Each outcome of selection, retention and variation mechanisms has had a clear impact on the possible outcomes in the next step of port system development. Path Dependency, Path Disruption and Proximity Proximity can be defined as the expression of agents’ potential for interacting (Baranesa and Tropeano 2002). Actors’ mobility and ICT-based mediations are giving reason to reflect upon the new forms of proximity, and specifically on its temporary forms. Geographic proximity is only one particular form of coordination, often complementary with other organized forms of proximity. The development path of multi-port gateway regions is affected by geographic proximity, organizational proximity and cultural proximity. A low time and cost distance between ports of the same port system valorizes geographic proximity and leads to stronger interactions between the nodes, even up to point where a multi-port gateway region starts to act as if it is one large port area. The container volumes exchanged over land between the load centres can serve as an indicator of functional integration. Containerized cargo might receive a bill of lading for one load centre, although the physical handling from deepsea vessel to land takes place in another load centre in the same region. At the heart of this process lies the tension between ‘the ship follows the cargo’ argument and ‘the cargo follows the ship’ argument. Such a tension is typical for multi-port gateway regions. Shipping lines are now further stimulating cargo to come to the ship by installing port equalization systems. In other words, shippers are compensated for possible cost disadvantages in hinterland transportation towards neighbouring ports. Organizational proximity and cultural proximity are conditions for actors/ market players to interact, to cooperate or to integrate. This brings us partly back to the strategic actions of market players as discussed in the previous section. Market players and stakeholders shape the development pattern of multi-port gateway regions through their actions. When these actors have conflicting interests and objectives (the objectives’ struggle), organizational proximity can create some sense of collective responsibility for the sustainability and competitiveness of the port system as a whole and each of the individual load centres. De Langen and Visser (2005) referred in this framework to collective action regimes in seaport clusters.

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Territorial borders between states, provinces and even municipalities/cities can have a large impact on the spatial and functional interactions among the ports in a multi-port gateway region. In most cases, territorial borders lead to less mental proximity between ports in terms of the pursuit of a common goal, such as the competitiveness of the whole port system. At the same time, borders can increase the cost distance among load centres due to administrative and transaction costs. The disappearance of border-induced impediments to functional proximity among ports in the same multi-port gateway region range is a major source for variation and path disruption. Such impediments can relate to trade barriers (the more economic and trade integration among neighbouring states, the more the way is paved for fierce competition in serving large and contestable hinterlands), custom formalities, economic and environmental regulation, labour mobility or transfer modalities for innovation. Administrative borders can also raise issues with respect to coordination and specialization of the terminals concerned. The port of Ningbo in the Yangtze Delta serves as an example: it competes with Shanghai in attracting containers from the Yangtze River Delta because of the close proximity to Shanghai (Cullinane et al. 2005). Shanghai used to negotiate with Ningbo for supporting the Yanshan port construction and to switch its main focus on bulk instead of container. Eventually, the competitive situation intensified rather than weakened. A clear task division among load centres within a multi-port gateway region is hard to accomplish and often not desirable due to potential negative impacts on competitive forces in the region. A similar terminal operator base in the ports concerned or a joint port authority (e.g. Vancouver/Fraser or Malmö/Copenhagen) can avoid a path of destructive port competition and duplication of terminal facilities. The specialization debate in a multi-port gateway region can sometimes emanate in the desirability of a deliberate port decline. The Pearl River Delta serves a good example. Civic Exchange, a Hong Kong public policy think tank, urged the Hong Kong’s government to abandon plans to build the tenth container terminal (CT10) because of massive capacity expansion in nearby Shenzhen ports (Chiwan, Shekou and Yantian). Hong Kong terminal operators Hutchison Port Holding and Modern Terminals have invested heavily in Shenzhen. The think tank not only called for a stop to the building of CT10, but also argued Hong Kong should consider gradually shrinking the existing Kwai Chung container terminals to free harbour front land for higher value uses. The think tank underlines the city should focus more on high-end services such as ship management, registration, financing, insurance and broking (see Chapter 19 for a further discussion on Hong Kong). Deliberate port decline constitutes a variation mechanism leading to path disruption.

Conclusions The formation of container port regions around the world, that either function as a collection of hubs or gateways, is subject to a complex set of mechanisms. Existing

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models on port system development portray a standard evolutionary development path. In reality, a large diversity exists in how gateway and hub regions are dealing with the cargo flows that move through their ports. A certain degree of path dependency in the co-evolution of ports at a regional scale exists, but the sequence of events makes a difference for the outcome. Port development processes also show a certain degree of contingency. Strategies and actions of market players and other stakeholders may deviate from existing development paths. We identified selection, retention and variation mechanisms as instrumental to the mix of path dependency and contingency in the development of multi-port gateway and hub regions. These mechanisms play at the level of accessibility, strategic actions among market players and proximity. Accessibility problems in established ports are often at the core of the peripheral port challenge phase in port system development and can as such contribute to path disruption and the formation of multi-gateway port regions. Retention mechanisms might prevent a decay of established ports and give the large load centres a good position in view of further consolidating their function in the spatial hierarchy within a port system. The interactions between market players can be strongly affected by preferential attachment and embedding mechanisms. These mechanisms can to some extent be weakened by the search of many actors for diversity of relations. The development path of multi-port gateway regions is further affected by geographic proximity, organizational proximity and cultural proximity. Further research on this issue should focus on path dependency and contingency in specific multi-port gateway regions and multi-port hub regions. It is highly interesting to dive deeper in how the mechanisms of selection, retention and variation materialize in specific individual multi-port regions.

PART II THE GOVERNANCE OF PORTS IN PROXIMITY

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Chapter 6

Proximity and Port Governance Brian Slack, Elisabeth Gouvernal and Jean Debrie

Introduction Proximity has long been recognized as a factor in port and shipping studies. Access to a hinterland has always been seen as an asset for ports (Frémont and Soppé 2007; Notteboom and Rodrigue 2007). With the development of transhipment hubs in container shipping, it has been demonstrated that distance deviation from the main shipping lanes is a critical location determinant (Zohil and Prijon 1999; McCalla 2008). These and other examples in the literature are based on Euclidean geometry, where any two points can be joined by a straight line, and distance is measured by an absolute measure such as miles, kilometres or time (Lowe and Moryadas 1984). Proximity in Euclidean space is therefore an indication of physical closeness. There are other geometries, however, that dispense with these physical rigidities, and which describe relationships between points. One such geometry is topology, where proximity may indicate a relational closeness that may not reflect geographical distance. Thus, businesses may be closely linked through their financial relationships, without necessarily being physically neighbours. In this context, proximity is taken as a measure of organizational connectedness. Governance relationships may also be measured topologically. Different levels of government present different degrees of proximity to the institutions being governed. Public ports may be administered by different levels public administration. In the past, for example, most ports around the world were governed by state-controlled agencies that had little or no relationships with regional and local governments. Over the last 20 years there has been a general trend to give greater jurisdictional control to lower tier bodies, and in some cases to individual port authorities. We may consider this trend an attempt to bring port administration closer to the ports themselves. We relate this process to the political theory of subsidiarity, where governance is seen to be best carried out by the level most appropriate for the administration of that public agency. In this chapter we consider some of the issues raised by port decentralization drawing upon the examples of two national cases, France and Canada, where different but parallel processes have taken place. In one case (France), regional governments play a larger role today in port administration which we suggest may lead to a greater degree of cooperation between the ports under each regional government, since those bodies have an interest in their own port systems as a means of promoting regional development. In contrast, Canadian ports have

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devolved to purely local agencies, without any regional and very limited national control. Here, competitive pressures are evident. We hypothesise, therefore, that governance proximity, that we define as the relational distance separating the port authority from the government tier exercising jurisdiction over the port, can play a very important role in shaping port policy orientations.

Divestiture and Port Governance Over the last 15 years, a global process of reform in the ports industry has taken place. As Brooks and Cullinane (2007) have noted, this occurred because of the growing interest in alternative forms of delivery of public services, and because ports were requiring ever greater funds to meet the challenges of global competition. While the character and effectiveness of the reforms have been varied, one of the recurrent features is the retreat of central governments from direct port control. An important element of this process is that of divestiture. It is a term that refers to the transfer of responsibility for the delivery of services from a higher tier of government to a lower level, and could be also taken to include the transfer to a private entity. In most cases it is a central or federal government that decides to ‘download’ or transfer responsibility to a lower tier public body, since historically in most countries port governance has been a national responsibility (World Bank n.d.). Notable exceptions include the US and countries of Northern Europe, where port authorities have largely been under municipal or city-state control. Elsewhere the form and degree of divestiture varies greatly. In some countries, such as China, the State retains overall authority, but has devolved a great deal of independence to regional governments, that in turn have given increasing amounts of operational control to foreign private operators through concessions (Wang et al. 2004; Cullinane and Wang 2007). In others, such as Argentina, there has been a policy of transfer of responsibilities from the central government to the states (Serebrinsky and Trujillo 2005). Divestiture, therefore, may be seen as a means of achieving greater administrative proximity, by bringing governance closer to those governed. As such the process has much in common with the concept of subsidiarity. This is a concept that was derived from Christian theology. It is based on the notion that a higher level of authority should be called upon to carry out certain tasks only when an individual or lower order is incapable of carrying them out more effectively. It holds that all forms of society, from the family to the state and the international order, should be in the service of the individual person. This principle has been adopted by the political discourse in the European Union and individual countries, such as France. It appears in article 3B of the Treaty of Maastricht of 1992. It also was mentioned in article 5 of the proposed Constitution of the European Union, a treaty that was not ratified because of the failures to approve the referenda held in France and the Netherlands. This article announced that:

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The Community shall act within the limits of the powers conferred upon it by this Treaty and of the objectives assigned to it therein. In areas which do not fall within its exclusive competence, the Community shall take action, in accordance with the principle of subsidiarity, only if and in so far as the objectives of the proposed action cannot be sufficiently achieved by the Member States and can therefore, by reason of the scale or effects of the proposed action, be better achieved by the Community.

Subsidiarity, defined as the selection of the level best able to exercise a political responsibility, is thus used in Europe to justify and delimit the field of competence of the European Union and the member States. It is also used to determine the competence of different public authorities such as local and regional governments to take responsibility for the administration of public programmes. In practical terms the concept allows the EU to act only in the areas specified for its exclusive jurisdiction, and only when its actions can be shown to be more efficient than those taken by a national, regional or local authority. The principle of subsidiarity is not just a factor at the supra-national level of the EU, but has become an important element in French planning (Le Galès 2006). It is closely linked with policies of decentralization since it is employed to establish at which level of public administration local issues should be dealt with (descending subsidiarity). It is also employed to determine that the upper levels of governance (EU, and State) should assume control when it is evident that the lower tiers of government do not have the means to carry out their responsibilities (ascending subsidiarity). Port divestiture (or decentralization as it is called in France) is thus an example of descending subsidiarity. The transferred ports serve purely local and regional hinterlands and consequently the question of subsidiarity was an argument used by those who urged the State to decentralize governance. It may be noted however, that in both France and Canada the decision to divest local and regional ports was not based solely on the principle of subsidiarity but also on the need to reduce State expenditures because of growing national deficits. In Canada and France different policies, with different solutions have been implemented to transfer responsibility for the small and medium size ports (Debrie, Gouvernal and Slack 2007). In Canada a very large number of ports (434) have been divested by the federal Ministry of Transport. Forty have been transferred to other federal departments, 65 have been devolved to the provinces, 118 have been ceded to local public and private entities, and 211 have been abandoned. The 118 ports transferred to local bodies are discussed in this chapter. In France, 16 ports of national interest have been transferred by the State to lower tiers of government. Because the Canadian process was completed earlier than the French case, we are better able to observe and measure some of the effects of divestiture in Canada. We draw evidence from ports in the Maritime Provinces where the transfers were completed earliest. We visited five of the ports for detailed study in 2004, and met with federal and provincial bureaucrats directly involved in the transfer process and

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obtained further information from an analysis of the Annual Reports of Transport Canada (Transport Canada). In France, where the new governance structure came into effect only on January 1 2007, the results are not yet evident. We draw our interpretations from interviews in all the regions involved, including contacts with the local port operators, and most of the parties that had expressed an interest in securing control of the local port (municipalités, départments and Régions). A measure of the proximity of the new port authorities to the ports they administer may be obtained by counting the numbers of levels of administration that separate them. In France there are four levels of governance – State, Région, départment, and at the most local level, the municipalité. A port administered by the State is thus four levels of public administration separated from the port community. We can take this value as a measure of topological distance separating the port from the body having authority over it. It is comparable to the α index used in graph theory to measure accessibility of vertices (Lowe and Moryadas 1984). Prior to 2007, therefore, the 16 French ports had a combined distance of 64 (16x4). The result of the decentralization process, in which authority was shifted from the State to different lower tiers of government (see Table 6.1), has resulted in a combined governance distance of 39. In Canada there are only three major levels of public administration: federal government, province Table 6.1

Governance of ports in France and Canada

French Ports

New Administration

Canadian Ports

New Administration

Ajaccio

Région

Annapolis Royal

community group

Bastia

Région

Bayside

local business/towns

Bayonne

Région

Bridgewater

community NGO

Boulogne

Région

Charlottetown

local business/city

Brest

Région

County Harbour

local industry

Caen

Société mixte

Dalhousie

local port industry

Calais

Région

Hantsport

local industry

Cherbourg

Société mixte

Mulgrave

local business/towns

Concarneau

Département

Newcastle

local communities

Dieppe

Société mixte

Parsboro

municipality/tourism

Lorient

Région

Pictou

local user

Nice

Département

Pugwash

local industry

Port la Nouvelle

Région

Sheet Harbour

local interests

Saint Malo

Région

Souris

users/town/tourism

Sete

Région

Sydney

municipality

Toulon

Département

Yarmouth

industrial commission

Proximity and Port Governance

Figure 6.1

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Pre-reform and post-reform status in France and Canada

and municipality. A sample of 16 ports in the Maritime Provinces prior to the divestiture programme would have provided a governance proximity score of 48 (3x16). Because all the divested ports are now administered by local authorities made up of municipalities and/or local private interests the governance distance is 16, a reduction of 67 percent. In both countries, therefore, port governance involving small and medium size ports has moved closer to the individual ports. The difference is that in France, a number of regional governments now have jurisdiction over the ports in their territory, in which the governance distance from the ports is shortened, but is still further than in the case of Canada where the ports are entirely under local control (see Figure 6.1). It should be noted, however, that the State in both countries retains powers over marine security, environmental compliance, customs etc.

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Governance, Proximity, and Economic Relationships It has been demonstrated that port governance has moved closer to the ports themselves in many countries. A fundamental question is: has this change in the provision of a public service led to an improvement in economic performance? This question has drawn the attention of a large number of academic researchers. In Australia, for example, researchers have questioned the commercial effectiveness of port reform, citing continued political interference (Gentle 1996; Everett and Robinson 2007). Despite the large number of case studies in a recent research collection (Brooks and Cullinane 2007), few clear conclusions can be drawn. This uncertainty is also reflected in the difficulty of measuring the effectiveness of reform (Bichou and Gray 2004). We take a different approach, and rather than assessing the commercial performance of the port operators who may be merely holders of a concession, we consider how the economic perspectives of the institutions now possessing administrative authority over the ports differ from earlier State control. We hypothesize that where jurisdiction has passed to a public or private local entity that exerts control over one port only, that authority is more likely to be bound by commercial considerations even if, as is the case in many Canadian divested ports, the new port authorities are not-for-profit bodies. Their objective is to valorize that port facility because the new port authority has responsibility for one port facility alone, and it has to consider also competitive pressures from other ports. On the other hand, where a regional authority has jurisdiction over several ports, competitive pressures may be suppressed by a different goal of promoting cooperation between the ports. A regional authority may see the ports as one of many assets, such as airports, industrial parks etc under its jurisdiction that may be deployed to pursue regional development objectives. Thus, we suggest that a more commercial orientation is a more probable outcome of governance placed closest to the ports, whereas cooperation is a more likely outcome of a regionally-based port governance. We test these assumptions by considering recent port devolution in Canada and France where it has been demonstrated that different results have arisen from divestiture (Debrie et al. 2007). France As mentioned above, the French policy came into effect on January 1, 2007, which resulted in the transfer of the ‘ports d’intérêt national’. The transfer gave ownership and planning powers over the ports to regional and local authorities. This was significant, because in earlier marine facilities transfers, such as those involving pleasure craft harbours in 1984, the State retained ownership of the sites. Here the new regional port authorities can effect real changes in land use and planning. This is considered a major opportunity to improve port operations and the possible reallocation of sites to other uses that may better complement local urban needs. For

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example, the new authority in charge of the port of Nice has already signalled its intention of exploiting more of the port site for parking. As mentioned previously, it is somewhat premature to measure the effects of a policy so recently implemented on January 1 2007. In most cases, the lower tier governments now responsible for the ports have been administering them for less than a year. However, it must be noted that they have been aware of the process since August 2004, and the new actors have had time to consider how they wish to position the ports under the new governance regime. They had to prepare plans, and all the actors, including those that were not successful in their bids, were forced to consider how they wish to see the ports develop. For many, this has represented a major challenge, since their comprehension of the needs and scope of maritime transport was limited. In other cases, such as Bretagne, where the maritime tradition is strong, the Région announced its intention from the very beginning to acquire the ports and to utilize them to promote regional development and planning. The French State had been neglecting the funding of ports for some considerable time, and as the national auditor has indicated, there has not been a national ports policy. The decision to decentralize control to a lower tier government is seen as an opportunity to provide the local governments (that have the most direct interest in local planning) with the means to integrate ports more effectively in urban and regional development. The transferred ports in France are for the most part small, the exception being Calais which handled 40 million tons of cargo and 11 million passengers in 2006. The others serve local customers, and therefore are a service to the municipality and region. The State is far removed from the needs of the localities, and its actions may not be sensitive to impacts of its policies and actions, even if in the past the State-Regional contracts allowed for the recognition of local demands. The budgetary implications for the divested French ports are important and are quite different from the Canadian case. Port budgets are significantly smaller than many other items in the financial dossiers of the Régions, which control health and education, and départments, which control the road budgets. This suggests that if the new owners of the ports are serious in their goals of integrating ports in regional planning, they will have the financial means to carry out such objectives. The regional development orientation of the new port authorities may be best seen where the Régions have acquired responsibility for several ports. We focus on Brittany, where the Région now controls Brest, Saint Malo and Lorient, and Nord Pas de Calais which administers Calais and Boulogne. The history of the process of divesting Calais and Boulogne reveals the intention of the Région of harmonizing port and regional development. In January 2006 the Calais Urban Agglomeration announced its candidacy for the port of Calais, and the same was announced by the Agglomeration of Boulogne for its port. However, the Région of Nord Pas de Calais indicated its intention of taking over both ports in June. Where several candidacies occurred elsewhere the solution was a syndicat mixte, a joint-sharing governance, but this was not possible here

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because of the opposition of Boulogne. In a lengthy interview the President of the Nord Pas de Calais outlined the Région’s ambitions regarding the two ports and indicated it would provide the means to carry through these goals (La Voix Echo 26 July 2007). The President of the Région saw Boulogne as France’s biggest fishing port and Calais, as France’s biggest ferry port, along with Dunkirk (a port still under State control) as development poles in the context of Northwest Europe in conjunction with the Lille metropolitan region. He saw the development of a ‘port conference’, comprising the jointly administered Boulogne and Calais along with Dunkirk, as a means of achieving coherent regional management. This conference would establish rules to permit the best coherence and integration of ports in the regional economy. Each port should specialize to prevent wasteful regional competition. A similar, though less forcefully expressed, policy has been developed in Bretagne. The Région sees the ports as complementary, each serving their own customers and performing different functions. It also has expressed the need to promote the ports as regional development tools, to further exploit the local maritime tradition of the region and its industries. In the other regions of France the picture is not quite as clear. In Normandie and Languedoc-Roussillon there were competing bidders for the ports of Cherbourg and Caen, and Sète and Port La Nouvelle (respectively). In the case of the former a joint body (Société Mixte) was established comprising the Région and départment. In the case of the latter, the ports were obtained by the Région, much against the opposition of the town of Sète. In both cases no clear port development strategy has emerged yet. Canada In Canada, devolution of the small and medium sized ports has resulted in the appearance of a large number of types of port authority. Many are made up of permutations of public and private interests, including local municipalities and local private companies, such as forwarders, industrial and terminal handling firms. In some cases a private company is the sole authority, in others a municipal government is the recipient. In nearly all cases the new port authority involves interests that are purely local. In the past these ports had been maintained by Transport Canada as a public service. Since devolution the economic orientation of the ports has had to change, since the new authorities have to operate the port in a more commercial manner. Many new authorities have explicit commercial objectives and operate as profit generators. This applies inevitably to the ports made up entirely of private interests, such as Pictou NS, but others that include some participation of local public authorities are equally profit-based, such as Bayside NB. Port authorities with a larger presence of public bodies in their administrations operate as nonprofit bodies, but given the absence of federal financial support, are still bound by commercial concerns, such as Mulgrave NS. They have to secure traffic and provide infrastructure. Unlike France where the Régions and départments are

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relatively revenue-rich, the municipalities in Canada that have acquired the ports have limited capacity to sustain large port deficits. They have small populations, and in the Maritime Provinces, for example, only three of the ports divested are located in municipalities with populations greater than 50,000. Thus, ports are expected to cover expenses out of operations. Most of the ports that Transport Canada abandoned were those which were incapable of generating sufficient traffic to interest a local entity in coming forward to obtain a transfer, and those that served large markets and were capable of generating large revenues became Canada Port Authorities (Brooks 2007). It can be seen therefore that the divested ports in Canada operate as separate entities, and are shaped largely by commercial orientations. This would seem to support our working hypothesis that bringing governance closer to the ports produces policy orientations that are commercial, and because each authority is independent this introduces an element of competition between the ports for regional traffic. It may be noted that increasing the commercialization of the ports was one of the policy goals of Transport Canada’s divestiture policy, and thus in this respect may be construed as a success.

Realities As much as this comparative survey provides support for a port policy distinction based on governance proximity, several issues stand out that lead us to qualify the relationship between governance and proximity. France Despite the rhetoric about avoiding competition and promoting regional development, it is evident that ports are bound by commercial imperatives. Boulogne may be a major fishing port and the processing industry generates a great deal of employment, but the fact remains that the commercial port of Boulogne loses money, while Calais the other port now administered by the Nord Pas de Calais Région is financially self-sufficient. As much as the President of the Région may suggest that the goal is to re-establish a cross-Channel ferry service at Boulogne without taking away anything from Calais, any new investment in infrastructure at Boulogne or subsidies to the cross-Channel Ferry company SeaFrance would take away potential traffic from Calais. It would also bring about a financial imbalance between the ports of the Région. A similar predicament confronts other regions where investment decisions will have to be prioritized. The ports of Brittany may complement each other in traffic, but will be competing with each other to secure investments for new infrastructure and the decisions may affect the commercial future of some of the ports. We have indicated earlier that the regional bodies now controlling the decentralized ports have the financial means to invest in ports if they wish to

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pursue a new port strategy. There is a danger in this, because our interviews clearly demonstrated that most of these regional bodies lack expertise in maritime affairs. For the most part the Régions and départments have little experience in maritime transport. This lack of knowledge exposes them to the possibility of over-investing in port infrastructures. An example is the port of Saint Brieuc in Brittany (a port earlier divested to the department of Finisterre) which has embarked on a large expansion project with no commercial logic. A further paradox is the unique status of the actual port operators, the local Chambers of Commerce. In France, the commercial ports are operated by the Chambers of Commerce under concession. So far, the new port authorities have maintained these concessions. The Chambers of Commerce wear two hats. On the one hand they seek to operate the ports as commercial entities, but at the same time they represent local business interests and wish to exploit the port as a service for these interests. Thus, in the case of Saint Malo there are intense pressures to develop parts of the commercial port for urban and tourist-oriented uses. So far the Chamber has resisted these pressures and maintains the docks for port commercial activities. Perhaps the ambivalence was best expressed in an interview with the Director of the Calais Chamber of Commerce. He defended the Chamber’s concession against any change to include a private operator because he claimed the local Chamber embraces the best interests of the local community. He later went on to stress economic efficiency, and that the decentralization policy was not helpful in this regard because the new governance had a ‘territorial’ rather than a ‘maritime’ and commercial perspective. In his view the policy dealt more with transfer of authority over port land and less on promoting efficiency and maritime traffic. In so far as the local Chambers of Commerce continue to operate the ports it may be argued that French ports were already managed locally, since the French State left them largely alone. It is for this reason that our initial hypothesis focused on governance rather than operational proximity, since the French State always had the power to act if it so wished. There is evidence to suggest that the new governance regime is changing the relationship between the Chambers of Commerce and the new governing bodies. In Corsica, where the decentralization process was completed in 2004 as a special case, the regional government which has control over Ajaccio and Bastia, has renegotiated the leases with the Chambers of Commerce and has exerted more oversight over port operations, stipulating for example periodic reviews of performance and requiring the Chambers to integrate public regional policies in their operational activities. In 2008 it was announced that the operating concession for the port of Cherbourg had been awarded to a joint management body comprising the Chamber of Commerce and a private investment company. Canada In Canada, despite the creation of separate port authorities for each small and medium size port, competition is not as pronounced as could be expected. We

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consider three issues. First, the products handled by the small and medium size ports are overwhelmingly in bulk form. Typical products include ores, salt, aggregates, petroleum products, and forest products. These are produced or consumed locally and cannot easily diverted to other ports. Consequently the degree of inter-port competition is not great. Second, consideration of the operating and maintenance costs is giving rise to a degree of cooperation between some of the ports. Winter ice, storm damage and general wear and tear necessitate annual repairs and occasional reconstruction. While many of these charges have been taken into account in the financial transfers negotiated with Transport Canada, ports are discovering that these costs are higher than anticipated because there is little competition in the specialized marine construction industry, especially in regions far from the major ports. Dredging is another requirement at many ports, and represents an important expenditure. As a result, some ports are voluntarily coming together to negotiate contracts for maintenance and repair work. They believe that by acting together they can secure more favourable rates from the marine construction companies and share the work and resultant costs. In a similar vein, there are some cases where ports are sharing dock labour. Many new authorities have sought to control labour costs, but by reducing the hours of work have found it difficult to retain staff. A solution being pursued at a few ports that are relatively close to each other, such as Pictou and Mulgrave, is to enable stevedores to work at the different ports on different days, depending on demand patterns. In this way labour can be utilized more effectively between the ports and the workers benefit by receiving more hours of employment. The third example is more general. There is a move in the Canadian Maritime Provinces for the divested ports to come together to form an Association. It is believed that the Association will enable the port authorities to learn from each other, to provide a common voice in public debates, and in particular to benefit from savings that could be negotiated by arranging items such as group insurance. The transfers in that region took place largely before 11 September, 2001. The financial assessments made by Transport Canada could not have predicted the explosion in the costs of insurance premiums, which are now up to ten times higher than before and represent a critical item on the balance sheets of the ports.

Conclusions These contrary examples in France and Canada highlight the difficulties of drawing conclusions about the inferred and explicit actions of port authorities. The actors may be operating within particular operational and economic environments that are set by different governance structures, a more cooperative approach in some, a more competitive one in others. However, whichever context the port authority finds itself, it has to confront commercial choices even if it has chosen to administer its ports in a more cooperative fashion, while a port authority that operates in a commercial environment may have to pursue cooperative strategies in some

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instances. Independent administration does not rule out cooperation, and regional governance does not preclude competition. Rather, we argue that proximity in port governance is an important factor shaping cooperation and competition, but may under certain circumstances give rise to very different results. The question of proximity and port governance is much larger than the particular issues addressed in this chapter. The concept of subsidiarity assumes that governance should be placed at the most appropriate level. For ports what is the ‘best’ level? It is not simply a question of economic performance, such as explored in recent literature, because governance may have changed but the operators (holders of concessions) may stay the same, and vice versa. Should level of governance reflect the scale and scope of the port’s status? Should a port serving a national function be managed by a national body? Are all ports better served by local governance? These are important questions. In this chapter we have answered these questions only partially and in a preliminary fashion. We have demonstrated that a change in governance can produce a change in policy orientation among smaller ports. There is a need, however, to go further and provide better measures of ‘proximity’ and ‘effectiveness’.

Chapter 7

Regional Integration and Maritime Range Arnaud Lemarchand and Olivier Joly

Introduction For over fifteen years, several studies have focused on the similarities between ‘Marshallian districts’ and the economics of port cities (Le Marchand 2000; 2006). These approaches take into account several aspects such as the specificity of institutions, the mobilization of key actors, and the governance of cities, in order to understand their local dynamics. Beyond the Marshallian approach, another important dimension of such research is the analysis of regional integration using the concept of maritime range. This chapter proposes to widen the definition of the maritime range based on a comparison of selected European, American and Asian port systems. The concept of range describes the networking of port cities. Common markets resulting in mixed hinterlands constitute a frame for action and organization. Therefore, ranges are key elements in a new understanding of emerging interdependences through globalization processes and the new modalities of cooperation and competition. This calls for a new analysis on the insertion of port city economies within maritime ranges, based on existing port studies. During the 1970s, the French maritime transport geographer, André Vigarié, developed the notion of range, or maritime front. An explicit relationship was made with the American term ‘region’ that supposes a process of integration on various geographical levels. The concept of maritime range is used in this chapter as a fully integrated maritime front, as proposed by Vigarié (1979) by contrast with a maritime front that is simply a collection of scarcely linked port cities with weak interdependencies. In this way, spatial proximity is not sufficient to establish a range. Vigarié (1979) proposes that a front becomes a range when ‘a bundle of common causalities give the direction of their local development’. The first causality is the overlapping of ports’ hinterlands, i.e. the mix of their markets. This results from economic regional integration and is simultaneously spontaneous and political. One canonical example is the Northern Range between Hamburg and Le Havre. The removal of trade barriers, intra-European trade growth, the harmonization of European norms and the liberalization of services all created new patterns of port competition. Seaborne exchanges benefited from a favourable conjuncture, and have, in turn, made European trade growth easier. The monetary union induced greater integration among European ports, due to lower discrepancies in terms

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of growth regimes. Variations remain due to local traffic variations of specific commodities. The finalization of such a process also needed an integration of commercial activities. From an economic point of view, growth in intra-sector trade among European countries would be sufficient creating shared hinterlands and making ports interdependent within the same region. From a geographers’ point of view, regional integration is the key condition, notwithstanding a complementary bundle of causalities such as history and port governance. Long-term historical impacts or ‘memory effects’ giving birth to a maritime range were identified by Braudel (1982) as a combination of non-trade factors such as politics, cultural affinities and a matter of shared memory. Such principles make it doubtful whether this phenomenon can apply to other seaport ranges. Political, religious and cultural divisions make this integration unlikely on the Mediterranean shores. Only the ports of the US and Japanese megalopolises were included in the work of Vigarié (1979) on port ranges. However, it seems crucial to rethink these issues in an era of globalization and regionalization. The following questions in relation to economic geography help us to establish the theory for this study: • • •

How do we analyze the process and the patterns studied thirty years ago by Vigarié? Which mechanisms explain these stylized facts? How did containerization and globalization influence the emergence of maritime ranges?

Range and Archipelago Economy The issues explored in this chapter seem to have been ignored by many shipping economists. Bauchet (1977) for instance proposed in a very symptomatic way to focus on varying trade patterns between national and transnational spaces created by multinational shipping firms. Among other transnational realities, the maritime range did not constitute an object of interest in Bauchet’s work because such object was not constructed by such economic players across continued and seamless spaces. It is only since the theory of networks of firms and territories has emerged that a re-conceptualization and empirical verification of the maritime range became possible. Based on container traffic statistics, this chapter proposes using the more recent work of the economist Veltz (1996) who defined the so-called ‘archipelago economy’. Although this work does not explicitly mention containerization and ports, it suggests that ‘horizontal, frequently transnational relations increasingly outmatch traditional vertical relations with the [port] hinterland’. Such an impression can obviously apply to ports involved in a maritime range. This chapter also wishes to bypass the actual paradox that port cities play a central

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role in globalization, but they tend to be ignored by the economical theory of globalization. More formally, four important dimensions are underlined by Veltz (1996) constitutive of a new economic paradigm linking globalization, cities and territories: •

•

•

•

Scale economies: scale economies played a fundamental role both in the theory and empirical evolution of economic geography. They can be conceptualized as unbundled from one single place, like a site or a factory, and developed through network externalities, hence bypassing their local dimension. On the other hand, they must be combined with scope economies, in order to qualitatively adapt to a more differentiated and heterogeneous demand. However, a strong limit to the study of scale economies is the increased difficulty measuring local dynamics; A relative de-hierarchy: the classical hierarchy among cities, theorized by Christaller (1966), should be reconsidered through the paradigm of networks. The polarization of various products or services seems more mixed and nested than in classical models. This means that a location though dominated by a bigger one, can become in some sectors the dominant node for specific goods or services. Polarization has limits and the so-called locked-in positions can also be, at least partially, reconsidered; Coordination patterns: coordination does not any more follow linear and hierarchical ways. A direct result of this evolution is the increased importance of social and political modes of coordination or governance. Such view aims at tackling a growing unpredictability of interactions, due to retroactions, which include the network effects and the decline of the classical scale economies. In a context of uncertainty and considering the complexity of networks, flexibility becomes a matter of variety of choices in the modes of coordination. This flexibility assumes the active role of relational resources to manage sites, equipment, and labour that are geographically more distant; The search for new insurance devices: the strategy of flexibility has developed in a multi-polar environment, combining with intricate hierarchies and the search for new insurance devices. Such terms refer to the demand for guarantees against risks, not necessarily implying formal contracts. This need of insurance explains locations at certain nodes, especially at the ones offering multiple options. The increased importance of insurance favours bigger size, and gives to that factor a positive effect on growth. However, this growth is not due to a direct effect on costs, but by the advantages of an options portfolio (Catin and Ghio 2000) of opportunities associated with the number of links and the variety induced by the central locations in an archipelago economy.

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Based on such insights, the hypothesis of this chapter is that in a globalized economy, the maritime range is a network of ports benefiting from scale economies from different locations, and resulting in an intertwined port hierarchy. To emerge and stay, co-operation relying upon cultures and common rules are necessary. Such a construction rests upon the stabilization of the advantages enjoyed by concerned facilities, which develop in return a multiplicity of links and a variety of alternative options. However, a bundle of causalities produces great unpredictability in the system’s possible evolutions. In addition, such observations are coherent with the property of maritime networks that are often scale-free, i.e. non-linear networks. Throughout such networks, there are always bypasses, shortcuts and new links created, while the activity of each node admits fluctuations sometimes very important. In such a situation, the range is a ‘small world’ (Watts 1999; Stocker et al. 2002). Simultaneously, one can observe permanent change in the hierarchy of ports, especially at medium-sized ports (Terrassier 1997; Lemarchand 2000). Yet, very few ports lie at the top of the distribution, and traffic concentration has remained very stable at Northern European Range ports between 1994 and 2002, confirming previous observations (Frémont and Soppé 2005). This uncertainty, explained by complexity, leads us to use the theory of the self-organizing economy (Krugman 1996). The maritime range can be understood as an emerging regulation from the noises of international trade, international shipping, singular contexts of each port city and wider political contexts. The traditional conception of port cities enjoying comparative advantages was based on inter-sector trade, respective national economies, with very few links to their neighbours, compared to the transcontinental and colonial lines as suggested by Fujita and Mori (1996). The authors developed a model of self-agglomeration at port cities that stands far from the neo-classical view. The current period witnesses another kind of trade in an age of intra-sector trade within an economically, if not politically, integrated region. If many seaports are now seen as de-linked from their surrounding hinterland, it does not mean that they are totally footloose. The small world of the regional network is a good level to analyze their activity and interdependency.

The Range: From Random Walk and Self-organization to the Memory Effect in a Political Frame From Gibrat Law to Deterministic Deviation: Evidence from the North European Range There are very few economical models on port activity. Most postulate a linear relationship between investments in infrastructure and traffic growth, which implies that the dynamics of a port are determined by the accumulation of capital dedicated to transportation. Competitive advantage goes to firms choosing the ports through extending their market areas, what supposes the possibility of endogenous

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growth. By using these results, it was possible to create plans at both regional and macroeconomic levels. Two main reasons put in question the predictability of the effect of infrastructure investment: negative externalities, which restrain the interests of investments, and complex retro-effects on industrial location. Transport infrastructure does lead to agglomeration, but it also leads to splintered space and territories. Therefore, transport reduces some market imperfections and creates others (Quinet 1992). In addition, endogenous growth does not perfectly fit traffic evolution despite concentration trends, as seen in the aforementioned study of Frémont and Soppé (2005). Among the world’s ports, the distribution and evolution of container traffic seems to follow a random walk instead of logic of scale: this is an application of the Gibrat law (Richiardi 2004). Traffic growth rate is not explained by traffic size or by previous traffic growth rates, but by other factors such as the influence of local and global contexts, the evolution of production localization, social relations, and the efficiency of port and urban governance. Main results of the empirical analysis are shown in Figure 7.1. Northern range ports show a deviation from the Gibrat law: growth variability decreases with the size of ports, measured in TEU traffic. More precisely, the standard deviation of the growth rate of port traffic decreases when the average size of the traffic on five or ten years increases. The range seems to be the best sub-system to appreciate this phenomenon. A bigger sized port does not always have extensive growth, but its activity is not dependent on few markets

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or few customers. With more links, the activity is less unstable, as there is compensation from gains and losses. The scale of activity plays an indirect role by securing the market share via diversification. The agglomeration effect is a portfolio effect. In this range, the decreasing of growth variability with the size of traffic may follow a common trend. Such results can be interpreted in terms of a self-organization effect of the maritime network. It shows interdependences between the ports of the region. But these interdependences must be understood in the context of European integration and as a result of the development of intra-sector trade in the region. This traffic distribution and variability is compatible with hierarchy change, because, in a certain way, the variability is an incomplete lock-in of the market share. The range, as a level of regulation, depends on the anticipations of ocean carriers in the regional context, which leads us to another factor to ponder: the memory effect. We suggest that memory plays a key role in the process of ports’ regional integration. Liner shipping companies often express that bad experiments at port terminals, such as the blockage of a vessel due to labour strikes, have lasting effects. Each negative historical port accident results in a decrease of traffic. As a consequence, the place where problems have occurred will have fewer links and see their portfolio getting thinner. Therefore, fewer options will be available at this point in the network. This was one example of a memory effect, but there are others, such as safer investments to finance with a quiet growth regime. If memory plays a role, we turn away from the pure stochastic model. In that perspective, the growth regime is not comparable to a perfect hazardous drawing, where each draft will be independent from the previous. This is explained by the finite numbers of actors at certain parts (segments) of the logistical chains. Within these networks, there are global actors who cannot be taken as negligible. That is why past interactions matter. In parallel, local innovation capacities and governance must not be neglected. In fact, shipping and port activities are very far from emanating perfect competition and efficient markets; so the part for hazard is reduced. Even if the strategies do not abolish the unpredictability of some traffic fluctuations, path-dependent history matters.

Table 7.1

Factors of port range emergence

Stochastic Hinterlands evolve Numerous factors influence traffic in a random walk Port network is a ‘scale-free’ network Ports may be unlinked to their neighbourhoods

Deterministic Shipping and handling actors are global and not in an infinite number Actors have memory There is a need for insurance via the portfolio of links Path-dependency

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The memory effect leads to a ‘reputation effect’ which can be highly self-fulfilling. From observed accidents, actors go to self-fulfilling anticipations, translated into decisions and the further institutionalization of a central or marginal position. An informal map of anticipated performances leads the choices of previously uncertain investors and other stakeholders. Along a longer time frame, interactions occur among memories, what confirms the role of history as suggested by Vigarié (1979). This is compatible with the ‘archipelago economic’ assumptions described by Veltz (1996). Such remarks are synthesized in Table 7.1, putting together elements of stochastic approaches and elements of a deterministic approach. In such perspective, the range emerges more from shipping companies than from ports themselves. The interdependence between port cities is organized by these actors. The latter face an unpredicted fluctuation on a service within which they may cut one ply without bargaining with the concerned port. In this game, the situation of each seaport is globally linked to the others, so it is important to understand how shipping firms favour or do not favour regional port integration. At the same time, each harbour community plays its own cards to keep or conquest new traffic, as seen in other regions of the world. Traffic Patterns at Other Maritime Fronts Since this deviation does not occur at every group of ports around the world, it can be considered to be a good indicator of the regional integration level of maritime activity, and of economic integration in general. Nevertheless, this deviation does not fit the South Europe case (Figure 7.2). In this case, this group of ports remains a front: it is not a real integrated range. More specifically, the following issues relate directly to the Southern European Front:

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There is no observable range effect within this part of Europe; Port traffic follows a random walk; Mediterranean integration is not a reality; There are great disparities of wealth among the territories.

In this analysis, the port of Gioia Tauro has been intentionally removed because the explosive growth of this hub exceeds all comparisons. The standard deviation of its growth rate is over 64 and is the biggest average traffic of the line. Such a huge fluctuation hints that we may need fractal tools to understand port statistics. Therefore, it is not surprising if fractal fluctuations (Mandelbrot 2005) occur within a network of complex interactions as in the case of port business. Based on the idea that the range is an economic and political construction, a comparison with American and Asian situations shows that spatial proximity is not sufficient for the emergence of a range as an integrated maritime front. To produce a range, arbitrage and substitutability among concerned ports is necessary, resulting in various links between places and between hinterlands. On the other hand, when a region is economically ‘hot’, like in Asia, each port may find some opportunities for growth, making each port independent from the other. The following trends summarize the Asian situation based on Figure 7.3: • • •

There is no deviation of the Gibrat law: standard deviations of growth rates are independent from size on the 1998–2002 period; Integration is not yet achieved; Or there is a need for another indicator better fit with this case.

Based on the same data, a deviation becomes observable on a national level for Japanese and Korean ports (Figure 7.4). Intra-sector trade has grown faster in

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Asia as a whole, but there are still no free-trade agreements among most of these countries and especially between Japan and Korea. This may explain, according to the approach of Vigarié (1979), the absence of common trends among Asian ports. However, since Korea’s main free-trade agreement exists with Chile, spatial proximity is not synonym of integration. Yet, one can observe a regular deviation of the Gibrat law within Korea and within Japan, as suggested by Vigarié (1979).

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Such facts highlight that fast industrial growth in Asia gives opportunities to each port independently from the others on a regional scale. In fact, many Chinese ports are both logistical and production places. These ports are linked to a very nearby hinterland, or industrial enclosure, which can explain why the range effect is not visible in the figure. Turning to North American ports, a deviation is observable, but it is less strong than in Northern Europe (Figure 7.5). However, the number of ports within North American ranges seems to have increased during the last three decades, which is believed to be an effect of the North American Free-Trade Agreement (NAFTA). Integration is more perceptible by looking separately at the two main US ranges. One possible factor explaining lower deviation than in Europe is that the American economic geography is less intricate and mixed than in Europe. Therefore, US hinterlands are less co-dependent, albeit they belong to the same nation.

The Range as a Managerial Construction Many models have suggested a self-organization of cities, such as urban population under the Zipf law, among others (Portugali 1997). These models can be associated with the type of deviation seen above, via stochastic evolution or memory effects. Is such association sufficient explaining the emergence of a maritime range? By considering the concept of range and describing the economic geography of port activities, one must acknowledge that the range is the first quotation system of shipping companies. Is it a nomenclature, a socio-economic and managerial construction? The networks of seaports depend upon this classification before being a result of regional integration. Just like every nomenclature, it can be contested and modified. Such statements allows creating bridges with other theoretical fields, including the role of rules and conventions in economic coordination, not only prices. What becomes clear from the results is that nomenclature effects are not sufficient creating a maritime front, i.e. turning a system of quotations into a real maritime range. The latter needs to be self-fulfilling but also to support freetrade agreements and the political rules of regional integration, as seen in Northern Europe or in the US. Regional integration may not be the only sufficient condition required for observing self-organization, specifically if it contradicts the globalization of the maritime network. Transcontinental competition and linkages may oppose the emergence of a regional range to a certain extent. Furthermore, according to the importance of rules, security acts may contribute to the organization at this level. The set of performance criteria on supply chain management has recently been enlarged to security issues, following the development of trade globalization, activity outsourcing, and lean manufacturing strategies. Security risk management appears to be a well surmised and sought-after global performance factor of logistics chains (Carluer et al. 2008). In the same vein, a maritime range may emerge for specific sectors such as the cruise market, as seen in Southern Europe where a tourism range is about to

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emerge. The cruise market considers a network of ports connected through regular services, resulting in common links and interests among concerned ports. Another factor for range construction as a self-organization process is related with data procedures. Again, one good example is the North European range where two ICT distinct approaches have been observed within the four ports over the last ten to fifteen years. Initially in Hamburg and Le Havre, a port community approach integrates all local players together, i.e. port handling companies, maritime agencies, customs and forwarders. Secondly in Antwerp and Rotterdam, an in-between approach mixing, on the one hand, shipping lines’ private/integrated approach and, on the other hand, local players’ networking (Joly and Thorez 2006).

Thus the unstoppable expansion of ICT tools at majors Northern range ports seems to move gradually from port community network (linking all local players) to single integrated and private players’ e-management solutions. Following this trend, one can observe the early steps of the break-up of some ports (as single communities) into the juxtaposition of numerous interconnected terminals, small private ports, and overseas operators, less and less interdependent with each other within every seaport, in their decision making strategies and due to the influence of external economic newcomers (Joly and Thorez 2006).

The standard rules are organized at this transnational level, where resources and trade practices are shared. The data flow, which accompanies the goods flow, becomes a vector of this organization. Port security follows the same logics and, as a result of the US policy for customs and security, might lead to an increasing integration of some foreign maritime fronts (Carluer et al. 2008).

Conclusion: Implications for Public Policy The emergence of a range creates public policy issues. It also creates new interdependencies into the sphere of ports and cities, which tend to escape from national regulations in a regional market environment. This is reinforced by the action of various and new global players that are now managing container terminal networks and the global supply chain. Few intermodal players achieve this integration. Perhaps port policy is about to become an international goal and an international public good?

Chapter 8

Does the EU Port Policy Strategy Encompass ‘Proximity’? Athanasios A. Pallis and Patrick Verhoeven

Introduction Europe is among the most dense port regions worldwide. Yet European ports historically developed in their own diverse ways, even when located in the same country. The diversity of the sector has generally been assessed as a strength rather than a weakness. In the first decades of European integration the dominant view was that, unlike other industries, ports could develop without being subject to a sector-specific supranational policy that would set common rules, or advance similar practices. Economic and political integration however, in particular the setting up of a single European market in the 1990s, increased the proximity of European ports. Port proximity had started to intensify due to other factors as well. These factors include economic globalization, containerization, the expansion of transhipment, logistics and value added facilities, technological advancements, and the integration of maritime trade in supply chains. The scale and scope of these developments gradually pushed the national boundaries of port policy making. Policy actors embarked on a discussion to develop a European Port Policy (EPP). Since the early 1990s an expanding agenda signifies a search for a long-term strategy. This search has been marked by both successes and failures, with the port services directive saga being the best known failure. It has also been marked by the emerging associability of port community stakeholders seeking to influence the complex EU policy-making process. This chapter examines the extent and the ways that this intensive and systematic search tackles, or aims to tackle, the economic, spatial, and political proximity of European ports. With reference to various policy areas and the essential adjustments of the sector to the emerging conditions of different kinds of proximity, the chapter provides an analysis of the implications of what has been done, discusses the relevant tensions, and explores the potential of future EU ‘proximity related’ policy initiatives. The second section explains analytically the various reasons why European ports are today more proximate than ever. The third section presents the progress towards an EPP and analyses the ways that this policy advances, restricts, or

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imposes the potential of ports to develop strategies and practices addressing ‘proximity’. The final section summarizes the findings of this analysis.

European Ports: More Proximate than Ever Diverse Development Traditions Over 1,200 seaports operate along some 70,000 kilometres of European coasts, handling in total 3.7 billion tonnes of cargo and 350 million passengers per year. Located in close geographical distances, they transform Europe to one of the most dense port regions worldwide. Yet, the heterogeneous traditions within which European port management and organization strategies evolved cannot be ignored. In its own-initiative report, the European Parliament (1999) concluded that heterogeneity goes well beyond the catchphrase ‘each port is unique’ and endorsed Figure 8.1 as representative of the reasons of the observed diversity. One might be inclined to think that today, in the EU of 27 Member States, the port sector is more diverse than ever. One might also consider that the influence of European policy and market-driven developments could have an indirect harmonizing influence on European seaports, in particular where it concerns governance systems (Verhoeven 2006; 2008). In this context, emulative factors may play an important role as well (Cheon et al. 2007), especially among ports in close proximity (De Monie 2004). The specific influence of the EPP on port governance is explored further in the

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third section. Here the general effects of European integration and market-driven processes will be analysed. The Effects of European Integration The progress of European integration has gradually harmonized the framework conditions within which any industrial sector develops, with the effects having been economic, political, and cultural. The asymmetric economic integration via the creation of a single European market in 1992 has been the catalyst. The dismantling of tariff and non-tariff barriers in order to enhance the freedoms of movement of goods, persons, services and capitals, and the mutual recognition of technical, trade and other standards resulted in direct cost savings. Simplification and steps towards harmonization of taxation minimized the costs of economic transactions. Along with the economic pillar of the 2000 Lisbon strategy and monetary integration, the integration processes enabled firms to spatially expand economic interactions. At the same time, economic integration is associated with the expansion of intraindustry trade: the single European market contributes to the transportation of intermediate goods via complex multimodal supply chains expanding in broader geographic regions. Political integration has added an additional ‘proximity’ dimension, enabling the Commission to move decisively towards the development of policy initiatives in fields of maritime transport and port policy as will be explored further (Aspinwall 1995; Pallis 2002). The cultural effect has also been substantial. Stakeholders are influenced by the institutional context in which they operate, as increased intraEuropean mobility of cargoes and trades is associated with an intense exchange of ideas. The growing consultation culture underlining the EU policy-making process, has led to market actors’ association in transnational interest groups (as will be explained in the third section). Increased Proximity due to Market-driven Processes The changing market context has played its own key role in increasing port proximity. Foremost, it implies an intense competition of ports for attracting and satisfying potential and current users who are less geographically bound than ever. Containerization is accompanied by fundamental changes in the global production and distribution of goods, the development of industrial networks, short product lifecycles, and short time-to-market periods. Logistics reduce the advantages created by the geographical location of a port (Helling and Poister 2000) and result in ‘port regionalization’ (Notteboom and Rodrigue 2005); ports are nodes of complex functionally and geographically integrated systems of locations and flows with the purpose of generating value.

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Being embedded in value-driven chain systems (Robinson 2003), each port captures value for itself and for the chain, while users demand further services specialization within broader hinterlands. This is especially clear in container handling. More economical ships and alliance cooperation lower the costs associated with the sea-leg and ship operation making the intermodal costs share an increasing part of the total cost. Supply chain performance that meets the needs of users in terms of costs, availability and time is central for competitiveness. The overall port product is a chain of (specialized) interlinking functions (Suykens and Van de Voorde 1998), with flexible operational methods standing a means to adjust (Notteboom and Winkelmans 2001; 2002). The monopolistic market structures of port services provision and single corporate hierarchies are replaced by networks of organizations based on market and/or interpersonal relations between providers and users (Chlomoudis et al. 2003). Market shares depend on efficiently supplied complementary, user-driven, value-added, port-related services. This efficiency does not require the location of the production units within the port zone. Freight corridors expand, with many ports seeking conditions and infrastructures for setting up networks dedicated to multimodal transportation rather than to the development of local port systems. The integration of ports in wider hinterlands, concentration of port service providers (i.e. global stevedoring companies operating different terminals) and value added logistics are linked with broader business interactions. Ports are increasingly clusters consisting of heterogeneous corporations with differentiated core business. Shipping companies, port authorities (PAs), services and logistics providers, shippers, and forwarders, companies specializing in warehousing, railway and road transportation are redefining their strategic goals seeking a new matching framework of interactions in order to remain competitive (Van der Horst and De Langen 2008). The changing environment has put strong pressure on the role of (public) PAs, inciting them to pursue strategic activities beyond traditional landlord functions and the port perimeter (Van der Lugt and De Langen 2007). Still, proximity strategies, in particular in terms of developing cooperative port networks, are for the time being mainly pursued by the private sector. Several reasons, including governance structures, still seem to prevent public authorities from engaging in direct formal strategic partnerships with neighbouring ports or inland ports (Notteboom and Rodrigue 2007).

EPP and the Proximity Issue Since the signing of the Treaty of Rome in 1957 several attempts have been made to develop a specific EU policy framework for ports, with the keystones of this process been portrayed in Table 8.1 (for a detailed review: Chlomoudis and Pallis 2002; Verhoeven 2008).

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Table 8.1

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A historical overview of EPP

1961 1970 1991

First reference to ports policy (European Parliament) First Commission note on ports policy The ‘horizontal’ maritime policy gives special attention to the maritime economy as a whole 1992 Maastricht Treaty and the Transport Policy White Paper 1995 Short Sea Shipping Communication 1997 Green Paper on Seaports and Maritime Infrastructure 2001 Port Services Directive I and TENs 2004 Port Services Directive II 2006 Withdrawal of the Directive and a new start 2007 The ‘new’ EPP communication covers a broad range of issues; the focus on ‘soft law’ Source: Based on Chlomoudis and Pallis (2002); Verhoeven (2008).

Throughout this lengthy and difficult process, the European Commission remained faithful to two main objectives which it already identified at a very early stage. These are to ensure, on the one hand, the consistent application of general Treaty rules, notably with regard to competition and the basic internal market freedoms, and, on the other hand, to achieve a balanced development of European ports. Both objectives stem from the fundamental principles of the EU Treaty, are interrelated and can therefore not be seen as alternatives (Verhoeven 2008). The Commission however followed initially the advice of the port sector that there was no need for a specific EPP and that, in so far as seaports were an essential link in the Community’s transport chain, they would be covered by the general development of the common transport policy. Chlomoudis and Pallis (2002) explain the factors which incited the Commission to make progress in the early 1990s with a common transport policy of which the objective was to develop a coherent European infrastructure network through the concept of the TransEuropean Transport Networks (TEN-T) and to achieve ‘sustainable mobility’. In 1997, the Commission adopted its first genuine publication on ports, the Green Chapter on ‘Sea Ports and Maritime Infrastructure’ (CEU 1997) which focused on three principal topics: port financing and charging, market access to port services, and the integration of ports in the TEN-T. The immediate follow-up was a Directive proposal on market access to port services (CEU 2001a; 2004) which failed twice to find political support in the European Parliament and was officially withdrawn in 2006. In the aftermath, the Commission held an extensive and unprecedented structured stakeholder consultation process which lasted one year (June 2006– June 2007) and resulted in the adoption of a communication on EPP (CEU 2007) in October 2007. Table 8.2 summarizes the six policy areas contained in it and

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Table 8.2

Summary of the 2007 Commission Communication on EPP

Policy area 1. 2.

3.

4.

5.

6.

Port performance and hinterland connections Expanding capacity while respecting the environment Modernization A level playing field – clarity for investors, operators and users Establishing a structured dialogue between ports and cities Work in ports

Main short-term policy proposals TEN-T review (hinterland connections to ports) Guidance on the application of the EU environmental legislation

Timing

European Maritime Transport Space without Barriers Port performance indicators State aid guidelines Transparency of accounts Concessions ‘Open ports day’ Support for research projects etc.

2009

Establishment of an EU-level sectoral social dialogue

2008–2010 2009

2009 2009 2009 ? annually continuous 2009

Source: Based on CEU (2007).

indicates the main policy proposals that are intended to be issued in the short term. The new EPP mainly relies on ‘soft law’. Some of the policy areas form a mere continuation from previous initiatives but the communication generally takes a broader perspective and includes themes which were never properly addressed before. In particular, the communication is the first to explicitly acknowledge the need to address the issue of proximity. Before, this was only an implicit, or even an unintended, target of the EPP or of the broader European policies. The following sections highlight the proximity issue from the main EPP pillars, i.e. integrating European transport systems, sustainable port development and level playing field. In addition, attention is paid to the effects of EPP development on the associability of stakeholders. Integrating the European Transport Systems The development of an integrated European transport network fosters the cooperation between port communities. This EU ‘grand design’ targets the positive effects of transport systems cooperation via the interconnection of different modes. It also intends to eliminate barriers to uninterrupted network access via the interoperability of the existing links through their technical harmonization. This design also insists on the expansion, through collective initiatives, of those modes producing the lowest demands in energy and the least possible negative effects to the environment – such as short-sea shipping.

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The core policy is the establishment and smooth operation of unified TEN-T. This became an EU policy in the early 1990s, in order to enable full benefit from the European internal market and ensure sustainable mobility. The subsequent revisions of its legal basis and action programmes target the development of multimodal infrastructure networks. The initial TEN-T plans excluded ports, reflecting the indecisiveness of EU intervention in a sector characterized by significant organizational differences and intense competition, with many ports being recipients of various forms of public funds. The industry firmly opposed a plan of ‘designated ports of EU interest’ as a discriminatory practice against those ports that would not be included in it. Eventually, a compromise was found and since 2001 virtually all commercially significant ports were made part of the TENT. This approach proved to be rather ineffective though with virtually no TEN-T funding being allocated to port infrastructure projects as such. Indirectly however some ports did benefit from TEN-T support through major railway projects, such as the Betuwelijn which connects the port of Rotterdam to the German industrial hinterland. The Commission is planning to review the TEN-T guidelines by 2010 with one of the priorities being the provision of hinterland connections to ports. This is likely to stir up the old debate on identification of priority ports/projects again and may raise issues of proximity, especially where it concerns the geographical balance among multi-port gateways in Europe and the role of secondary ports. Integrating intra-EU seaborne trade via the promotion of short-sea shipping is a main EU policy theme since 1995 (CEU 1995) with the Commission’s aim being to solve, together with the member states and the industry, related bottlenecks. Amongst others, these include administrative and customs procedures. This agenda implies the necessity for coordinating co-operation between various authorities and the port community when involved in customs, trade, sanitary, veterinary, safety, security, immigration and procedures. The Commission is expected to issue in 2009 a package of proposals to realize a European maritime transport space without barriers which aims to create a genuine internal market for maritime transport of goods between EU ports. This initiative was widely supported by port and shipping stakeholders but met with difficulties in terms of EU customs rules which have delayed the process. A European maritime transport space without barriers is interrelated with the establishment of a fully fledged network of Motorways of the Sea (MoS). First discussed in 2001, MoS aim to improve existing maritime links or to establish new viable, regular and frequent maritime services well integrated into the logistic door-to-door chain, mainly for the facilitation of freight transport between member states (CEU 2001b). They consist of infrastructure, facilities and procedures concerning at least two ports in two different member states. As part of the TEN-T concept, MoS project proposals can only be put forward by member-state governments. Yet, ports are encouraged to associate in order to promote the concept, with three conditions to be present for each project. The first one is to obtain the necessary concentration of freight flows, via choices of at least

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two ports to participate and intermodal corridors and services to be used. Second, ports and the other actors in the supply chain have to be committed to these projects. Third, involved actors need to seek ways to feature the best available quality throughout the chain in order to be attractive for users. The latter has been associated with the possibility of developing common Key Performance Indicators (KPIs) to be applied to ports and other involved stakeholders, and benchmarking schemes that compare the performance of the different transport modes. An exhaustive list of the various other related initiatives developed in order to achieve this unified European transport design would be too lengthy, and would have to include, inter alia, the establishment of a common intermodal loading unit, promotion of joint Research and Development (R&D) projects, the Pilot Actions for Combined Transport (PACT) and the Marco Polo I and II programmes that fund operational collaborations of maritime stakeholders and initiatives advancing integrated telematics and electronics systems in the transport sector. There are additional policies, not covered by the EPP pillars, which are also relevant for ‘port proximity’. The EU regional development policy is a major one, as its goals include the improved co-operation between EU regions aiming to reach social and economic cohesion. The funding devoted to this policy represents about one third of the total EU budget. European Regional Development Funds have been allocated to many port development projects, with port co-operation projects (i.e. Interreg programmes) being popular. The effects of these policies are not limited to the generation of financial benefits for those that will reply to the calls for the undertaking of specific projects. To transpose ‘concepts’ to ‘practice’, ports have to join forces and discuss, together with administrators, investors, port users and supply chain parties, European projects which help a modal shift and cohesion. EU regional projects have even led to more permanent forms of association between ports in close proximity – for example, the Federation of Regional and Local Channel Ports was set up in 2007 as a result of an Interreg project. All these initiatives aim to improve the competitiveness of European ports. Yet, the mid-term review of the European Transport Policy to 2010, mentioned considerable imbalances in the European port system and pointed towards the need of concrete actions that would result in a more intensive use of all existing ports towards a ‘more rational’ distribution of traffic flows (CEU 2006). In the 2007 EPP communication, the Commission also expressed concerns about the perceived imbalance in the European port system (CEU 2007). What is important for this analysis is that the EPP communication is the first policy document to explicitly recognize the proximity issue as a means to improve (sustainable) port performance: Cooperation between ports and especially between those close to each other is most welcome, as it can lead, inter alia, to specialisation in cargo or ship types, and organisation and pooling of hinterland transport facilities. It would certainly lead in many cases to an improvement in output.

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Perceived imbalances of port capacity form the key concern behind this statement. As mentioned before, this issue is likely to be raised in the forthcoming debate on the mid-term review of TEN-T but also in the context of future measures on sustainable development and state aid as will be explored further. Sustainable Port Development With the demand for capacity and hinterland expansion being intensive, sustainability is a major issue in port development. The latter is increasingly subject to EU environmental related legislation that has an impact on port proximity. Yet, the full impact has only become visible in recent years. Beyond the assessment of the impact of port projects in the context of EU rules on environmental impact or strategic environmental assessments, or of the rules concerning the protection of birds and habitats, stands the demand of an a priori search for more environmental friendly ‘alternatives’. This search inevitably increases the ‘proximity’ of ports as regards strategic planning. There are still crucial questions to be addressed in this context. For instance, should the assessment of ‘alternative solutions’ for port development projects be within a port, or should it expand within a range of ports in a given member state, or even within a range of ports in different member states? The impending guidance document on the application of EU environment legislation to port development, along with initiatives on Integrated Coastal Zone Management, maritime spatial planning and the promotion of a structured dialogue between ports and cities on the image of expanding ports may broadly redefine the scope for cooperation between different port communities during the searching of sustainable alternatives. This might imply cooperation at regional/local level, e.g. within member states or within specific port regions – especially as there are already discussions going on about planning coordination (e.g. Germany, Flanders, UK) – rather than cooperation at supranational level. The guidance document is expected to emerge together with on-going and new initiatives establishing a level playing-field in marine issues, like places of refuge, ship emissions, waste reception facilities, and measures that advance the harmonized implementation of international environmental, safety and security rules. The Level Playing Field The EPP objective to clarify competition rules and create a level playing field for all ports inter-relates with issues of ‘proximity’. The relevant policy axes include the creation of an internal market for port services, the development of state aid rules, the application of competition rules, the role of PAs and relations with ports in third countries. The attempt to create an internal market in port services provision via the lowering of entry barriers and the enhancement of intra-port competition took the

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form of a ‘port services directive’ proposal, that neither in its original form nor in the revised one was transformed to an EU rule. In general, intra-port competition might re-define European port strategies in two major positive ways (De Langen and Pallis 2006). First, it minimizes any (private or public) monopolistic rent seeking, which is not rare as inter-port competition is imperfect (Goss 1999). Second, intra-port competition fosters strategies based on innovation and specialization, thus facilitating integration of ports with the land-based segments of the transportation chain. With entry barriers of various types remaining substantial (De Langen and Pallis 2007) and market contestability being challenged by global operators demonstrating an increased capacity to win container terminal concessions (Pallis et al. 2008), the EU attempted to lower legal and institutional entry barriers, such as entry permissions and the conditions of exclusive concessions, in all European seaports of international importance. In practical terms, the proposed port services directive (PSD) would have opened access to the provision of technical-nautical, cargo-handling and passenger services, on the basis of transparency and non-discrimination. The failure of the PSD could be seen as a missed opportunity for governments and PAs wishing to introduce, complete or refine reform or reorganization programmes. It would furthermore have provided PAs with a set of common principles on the use of concession-type instruments, which would have strengthened their role in the changing market surroundings (Verhoeven 2006). In the aftermath of this failure, the structuring of the relations between PAs and port service providers remain part of the EPP agenda. The 2007 Commission communication provides guidance on the use of concessions. Although of a soft law nature, this guidance, particularly regarding the removal of discrimination during the process of granting and implementing concessions, may bring in new players and encourage competition between providers of the same service within a port. As a result, commonality of rules is there for those wishing to pursue common strategies. The presence of clarity will also be in favour of those wishing to address proximity via competition. Of course, this will depend on how ‘common’ and ‘clear’ the guidance will prove to be in practice. At the time of finalizing this chapter, the Commission’s internal market and services Directorate-General was assessing the possibility of having a Directive on concessions which would apply to all sectors, including ports. A concrete proposal – if any – was not expected to emerge until 2010 however. The level playing field between EU ports has been associated with a policy framework regarding financial flows between public authorities, PAs, operators, users, as well as regarding the charging methods for port services. Once more, the multiplicity of institutional structures, and the difficulty of identifying the extent that existing practices affect port competition present two major obstacles towards concrete policies. To date, many member states intervene to ensure/facilitate port restructuring via financial assistance that assumes several forms like: setting-off of operating losses, loans on privileged terms (a common practice in public, or

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municipal, ports), profits not been subject to tax, leasing of land under privileged conditions, and free provision of administrative and technical services. The EU is trying to answer what, if any, form of state aid to the port sector is in ‘Community interest’. The Commission has undertaken the task to draw up common guidelines for government funding of ports (so-called ‘state aid guidelines’) and indicate the cases in which funding of ports is compatible with the principles governing the internal European market. At the time of writing, a fundamental discussion was taking place between the services of the Commission as to whether all forms of public funding should a priori be regarded as state aid, or whether the more traditional distinction between basic infrastructure and socalled terminal infrastructure should be made. Whatever the outcome, EU rules regarding the financing of port investment and transparency of port accounts would be positive from a ‘proximity’ perspective as they would enhance the level playing field between ports. The Commission could even go a step further and follow the example of the existing state aid guidelines for airports (CEU 2005) and develop a more favourable state aid regime to stimulate increased use of regional and small ports to decongest the large international hub ports and thus provide more access points for maritime traffic. Not all EU policies work in favour of advancing proximity. In particular the EU Treaty rules on competition impose limits on co-operation between PAs, operators, and/or other key actors. Issues of mergers and acquisitions, and market practices adopted by the dominant players, whether these are PAs or port operators, are monitored by the relevant competition authorities. As the EPP does not directly address the concentration in the cargo handling market, case-law uses the ‘relevant market’ concept in order to secure that developments or market practices do not breach the EU competition rules, in particular with regard to abuse of dominant positions. It must be noted however that this caselaw evolves and over time, the Commission has become more permissive in its definition, judgment and understanding of the term ‘dominant position’ (De Monie and Peeters 2006). Throughout the almost 50-year-old debate on EPP, the question of having a more uniform governance model for ports has been raised several times. A formal harmonisation would stretch beyond the competence of the EU, but evidence exists that EU law and EU policy have implicitly favoured landlordtype governance systems which separate the management of infrastructure and the provision of commercial services. Whereas previous initiatives, including the PSD in its original format, advocated a rather strict landlord role, the Commission’s recent communication explicitly supports (financially) autonomous PAs which take responsibility for the strategic development of their ports, stimulate dialogue between all possible stakeholders and pro-actively intervene in market processes to safeguard the general interest of the port. The Commission thus acknowledges current port governance trends which advocate an active role for PAs (Verhoeven 2008).

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The new EPP finally highlights the importance of establishing both a level playing field and co-operation with ports in third countries neighbouring the European Union. This is especially relevant for transhipment hubs in the Mediterranean, Black Sea and Baltic regions. The Commission encourages dialogue as well as the establishment of harmonious conditions of competition. Problems in the latter field would be addressed through the EU’s external relations policy (CEU 2007). This is a complex issue since the powers of the EU in this field are rather limited and the Commission has so far not shown a real appetite to address competition problems. On the contrary, it seems more eager to promote co-operation through its various neighbourhood programmes, much to the frustration of EU hubs in the regions concerned. Advancing Association The progress of political integration has created a ‘lock-in’ effect of the various port communities. Like any other business, the various stakeholders participate in ‘associations’ formed at a peak EU level. The Commission, and to a lesser extent the other EU institutions have acted (intentionally or not) as facilitators of this associability. Back in 1974, the Commission set up a Port Working Group from PAs representatives of Europe’s major ports. With the response of PAs being at best described as ‘passively reactive’, the Commission needed to use moral persuasion to convince the members of the working group to create a representative independent organization. As a result two separate organizations were established in 1993, the European Sea Ports Organisation (ESPO) representing PAs, and the Federation of European Private Port Operators (FEPORT) representing private stevedores and terminal operators. Both organizations were initially united in taking on a rather defensive attitude towards the Commission’s increasing interest in ports. This did not fundamentally change when the Commission adopted its Green Paper on ports in 1997 (Verhoeven 2008). A key theme of the EU short-sea shipping policy has been the support of a dialogue between all potential partners. Under the umbrella of the Maritime Industries Forum (MIF), the Commission attempted to institutionalize a debate which would bring together PAs, port users, and port service providers, that have all formed active Euro-level associations (see Pallis 2006). Efforts were devoted in setting up periodical meetings at local or regional level in the first instance, and where it is possible at the national level. Similar initiatives (e.g. bottlenecks’ exercise) were established in the context of the Commission’s 2006 communication on logistics (CEU 2006). The five-year debate on the PSD had an impact on this front as well, generating a kind of ‘coming of age’ period for some of the involved stakeholders. In the case of ESPO, it made members reflect about their role as PAs and strengthened the internal cohesion of the organization (Drankier 2005). It was in fact the (informal) dialogue between various stakeholder organizations which ensured that the new EPP communication had a solid basis of support, which was translated in political terms as well. The Commission is currently considering

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formalizing this process into an official port stakeholder dialogue which would be installed in 2009. All these imply a co-operative ‘cultural’ effect as well. Stakeholders do not only lobby together but they associate to develop joint initiatives such as common ‘ethical codes’ and ‘business practices’. The collective activities of PAs activities within ESPO provide an illustrative example.

Conclusions Market developments and the progress of economic and political integration in Europe have contributed to an increasing proximity of European ports. Although the diversity in port organization and management that has marked the sector remains in certain respects among its desirable features, there is evidence of a search for collective, or at least collectively discussed, responses to the contemporary port proximity challenges. The preceding analysis highlighted that several EU initiatives, either parts of the EPP as such, or of the broader European policy context, are quintessentially advancing proximity, in terms of port development. At the same time the EPP strategy advances the potential of European ports to address ‘proximity’. This is done via concepts attempting to facilitate an integrative approach of intra-EU seaborne trade and of European transport development (i.e. TEN-T, MoS, shortsea shipping, etc). Recently, the advancement of cooperation, specialization, and hinterland integration, have been explicitly added to the target of achieving a ‘level-playing field’. Meanwhile, European political integration has contributed to the association of PAs, service providers, users and other stakeholders in Euro-groups. This associability is evidently resulting in a ‘cultural’ effect that increases port proximity and its addressing in practice: not only port community actors lobby together but they associate to develop joint initiatives such as ethical codes and business practices. The potential full deployment of the new EPP strategy, that tackles an extensive and very wide spectrum of issues, will further the dimensions of this background framework and advance the potential of European ports to address ‘proximity’. The focus of the Commission is no longer on hard legislation but on soft law. Interpretative instruments such as guidelines and guidance documents are meant to enhance legal certainty and the level playing field among PAs. Soft law cannot be ignored by those that are addressed by it however. After all, these instruments are either based on Treaty rules, or secondary legislation, which has to be respected by those concerned. On the other hand, the Commission is also stimulating industry organizations to develop voluntarily applied norms of good practice which, when picked and applied, will strengthen the capacity of PAs to introduce common initiatives, for instance in the field of sustainable development and port–city relations.

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In other words, the new EPP approach will facilitate those wishing to address proximity by developing strategic (or else) cooperation between ports. On the other hand, the same initiatives will introduce a ‘level playing field’, which will facilitate those that will opt for addressing proximity via intense competition. It must finally be acknowledged that a number of crucial instruments still need to be developed, such as guidance on the application of environmental legislation and state aid guidelines. The full effect of the new EPP will therefore only become tangible within the forthcoming years.

PART III THE NORTH AMERICAN CASE: CORRIDORS AND GATEWAYS

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Chapter 9

Gateways are More than Ports: The Canadian Example of Cooperation among Stakeholders Robert J. McCalla

Introduction Gateways are pivot points of access (Rodrique et al. 2006: 83) involving the flow of merchandise through terminals – seaports, airports, inland distribution centres – often especially constructed to handle goods efficiently to facilitate intermodal transfers. Depending on the cargo handled, seaports may be either, or both, gateways or terminals (Bird 1971: 15). The former function implies the through movement of cargo; the latter storage and processing. But gateways are more than ports and terminals and cargo handling equipment. Gateways are just as much about inland transportation connections and even corridors where transportation infrastructure is concentrated. There is a reciprocal relationship between gateways and corridors: both are needed in order to have through transit functionality. The gateway-corridor concept is more than a local scale phenomenon. The extension of the concept beyond the local introduces a host of challenges, mainly political and jurisdictional, but also involving public–private sector shared responsibilities at different scales. The fact that gateways and their respective corridors extend over broad geographical areas means that the geographic proximity of players is not always immediate. But there is more than geographic proximity at play here. ‘Proximity is not exclusively geographical, and other forms of proximity [institutional, social, cognitive and organizational] may be equally or more important’ (Hall and Jacobs 2007: 48). To illustrate the complexity of gateway-corridor development, this chapter uses Canada as an example. The story is one of cooperation and competition for government funding across three levels of government in multiple jurisdictions involving both public and private sectors. It involves local ports, community interests, provincial and national transportation infrastructure and illustrates that the degree of developing non-geographic proximities is important in the success, or not, of gateway-corridor development. It is also a story of how geography – the physical and spatial organization of the country – influences development. But first, let us consider in more detail the gateway-corridor concept and the need for non-geographic proximities to develop among the players in order for the concept to work.

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Figure 9.1

Ports in Proximity

The main components of a gateway with its corresponding corridor

The Gateway-corridor Concept: Generalities The term ‘gateway’ has been applied in town planning, retail and residential development, tourism planning and trade facilitation. It is the latter application that is of interest here especially as it applies to seaports. When combined with concentrated transportation infrastructure within a corridor, the gateway becomes strongly connected to inland centres. The inland centres will exist in a hierarchical structure of primary, secondary and lesser importance depending on their ability to generate or consume gateway cargoes. The primary centres may not be the most geographically proximate ones to the gateway: they may exist far inland and serve as distribution or collection points for smaller centres around them. The main components of a marine transport gateway and its corresponding gateway infrastructure are: the port, the urban centre in which the port is located, the zone of influence (hinterland with its inland distribution and consumption centres), and transportation connections tying the port to its hinterland (Figure 9.1). The connections, in the first instance, link the port to its primary and secondary inland centres. These inland places – both primary and secondary – have a network of connections to places lower in the hierarchy. Thus, for the gateway concept to work there needs to be a main spine of transportation with secondary connections tied to it. In this discussion of components one must not forget the urban centre in which the port is located. It is the principle recipient of the immediate economic spin-offs of the port. It is also the primary area from which the port draws its

Gateways are More than Ports

Figure 9.2

117

Gateway-corridor model

Note: A = Two competing gateways serving a common hinterland, one range, B = Two competing gateways sharing corridor infrastructure, one range, C = The Canadian Case: 2 ranges; 4 gateways; for symbols see 9.1.

labour and services, and is the recipient of the negative environmental externalities associated with port operations – noise and air pollution, congestion associated with port traffic, and restricted land use. Its concerns must be addressed if the port is to fulfil its gateway function especially when much of the traffic passing through the port and its host urban centre must connect with the corridor transportation spine. Figure 9.1 shows one isolated gateway and corridor. What happens when different ports position themselves as gateway for the same cargo to the same hinterland? To have such arrangements requires duplication of gateway activities including cargo handling equipment and, just as importantly, transportation corridor infrastructure. In different autonomous jurisdictions (e.g. Rotterdam in the Netherlands and Antwerp in Belgium, or Charleston in South Carolina and Savannah in Georgia) one sees such arrangements with each gateway-corridor receiving state-backed sponsorship. But what about within the same country or state/provincial jurisdiction? This becomes particularly problematic when the ports vying for gateway status share the same coastal range, foreland and hinterland areas (Figure 9.2A). One can think of Oakland and Los Angeles/Long Beach in

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California as competing gateways for Asian cargo to/from the American interior; or Vancouver and Prince Rupert in British Columbia province. The key to explaining the co-existence of gateways in the same jurisdiction is the sharing of corridor connections. It is not necessary that gateways have their own unique corridors; in fact, it is preferred that they be able to share transportation infrastructure as much as possible (Figure 9.2B). It is also essential that all stakeholders – gateway terminal operators, transportation providers, shippers, and various jurisdictional governments (national, regional and local) – agree that infrastructure investment in the competing gateways and shared corridors is for the benefit of the whole system and not just the locale where the investment takes place. Different stakeholder cooperation among competing gateways that share the same corridor puts pressure on non-geographic proximity relationships: cognitive (sharing knowledge), organizational (shared contractual arrangements), institutional (shared governance agreements) and social proximity (trust built on social relations). More is said about each of these relationships below.

The Gateway-corridor Concept: Canada The Canadian case of gateway-corridor development is an example of multiple gateways on different coastal ranges competing for infrastructure support in the gateways and in the transportation corridors linking to the main hinterland. It demonstrates well differences in non-geographic proximity relationships. Canada has three gateways for overseas container trade: Vancouver, Montreal and Halifax (Table 9.1). Prince Rupert will join this short list of major Canadian container ports when the recently opened Fairview Terminal becomes fully operational (Leach 2007). In effect, Canada is a two coastal range environment with four ports vying for gateway-corridor recognition by the Federal government in regards to international container trade (Figure 9.2C). All ports serve the vital Central Canadian market of southern Ontario and Quebec. This area contains over 60 percent of the Canadian population and generates 75 percent of Canadian international trade by value, (Transport Canada 2007a). The four ports also are entry ports for cargo destined to and originating in the United States. For example,

Table 9.1

Container throughput (million TEU) at Canada’s major container ports

2005 2006 2007 Vancouver 1.767 2.207 2.495 Montreal 1.254 1.289 1.363 Halifax 0.550 0.531 0.490 Source: Data of respective port authorities, also publicly available on <www.aapa-ports.org>.

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fully 50 percent of Montreal’s containers are American bound or have their origin there. The Federal government of Canada has recently initiated a public policy entitled National Policy Framework for Strategic Gateways and Trade Corridors. The goal is to ‘advance the competitiveness of the Canadian economy (…) by providing focus and direction for strategies that foster further development and exploitation of the transportation systems’ (Transport Canada 2007a) that are key to Canadian international trade. The approach stresses an integrated, system-based perspective involving both physical infrastructure improvements and interconnected issues of public policy, regulation, and operational practice. Additionally, it involves cooperation among governments – federal, provincial and municipal – with private sector involvement. It is easy to conceptualize such a policy – it is far more difficult to put it into practice. Three gateway and corridor initiatives are at various stages of development: Asia–Pacific, Ontario–Quebec provinces, and Atlantic east coast. The first is underway; the second and third are at the formal talking stage. The rest of this paper considers the players and challenges faced by the Asia–Pacific and Atlantic gateway initiatives. Given that the Pacific case is in the implementation stage, a goal of the chapter is to identify what can be learned from the Pacific experience not only for the Atlantic gateway to reach fruition but also for other circumstances where ports are attempting to be part of gateway and corridor developments. The Asia–Pacific Gateway The Asia–Pacific Gateway as a formal designation had its roots in the creation of the Greater Vancouver Gateway Council (GVGC) in 1994. The Council was formed to build and act on a vision for Greater Vancouver as ‘a world transportation gateway, able to meet global challenges and capitalize on opportunities for growth from expanding world trade and tourism’ (GVGC 2007a). But even before 1994 there were events and entities created which contributed to bringing about the Asia–Pacific Gateway. For example, the creation of WESTAC (Western Transportation Advisory Council) in 1973 was instrumental in focusing attention on transportation’s importance in western Canada’s economic development. WESTAC is still in operation with members drawn from business, labour, and different levels of government: Federal, provincial, regional, and city. WESTAC is an associate member of the GVGC and ‘has been supportive of the GVGC initiatives for years’ (Wilds 2007). The Roundtable on Transportation, the predecessor of the GVGC, was formed in Vancouver in 1987. It brought together port interests from government and the private sector. Its initial activities focused on taxation of railways including fuel, property and capital cost allowance with some success in making the railways serving the port of Vancouver and the port itself more competitive with its American west coast competitors. The GVGC was created directly from this Roundtable group. Here we have the first example where non-geographic

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proximity relationships were well established. Through sharing of information (cognitive proximity) and trust established among players (social proximity) a common front was put forward to bring about not only regulatory and taxation changes in railroad operations but also in creating an ongoing entity, the GVGC, to put forward common fronts on issues affecting the efficient operation of the Vancouver gateway and connecting corridor infrastructure. It is important for our purposes to outline the make-up of the GVGC. Like WESTAC and the Roundtable on Transportation the GVGC is composed of public and private sector stakeholders in the port of Vancouver, and beyond. Its voting members represent rail, trucking, port, and marine interests from British Columbia. Members represent industry-wide interests rather than personally held agendas. The GVGC’s resource members (advisory group) include representatives from the Federal and three provincial governments of British Columbia, Alberta and Manitoba as well as users and beneficiaries of the port. Important here is the fact that the membership spans the immediate gateway and hinterland corridor geography of the port, and public and private sector interests. Since 1994 the GVGC has been actively involved in promoting the idea of Vancouver as a Pacific Gateway. It has commissioned studies, made recommendations and generally done an excellent job at selling the idea to anyone that will listen, most importantly the Canadian Federal government and the British Columbia provincial government. Its document entitled ‘Vision for the Future of the Greater Vancouver Gateway’ is a comprehensive statement of what it sees as requirements for the development of a gateway-corridor initiative (GVGC 2007b). In October 2005 the Federal government introduced the Pacific Gateway Act (Bill C-68) with the intent that the legislation would establish policy and a governance foundation through the creation of a Pacific Gateway Council to bring about what the GVGC had been espousing for over 10 years (Transport Canada 2005). Before the Bill could be brought into law, Parliament was dissolved, a federal election was held and a new government formed. But the Pacific gateway strategy was well entrenched. It was supported by the new government and in less than a year, on October 11, 2006, the Asia–Pacific Gateway and Corridor Initiative was announced (Government of Canada 2006) followed in July 2007 by the initiation of the National Policy Framework for Strategic Gateways and Trade Corridors. Included in the creation of the Asia–Pacific Gateway and Corridor Initiative was the commitment of funds to support corridor infrastructure projects. Since then specific support has been announced for transportation infrastructure projects totalling over $1(Cdn) billion not only in the Vancouver area (road/rail grade separations, road construction and widening) but also in Edmonton, Alberta (highway intermodal access), Saskatoon, Saskatchewan (freeway interchange) and Winnipeg, Manitoba (highway interchange and railroad overpass improvements) (Transport Canada 2007b). The fact that transportation improvements are being made in the corridor cities, and not just the gateway, is indicative that gateways are only as strong as the corridors to which they are linked. It is also telling that it is

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not just Federal government money being invested. Provinces and municipalities are contributing, as are the railroads (CN and CP). The Asia–Pacific Gateway concept has moved beyond the concept stage to become reality in terms of governance, policy, political and financial support and infrastructure improvements. On the other side of Canada, the Atlantic Gateway is not as well advanced. The vision is there, but it is not well defined and political support has been slow to develop. A review of the Atlantic Gateway development follows. The Atlantic Gateway The Atlantic Gateway has not officially been promulgated. Only a Memorandum of Understanding exists between the four Atlantic Canada provinces – Nova Scotia, New Brunswick, Prince Edward Island and Newfoundland and Labrador – and the Federal government to develop such a gateway. Much work needs to be done. The greatest challenge to the Atlantic Gateway concept is the lack of agreement on which port, or ports, should be designated as gateways in Atlantic Canada. Although, Halifax is the major container handling facility in the region the port of Saint John, NB has container capabilities and in the early days of containerization rivalled Halifax as the major container port in Atlantic Canada. Compounding the container port picture is the recent announcements of private sector money to develop two other major container ports in Nova Scotia: at Melford in the Strait of Canso area (Leach 2007a) and at Sydney on Cape Breton Island (Leach 2008). And then there are the ports of St. John’s and Corner Brook in Newfoundland and Labrador which have designs to expand their container operations, although there is little likelihood that they would ever rival Halifax as major container ports. Adding to the difficulty of identifying which port should be designated a gateway is the fact that bulk ports in the region would like the gateway designation and receive the political and financial support that such designation would attract. Finally, if the concept of gateway is expanded to include cruise ports another set of ports enters the picture as possible gateways. Thus, it is not easy to identify which port or ports should be gateways – the question becomes gateways for and to what? If we confine our discussion to container gateway ports, given the economic importance of containerization to port and corridor communities in the form of employment and supply chain services, then Halifax has the greatest claim to the designation as the Atlantic Gateway. But even in making this designation one is ignoring the port of Montreal which competes against Halifax for the similar hinterland areas in Central Canada and Midwest United States, although the foreland areas of the two ports are very different. Halifax, as a gateway port for containers, was first suggested in 1978 in a consultant’s report (Arthur D. Little 1978). Since then at least 23 reports and consultant studies have been put forward to argue the merits of such a role for the port of Halifax (see InterVISTAS et al. 2007). Three of these studies were initiated

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Table 9.2

Ports in Proximity

Membership in the GVGC and HGC

Members

GVGC HGC Voting Port Operators 3 Marine, 1 Air = 4 1 Marine, 1 Air = 2 Transport Providers/ 5 Railroads, 1 Marine, 1 Truck, 1 Railroad, 1 Marine, 2 Truck, 2 Air = 6 Associations 1 Transit = 8 None Other 1 Employers Association, 1 Academic = 2 Non-Voting (Resource or Advisory Roles) Government 2 Federal, 3 Provincial from 2 Federal, 2 Provincial Departments or different provinces = 5 from one province only, Agencies 1 Municipal = 5 1 Exporters Association None Shippers Business Interest Asia Pacific Foundation, Nova Scotia Business Groups Business Council of BC, Inc., Greater Halifax Greater Vancouver Chamber of Partnership, Destination Commerce, Vancouver Board of Halifax, Halifax trade, WESTAC = 5 Chamber of Commerce =4 Source: Own elaboration based on information available on websites of respective gateways.

by the Halifax Gateway Council formed in 2004, fully 10 years after the Greater Vancouver Gateway Council was formed. The fact that this Halifax council was formed 10 years after its Vancouver counterpart, and that the GVGC advised in the Halifax formation, is telling of how far advanced the gateway concept was on the west coast – or alternatively, how far behind on the Atlantic coast. It is instructive here to compare the make-up of the GVGC and the HGC (Table 9.2). Even though the two councils have similar general make-up the specifics are different, especially in two regards: non voting memberships from governments and business interest groups. The Federal government was represented in both councils through Transport Canada and the corresponding Federal development agency of each of the regions in which the ports are located – Western Economic Diversification Canada (WDC) for western Canada and Vancouver, and Atlantic Canada Opportunities Agency (ACOA) for Atlantic Canada and Halifax. While three provincial governments – British Columbia, Alberta and Manitoba – were represented in the GVGC in advisory roles, only one provincial government – Nova Scotia – sat at the HGC table. This is an important difference between the two councils (see below). Although both councils had business interest groups represented, the fact that WESTAC was on the GVGC board and there was no equivalent Atlantic Canada regional business group on the HGC board points to the difference in regional representation of the two boards.

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At the time of the Federal government announcement of the National Policy Framework for Strategic Gateways and Trade Corridors in July 2007 the Halifax Gateway concept as articulated in the many previous reports was not ready to be adopted as a united policy of Atlantic Canada. Partly this was because of the short time that the Halifax Council had been in existence, but more importantly there had not been regional agreement as to what the Atlantic gateway should be – not only in terms of geography but also in terms of governance and operation. There were no well established non-geographic proximities. Relatively little information was shared among the different ports and their users; the ports were operating in different provincial jurisdictions (lack of institutional proximity); and there was little opportunity for trust (social proximity) to develop among interested parties. To articulate the gateway concept in Atlantic Canada, a Memorandum of Understanding (MOU) was signed on 14 October 2007 by the Federal government and the governments of the four Atlantic Provinces (Transport Canada 2007c). According to the MOU the objectives for the development of the Atlantic Gateway are: • • • •

To identify the components of the Atlantic Gateway. To identify the analytical and planning work required to develop each of the components. To identify the appropriate approaches and timing for involvement of the private sector and other stakeholders and To promote the Atlantic Gateway in domestic and international markets.

The fact that the first objective is to identify the components of the Atlantic gateway indicates how much work and agreement that needs to be done in getting the concept operational. The MOU gives the parties 24 months (until October 2009) to bring an articulation strategy forward. The question to ask here is: why, when the Federal government of Canada announced its Gateway and Corridors policy in July 2007, was the Asia–Pacific Gateway already in place and able to take advantage of the new policy immediately, while the Atlantic gateway was not prepared to do so, and would need an additional 24 months to even make a proposal as to what the Gateway might be? The next section of the chapter discusses answers to this question. Asia–Pacific Gateway versus Atlantic Gateway: Why the Differences in Implementation? The Asia–Pacific Gateway is up and running; the Atlantic is only in the planning stages. One obvious explanation for the progress disparity is the ten year head start the GVGC had on the Halifax Gateway Council – 1994 versus 2004 – and the amount of preparation, planning and support the GVGC had been able to garner for its proposals even before the policy announcement of the Federal

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Table 9.3

Vancouver and USA west coast ports’ container throughput (million TEU)

  Vancouver (% of Total)

1995 0.496 (4. 8%)

2000 1.163 (7.6%)

2006 2.208 (9.0%)

Seattle

1.479

1.488

1.987

Tacoma

1.092

1.376

2.067

Oakland

1.749

1.776

2.390

Los Angeles

2.555

4.879

8.470

Long Beach

2.843

4.601

7.290

TOTAL 24.412 10.215 15.284 Source: Data of respective port authorities, also publicly available on www.aapa-ports.org.

Table 9.4

Estimated Asian–USA trans-Pacific container trade (million TEU)

Asia–USA USA–Asia 1995 4.009 3.471 1997 4.660 3.610 2000 5.590 3.250 2005 13.90 4.300 2007 15.40 4.800 Source: Based on data of UNCTAD, Review of Maritime Transport, various years.

government. But why did the GVGC have a 10-year head start in the first place, and why was it able to garner so much support in the second? The answer to the first question concerns Asian – North American trade developments and a certain urgency for Vancouver to develop its facilities to service the increased trade. The answer to the second concerns the situational location of Vancouver and Halifax and geopolitics of Canada. Elaboration on both counts follows. Question 1: Why Did the GVCC Have a 10-year Head-Start on HGC? The primary reason for Vancouver’s lead was its Pacific coast position to take advantage of the opportunities offered by the expanding trans-Pacific Asian trade destined for North America. There was urgency in Vancouver to make investments in container handling infrastructure and inland connections to attract this growing trade and not lose what was already being handled. In the 20 year period before the

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Asian-Pacific Gateway initiative Canada was actually losing ground in Asian trade from approximately 2.5 percent by market share to less than 1 percent (Emerson 2007). The competition was coming from rival American west coast ports especially Seattle and Tacoma but also Oakland and Los Angeles/Long Beach. In 1995 Vancouver handled about 5 percent of the total TEU passing through North American Pacific coast ports (Table 9.3). At the time trans-Pacific Asian trade, especially from China, was increasing significantly and would continue to do as is shown in Table 9.4. It is this trade that Vancouver wanted to tap. Virtually all of the containers handled at Vancouver came from or are destined for Asia. With the growth of Asian production and shipping, Vancouver stood to gain significantly from this increased activity, but only if it were ready to do so. In 1998 Vancouver opened the first phase of Deltaport and container throughput did increase substantially (Table 9.3). As mentioned in 1995 Vancouver (all terminals) handled about 5 percent of west coast containers; in 2000 that proportion grew to 7.6 percent; and by 2005 to almost 8 percent. Vancouver has been on the rise as a container port. But it needed inland infrastructure improvements to maintain the pace of growth. Hence, it lobbied hard to get gateway recognition and support. Halifax, on the other hand, did not have the same urgency to press the gateway concept. It was a long way from the Asian Pacific growth areas. Dealing with increased Asian trade was a west coast opportunity, not an east coast one. Although consultant reports had recommended for over 20 years that Halifax take on a more gateway-like role with distribution centres and enhanced inland transportation infrastructure the recommendations were never picked up. There was no urgency. That urgency is now more apparent and real with the congestion problems at the west coast, with the advent of even larger container vessels from Southeast Asia transiting the Suez Canal, and the realization that India, the next big trading opportunity in Asia is considerably closer to the North American heartland via the east coast rather than the west coast. Furthermore, importers of Asian goods want an alternative to shipping across west coast ports (Wiebe, 2009). But that is the situation now; it was not the situation in 1994 when the GVGC was positioning itself as a North American gateway for Asian traffic. The lack of urgency on the east coast meant that there was no stimulus to develop cooperation strategies among interested parties to press for infrastructure upgrades in Halifax and its transportation linkages inland such as was happening on the west coast. There was a lack of non-geographic proximities. Question 2: Why was Vancouver Able to Garner Support for its Gateway and Halifax Not? The answer to this question lies in the situational characteristics of Vancouver and Halifax. Vancouver, Canada’s largest port (over 100 million tonnes in 2008), has no Canadian rival on the Pacific coast. It is located in the province of British

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Table 9.5

International cargo tonnages handled at Eastern Canadian ports, 2005

Port

Province

Come-by-Chance

NL

Million tonnes 39.028

Principal commodities

Petroleum (crude and refined) Port Hawkesbury NS 30.661 Crude petroleum (transshipment) Saint John Petroleum (crude and NB 27.352 refined), potash, forest products Montreal/Contrecoeur PQ 24.141 Containerized cargo, refined petroleum, iron ore and concentrates Petroleum (crude and Quebec/Levis PQ 22.758 refined), wheat Sept Iles/Pointe Noire PQ 22.240 Iron ore and concentrates 15.409 Iron ore and concentrates, Port Cartier PQ wheat Halifax NS 14.156 Petroleum (crude and refined), gypsum, containerized cargo Source: Own compilation based on data from Statistics Canada (2008).

Columbia, the only Canadian province fronting on the Pacific Ocean. It recently strengthened its dominance in Canadian west coast marine shipping with the amalgamation of three separate Vancouver area port authorities – Vancouver, Fraserport and North Fraser River – to form one administrative authority, the Vancouver Fraser Port Authority effective January 1, 2008. Despite other British Columbian ports playing niche roles in serving the trading interests of British Columbia and other western Canadian provinces, Vancouver is Canada’s gateway to the Pacific Rim and beyond for vast amounts of dry bulk cargo (coal, potash, grain, sulphur), neo-bulk (lumber, paper) and containers. The western provinces of British Columbia, Alberta, Saskatchewan and Manitoba need the port of Vancouver for their products to reach the rest of the world. They also, along with Ontario and to a lesser extent Quebec, need the port for Asian imports to reach them. Without efficient transportation infrastructure and operations focused on the port of Vancouver the economy of these provinces would be in serious jeopardy. Recognition of this fact was one of the main reasons WESTAC was formed in 1973 and has been an active member and supporter of Vancouver’s initiative to be recognized formally as a gateway with the Federal government infrastructure support that such recognition brings. Halifax does not play such a crucial role in the economic affairs of eastern Canada. In eastern Canada there is no primate port. Seven Canadian provinces –

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the four Atlantic Canada provinces, Quebec and Ontario through the St. Lawrence River, and Manitoba through Hudson Bay – have access to the Atlantic Ocean. In these provinces there are seven ports handling more international cargo than Halifax (Table 9.5). Most of these ports are specialized bulk ports (petroleum, iron ore, grain), but the fact that Atlantic Canada has different outlets to the sea means that there are special interest groups in the area wanting recognition of ‘gateway’ status – maybe not container gateway status – but gateway nonetheless, especially when such recognition may result in financial support for infrastructure. Halifax’s greatest claim to gateway status lies in its role as a container port. It is the largest such port in the Atlantic Canada (0.5 million TEU) as opposed to eastern Canada where Montreal dominates with close to 1.3 million TEU in 2006. Based on these numbers alone, Montreal should be designated Canada’s Atlantic Gateway, but Halifax and Montreal are very different container ports in the foreland areas they serve. Halifax truly serves the world of container shipping; Montreal is focused on Europe and the Mediterranean. The difference is the geographical position of the two ports: Montreal’s outlet to the ocean is through the St. Lawrence River; Halifax is directly on the Atlantic Ocean. Montreal cannot accommodate the large container ships, and with the trend to bigness focused on Asian trade, Halifax is realistically the only existing Canadian Atlantic Ocean port able to serve Canada’s need for an east coast container gateway. Saint John may argue this, but Saint John (only 45,000 TEU in 2006) has site issues and its location relative to Atlantic Ocean trade lanes is not advantageous. St. John acts as a feeder port for Halifax and Montreal. The real rival to Halifax’s claim as a container gateway is a port not even built – the $325 million container terminal at Melford, Nova Scotia on the Strait of Canso with Phase 1 scheduled to be opened in 2010. It remains to be seen if this development proceeds, and whether the port will provide serious competition to Halifax or, alternatively, compliment Halifax’s role as Canada’s premier Atlantic coast container port. As a result of the fragmented port scene in eastern and Atlantic Canada, it has been difficult for any one port to establish itself as a focus port for lobbying efforts to be recognized as the port of choice for eastern Canada’s international trade needs. There is no equivalent of WESTAC uniting the provinces to recognize the importance of transportation focused on one port. The Province of Nova Scotia (see Province of Nova Scotia 2007) and the Halifax Regional Municipality government certainly support Halifax, but the other Atlantic Canada provinces and their cities have been circumspect in their support. The Halifax support is founded on geographic and institutional proximity, rather than on other non-geographical proximities such as social and organization linkages. The geopolitics of Canada also plays a role in explaining Vancouver’s lead is achieving gateway designation. Canada’s population of close to 33 million is not evenly distributed. Atlantic Canada has about 7 percent of the population; western Canada has 30 percent. The vast majority is found in the central provinces of Ontario (39 percent) and Quebec (24 percent). This population distribution translates into Federal government parliamentary representation favouring, respectively, central

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Canada (60 percent of the 308 Federal seats), western Canada (30 percent) and Atlantic Canada (10 percent). It is difficult for Atlantic Canada to get the same respect at the negotiating table with the Federal government when it comes to infrastructure support as is given to central Canada, and increasingly to western Canada. Even though the impact of ports spreads far beyond themselves into hinterland areas (and in Canada that impact extends to central Canada regardless of whether you look at the Pacific or Atlantic perspective) when the Canadian Federal government is confronted with a choice of financially supporting an economic development proposal such as gateway designation and support, it will look to the immediate area where the political impact of a choice will be most beneficial. With Vancouver’s well prepared proposal and regional support it was quite easy for the Federal government to give support. With Halifax, there really is no regional proposal to support yet, and there is no real urgency from a political point of view to make a decision.

Discussion and Conclusion Canada presents an example of two major coasts with multiple gateways (Figure 9.2). The country is in the midst of developing an integrated approach of freight transportation involving gateway-corridor developments. The Asia–Pacific Gateway initiative focused on Vancouver is underway; two others are in the development stages. Much can be learned from the Vancouver experience and how it relates to the development of the other gateways. The first lesson learned is: start early. When dealing with multi-jurisdictional undertakings involving public and private sector actors, it takes time to reach consensus on what needs doing, where, and when. Vancouver, through the GVGC, spent 12 years putting its case forward. If one goes back to the formation of the Roundtable of Transportation in 1987 it took 19 years to finally get all governments – Federal, provincial and municipal – to formally recognize Vancouver’s case for gateway status. One should not be surprised that Halifax has not had the same success in the short period it has been formally presenting its case. The second lesson is: get regional support for a local gateway. The Vancouver case demonstrates that as geographical proximity decreases, non-geographical proximate factors must be encouraged. Institutional (jurisdictional) cooperation must extend across local and regional boundaries. In a government system such as Canada’s with three levels of government with the Federal level having the responsibility for both port administration and interprovincial transportation, it is vital that the two lower levels present a united front. Vancouver was able to do this, initially in a very general way through WESTAC, and more specifically through the GVGC which had on its Board, as advisors, provincial representatives from the western provinces. Halifax has not been able to get this regional support yet, and given the time frame of the MOU, it does not appear it will be forthcoming until at least October 2009.

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The third lesson is: get the private sector involved and supportive of the gateway initiative, not only in words but in infrastructure investment. Private–public sector cooperation comes about because of trust (social proximity), shared knowledge (cognitive proximity) and common interests. Vancouver has involved the private sector from the beginning. The fact that five railways are voting members of the Board is significant. The further fact that two of them, CN and CP, have committed planned investments of $CDN1.2 Billion between 2004–2010 as part of the Asia– Pacific initiative is even more important than words alone (Canada’s Asia–Pacific Gateway and Corridor Initiative 2006: 13). Also of importance is the private sector involvement of the Canadian Manufacturers and Exporters Association – a shipper’s organization. Halifax has no such representation on its council, and the participation of railroads – crucial to the delivery of goods to/from central Canada and beyond – is limited by the fact that only one railroad, CN, serves the port. However, to its credit CN is a voting member of the HGC Board and says it is committed to the success of Halifax as a gateway (Peter Ladouceur 2007). It has been argued here that the success of a gateway and its associated transportation corridor, even its designation, is not a port’s decision alone. In fact, the port is but a small player in making that decision. More important is the degree of cooperation the port must have from its users and transportation providers, both public and private, and governments that support its operation. Cooperation comes about because of geographic proximity of the players united for a common cause, but non-geographic proximate factors are at work as well. Because a port serves interests not in the immediate geographic area, it is necessary to develop non-geographic proximate factors for the gateway-corridor concept to flourish. In the Canadian case, local and regional government support from outside the local area is crucial to convince the Federal government the merits of investing in infrastructure to bring about the realization of a gateway-corridor.

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Chapter 10

Port-hinterland Divergence along the North American Eastern Seaboard Jean-Paul Rodrigue and Changqian Guan

Introduction: From Convergence to Divergence Like all the major maritime ranges around the world, the North American Eastern Seaboard has been transformed by the joint forces of globalization, regionalization and containerization. Extending from Halifax to Miami, the seaboard ports link one of the world’s most extensive consumption markets to global maritime shipping routes. These ports collectively handled just above 20 million TEU of containers in 2007, but actual volumes are much higher due to a substantial amount of TransPacific containerized traffic routed through the West Coast rail landbridge towards various destinations along the Eastern Seaboard. This underlines a richer context in which maritime and inland freight distribution systems in North America are interacting and integrated. The traditional regional hinterland is complemented by transcontinental freight corridors where inland terminals create an acute discontinuity. Investigations looking at economic and technological changes in the 1980s and early 1990s (Hayuth 1988; Kuby and Reid 1992; McCalla 1999a, Shashikumar 1999) underlined that a process of deconcentration was taking place as ports were competing more aggressively over their hinterlands. In such a context, containerization was used as a mean to compete beyond established hinterlands, to venture into new market opportunities and capture additional traffic. It was anticipated that containerization would level the playing field and thus lead to a form of convergence; a more uniform distribution of traffic. However, since then the process has reversed and a concentration of traffic has taken place among a few major gateways. It is thus argued that port hinterlands along the North American Eastern Seaboard are going through a phase of divergence which will favour an ongoing process of concentration of containerized traffic. Divergence is a commercial cycle that involves a concentration of containerized traffic along the major gateways of a maritime facade, implying that the conditions affecting freight distribution are advantaging some ports more than others, notably in terms of traffic capture. It is more than a process where some ports are growing faster than others; it also shapes the setting of hinterlands and long distance transport corridors. In light of growing levels of congestion, conventional geographical factors such as accessibility are reasserting themselves along with

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132

changes in liner shipping networks and supply chain management practices. This leads to differences in infrastructure investments, the performance of transport infrastructures and flows handled by port and inland terminals.

Trade and Port Divergence in North America Factors of Port Divergence Divergence implies that even with containerization being a standard and ubiquitous mean of transportation, its functional and spatial diffusion leads to different traffic growth levels. As a force shaping accessibility and economic opportunities, containerization and economies of scale have favoured the emergence of large gateway complexes which are linked to their hinterlands through corridors. In view of these trends, it is argued that the main geographical and functional factors of port divergence are: •

•

•

•

Port site. This is the most conventional factor linked with the local geography and particularly concerns location and infrastructures. Port infrastructure serves as one of the key decision-making determinants in port selection by shippers. The divergence effect of the site is reinforced with each new generation of container ships, forcing in many instances dredging efforts to keep the port accessible to greater ship drafts. Shipping networks. They have an effect through the selection of port of calls, which is made based on a set of criteria related to market (hinterland) access as well as the quality of port infrastructure or where the port stands in regard of the configuration of the shipper’s network. A port gaining or losing port calls, particularly from a large ocean carrier, can experience a significant variation of its traffic. The configuration of shipping networks is thus an important factor of port divergence and tends to favour major gateways. Port policy. Local port policies can have an impact related to the governance and funding. The major trend has been towards privatization, particularly of terminal facilities. The commitment of a port operator to invest in and/or develop a container terminal is a major sign behind future traffic generation as well as terminal productivity improvements. The outcome can however be marked by differences in productivity between the terminals of the same port. Hinterland. The hinterland is a conventional factor linked with the nature and level of port activity. However, with containerization the setting of high capacity corridors and inland terminals has become of fundamental importance in the capture of port traffic as hinterland competition increased. The future of a gateway port is increasingly decided over what takes place over its hinterland.

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Supply chain management. Logistics and commodity chains are dependent on the reliability of freight distribution. An important dimension of this reliability concerns delays and disruptions to the scheduling of transportation. A port, including its linked maritime and inland services, that offers a superior reliability and value added services is likely to secure additional traffic. Supply chain management appears to be an emerging factor of port divergence.

Overall, port competition for market share including hinterland market is determined not by a single factor, but by several; port infrastructure, liner service (frequency of services), the availability of modern distribution centres, and the market size that can be reached within 24 hours (Biederman 2007). Like any competitive market, some ports prevail while others will have to address stagnation or even a decline in traffic. In recent years the growth of trans-pacific trade, the expansion of the North American intermodal network, supply chain requirements, port logistics infrastructure, hinterland markets, and liner service have played a role in the cyclic dynamics of port convergence and divergence. Containerized Traffic Trends The last decade was characterized by a cycle where containerized trade surged, particularly along Pacific Asia–North America trade routes. From 1997 to 2006, American container volume handled by its ports almost doubled, from 14.9 to 27.4 million TEU. One particular and well acknowledged driver of this growth has been Asian imports, the outcome of outsourcing manufacturing activities, particularly to China (Marad 2007). For instance, China’s total share increased from 12.4 percent in 1997 to 37.4 percent in 2006. The issue not only concerns the growth in volume, but also the growth in the imbalances of the transpacific container flows, which accounted for 10.5 million TEU in 2007. Transatlantic trade shows a similar, albeit less extensive imbalances with imports to the US growing 6.1 percent annually for the same period and exports to Europe growing at a much lower rate, 3.5 percent annually. On the US–Latin America trade, which is dominated by commodities, imports to the US and exports to Latin America grew at 8.1 percent and 6.3 percent annually respectively (MergeGlobal July 2007). It remains to be seen to what extent past growth trends will endure in the future since containerization has achieved prevalence within the majority of supply chains. It is expected that container traffic growth has peaked and will likely decline until macroeconomic conditions, namely those linked with trade imbalances, are corrected (Notteboom and Rodrigue 2009). The trend in traffic concentration, both at the maritime range and at gateway levels is evident. The Pacific Coast now accounts for 55 percent of the total container volume handled, up from 50 percent in 1990, placing intense pressures on its main gateways. The share of the Los Angeles/Long Beach port cluster of the total US container traffic grew from 32.4 percent in 1997 to 37.8 percent in 2006;

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during the same period, New York/New Jersey’s share increased slightly from 11.2 percent to 13.2 percent (Marad 2007). Essentially, traffic doubled every decade, an indication of a rapid growth of international trade as well as the diffusion of containerization as a privileged mode of transportation. However, the extent to which this trend will endure is highly questionable as evidenced by the economic slowdown that began in 2008. Ranges of the Eastern Seaboard The Eastern Seaboard is characterized by ranges each having their own divergence dynamics and connectivity level to their hinterlands (Figure 10.1). Each range represents an economic region with its specific hinterland and transport system. From an analogical perspective, the seaboard can be seen as a set of sinks where containers ‘percolate’ into the hinterland through the path of least resistance. In theory, the deepest part of the sink should be the most active port but regional conditions are obviously modifying this assumption. The Eastern Seaboard can thus be divided into four major ranges: •

The St. Lawrence. In simple terms, the St. Lawrence is a ‘funnel’ where all the traffic goes straight to the bottleneck, which is Montreal. On each side of the funnel, the hinterland is excessively poor in terms of economic activity, except for a variety of resource export ports (e.g. Sept Iles). Any maritime services venturing into the funnel does not make any other port call along

Port-hinterland Divergence Along the North American Eastern Seaboard

•

•

•

135

the East Coast, with the exception of Halifax. The Ports of Halifax and Montreal are thus in direct competition, with Montreal having a much better hinterland access but a weaker maritime access. The only way that Halifax may stand out would be as an offshore hub with activities linked with its first port of call Atlantic advantage as well as its deep harbour facilities, able to accommodate the largest container ships. The opportunity to use the St. Lawrence/Great Lakes system for inland containerized distribution is very limited, mainly because of the seasonal shut down of the system which is incompatible with a constant frequency of services required by container distribution. The Upper Range. Also referred to as the ‘empty sink’ since the range handles a very low containerized volume. The traffic that could be handled by this range has overflowed (been captured) either in the ‘funnel’ or into the Mid Range. The level of economic activity in the hinterland is limited, particularly in the northern part of the range. The two major ports of the range, Halifax and Boston, can be qualified as ‘weak handles’ since they have shown very limited growth in traffic (actual decline for Halifax in recent years). The Mid Range. Complex and rich hinterland corresponding to a large accumulation of economic activities, mainly along the Boston-Washington corridor. It is a ‘full sink’ in the sense that the centre has limited potential to accommodate additional traffic not because of capacity issues, but because of difficult maritime access. For instance, Baltimore has a central location, but calling the port involves a detour with Hampton Roads in good position to capture traffic. The range has two strong handles, New York and Hampton Roads, each having experienced substantial traffic growth. Each handle is attempting to establish regionalization strategies to capture the traffic with better hinterland rail connections. The Lower Range. An emerging port range, implying that the ‘sink is filling up’ at the point of least resistance, which corresponds to the Savannah/ Charleston port cluster. They offer a relatively uncongested access to their hinterland. The lower Florida handle with its port cluster has some potential to act as an offshore hub, although this function has been captured by nearby Caribbean ports (e.g. Freeport), particularly because of lower labour costs and deeper access channel.

Port Hierarchy The geographical growth of containerized traffic is very specific (Figure 10.2). It is concentrated at both ‘handles’ of the mid range – New York and Hampton Roads – and at the centre of the lower range – Savannah and Charleston. The ‘empty sink’ has experienced a mere growth of about 40,000 TEU between 2000 and 2006. The largest growth rates, both in absolute and relative terms, are observed in the

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diverging ports underlining that the recent growth cycle is based upon different premises. An overview of the rank-size distribution of port traffic reveals a four tier grouping where each tier has roughly double the traffic of the previous (Figure 10.3). This distribution underlines a divergence threshold roughly at 1 million TEU where above this threshold there is strong absolute growth and below which there is stagnation. A four tier port hierarchy system can be observed: • •

•

•

First tier: New York is the most prominent East Coast port, essentially acting as a continental gateway, a role it has played for more than a century. Second tier. Major gateways of the East Coast, each accessing a significant hinterland and commanding an economic region. Although the traffic of Montreal may place it as a third tier port it is the only significant East Coast Canadian port and thus has a more pronounced gateway function than many of its counterparts. Third tier. Smaller regional gateways that conventionally have been competing with first and second tier ports but mainly due to less efficient hinterland access are gradually fulfilling a niche role. Still, changing market conditions and the decision of a shipping line to call one of these ports could significantly change its traffic profile. Fourth tier. Small niche ports servicing a specific market and often of specific function.

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While the top 5 ports accounted for 74 percent of the TEU handled in 1985, this share went down to 62 percent in 1995. This process linked with the diffusion of containerization among new ports, challenged the primacy of existing ports, such as New York. Additionally, numerous trucking services were taking shape, mostly in an un-congested setting. The 1980s also marked an era of deregulation, permitting ports to compete outside their designated hinterlands and capture additional market share, a process which went on until the 1990s. From 1995, the process reversed as the share of the top 5 ports climbed to 71 percent in 2006. The mid 1990s correspond to an acceleration of the forces of globalization in North America, particularly with the setting of NAFTA and the corresponding offshoring of manufacturing activities. Paradoxically, the relocation of production outside the United States lead to a traffic concentration around the major gateways providing better hinterland access. Several factors can be brought forward to explain this divergence. First, major ports undertook investment in new infrastructures, including on dock rail facilities. Second, hinterland rail access became a more attractive option in view of growing road congestion levels, which privileged gateways connecting inland corridors such as landbridge services. Shipping companies are thus increasingly allocating port calls with the capacity and efficiency of hinterland access into consideration. Third, the North American economy shifted towards a consumption-based economy, which placed a preponderance on large population centres to a greater

138

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Figure 10.4 From convergence to divergence: the Eastern Seaboard (annual growth rates and share of top four ports, 1985–2007)

extent than a production-based economy. Ports having a substantial consumption (import-based) hinterland were more advantaged since it became increasingly a matter of servicing more diffused consumption markets at opposed to more clustered manufacturing functions.

Shifts in Cargo and Shipping Services Cycles of Convergence and Divergence Liner shipping companies are ultimately the ones that determine their port call configurations. There are several factors that affect port selection (Slack 1985; Murphy and Daley 1994); the deciding factors being port infrastructure, frequency and diversity of carrier options, the strategic vision of the port, port costs, expansion potential, strategic location and port-dependent cargo, and lastly, logistics infrastructure in the proximity of the port. Put into practice these factors result in differential growth rates with their synchronism an indication of the extent at which they diverge or converge. Figure 10.4 reveals the phases of change among the main ports of the Eastern Seaboard. Prior to the end of the 1990s, a process of deconcentration was taking place, as exemplified by the declining share of the top five ports in handling the

Port-hinterland Divergence Along the North American Eastern Seaboard

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total containerized traffic. In terms of synchronism of growth rates, there was a gradual convergence with deconcentration. Then, the trend quickly reversed with a divergence of growth rates and a concentration of traffic among the largest ports. Two ports in particular stand out, Savannah and New York, by showing a consistent growth over the past decade. New York still has the commanding lead and its growth seems to be very consistent after a phase of decline that endured until the early 1990s. Because of its large population base and consumer market, 33 million people live within one hour drive from the port (Tirschwell 2008). New York continues to dominate the East Coast market. Savannah has the fastest growth rate over the past decade, illustrating the importance of higher growths rates of the South Atlantic region. At the same time, the competition for hinterland market intensifies. Due to continuing demographic shift southward, a large volume of cargo that was traditionally moved through Northeast and mid-Atlantic ports are now moving through South Atlantic ports. For Savannah, the combination of infrastructure improvement, transit time, delivery costs, and population proximity has contributed to port growth (Marchand 2007). The port reacted to and anticipated these commercial changes with the establishment of several major retail distribution centres in its proximity helped to boost volume; intermodal facility development, terminal expansion, and operational improvement were important factors to maintain and improve its competitiveness. New York has maintained its leading position due to its vast captive-consumer market, mainly the port-dependent cargo, and infrastructure improvement implemented since 2000. During the late 1990s, the lack of port infrastructure improvement created inadequacies and at one point Maersk Sealand, the world’s leading maritime shipper, threatened to leave the port. Since then the port authority undertook major capital improvement programs coupled with significant reductions in labour costs, which improved competitiveness. The labour cost reduction mainly came from a steep decline of container royalties paid to longshore labour displaced by containerization. Norfolk, due to its intermodal connection and its natural deep harbour with a 50 foot channel, attracted shippers and maritime carriers. Its infrastructure improvement plans for terminal expansion and equipment upgrade helped boost cargo volume. For Charleston, despite its reputation of high productivity, its cargo volume growth lags behind Savannah, a port it has traditionally been intensively competing with since both are sharing essentially the same hinterland. It faced capacity constraints at its current container terminal. However, opposition from local resident and environmental groups forced the port authority to scale back its expansion plan in a green field site. Instead, it chose to develop a former naval base into a new container terminal, which will take more time to complete. For the ports of Halifax and Montreal a strong divergence is observed from 1990 (Figure 10.5), which is mainly due to long distance inland access as well as the size of the regional market. Shipping lines are reluctant to call a port that has limited local market potential as very few container demand would be generated,

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Figure 10.5 Strong divergence: Montreal and Halifax, 1981–2007 which is compounded with an uncertain hinterland (particularly for Halifax). As a matter of fact, there are no all water services from Asia to Halifax (though OOCL is considering it). Additionally, shipping companies prefer to have their maritime containers bound to nearby consignees so they can be placed back promptly on the maritime circuit. Transloading cargo from maritime containers into domestic containers can offer an alternative, but repositioning empty domestic containers over long distances is not a desirable option. Again, this undermines ports that have limited immediate hinterlands. The growth rates for Halifax and Montreal also indicate a shift from convergence to divergence. While both ports were having a synchronism in their growth rates until the early 1990s, this synchronism shifted. The initial divergence appears to be a zero sum game where Montreal’s gain became Halifax’s loss. Then, the hinterland factor became more prevalent in spite of Montreal being a less suitable maritime site (ship capacity limit is about 4,000 TEU while Halifax can accommodate much larger post-panamax ships). The Resurgence of All Water Services to the East Coast In general, there are three routes for cargo coming from Asia and bound to the American East Coast; the landbridge route, the all water route via the Panama Canal, and the all water route via the Suez Canal. The landbridge route has two segments. The maritime segment from an Asian port to a West Coast port in North America and the inland segment from a West Coast port to destinations in the hinterland and regions along the East Coast (Figure 10.6). With the setting

Port-hinterland Divergence Along the North American Eastern Seaboard

141

Figure 10.6 Factors behind the resurgence of all water services to the east coast of double-stack long distance rail corridors in the 1980s, the landbridge route dominated for the transpacific trade since it offered a quick and cost effective mean for Asian goods to reach East Coast markets while maintaining the length of trans-Pacific pendulum routes as short as possible. However, this dominance is being challenged by changes in the shipping environment with the resurgence of all water services between Pacific Asia and the East Coast. This provides an additional explanatory layer for the port divergence thesis because the ports selected for all water routes access a completely new maritime foreland. The main factors behind changes in the shipping environment are thus the following: •

•

Transpacific trade. The growth of transpacific trade is well documented with the China effect being the main driver. Containerized exports bound to North America have consequently surged with a corresponding growth in maritime services, port calls and inland freight distribution. West coast and landbridge congestion. The West Coast is increasingly

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•

perceived as unreliable and costly due to congestion, environmental regulations and sometimes labour disputes. For instance, in 2002 a longshoremen job action resulted in a lock-down of most West Coast ports, incurring significant costs and delays for shipping lines and shippers. The Landbridge is the most favourable route from East Asia to East Coast due to its short transit time. East Coast Ports are in an unusual situation since they not only compete among themselves, but also with West Coast ports due to Landbridge. The landbridge takes about 5–7 days in addition to transpacific crossing which takes about 9–12 days. However, rail transportation in North America was reaching serious bottlenecks at the beginning of the 21st century, with growing capacity constraints over rail infrastructure, with Chicago and St. Louis becoming major bottlenecks in the rail distribution system. Recognizing its value and the growing landbridge volume, railroads have raised freight rates by 25 to 40 percent between 2005 and 2007. In addition, the return on intermodal shipment is lower than on other commodities for railroads because intermodal contracts are established on the long term. Therefore, with near-double digit growth of international shipments on landbridge, apparently more capacity is needed and rate increase is an obvious option (Ferrulli 2007). This prompted maritime shippers and freight forwarders to explore alternatives. New East Coast gateways. The Southeast coast, particularly the Charleston/ Savannah port cluster and Hampton Roads, has experienced a significant growth in part because they are the closest East Coast ports through the all water route via Panama Canal and in part because they offer uncongested long distance inland access. In addition, general costs related to labour and land are also lower than other ports along the West Coast and in the Northeast. This has led many players related to supply chains to set up large retail distribution centres in Savannah and Virginia.

Service Routes and Transit Times Table 10.1 provides a snapshot of the various origin-destination pairs between several major Pacific Asian ports and American East Coast ports. Except for Singapore (which involves the usage of the Suez Canal Route), the transit times for all water routes are based on the Panama Canal route. For New York, the difference between landbridge and all water services from North Asian ports such as Busan, Tokyo, Shanghai, and Kaohsiung is about seven days. Therefore, high value goods in particular are most likely to be routed through landbridge services. However, as the load port origin moves southward towards Singapore, the difference narrows markedly. For cargo from Hong Kong, the difference is about four days. From Singapore onward, the all water service confers a slight advantage. Similarly for services to Norfolk, the difference between landbridge and all water service is slightly to the advantage of the former.

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Table 10.1

143

Transit time (in days) between selected Pacific Asian and East Coast ports

 

Destination

 

New York

Norfolk

Origin

All Landbridge Δ Water -1 23 24

All Landbridge Δ All Landbridge Δ Water Water -1 25 -3 23 24 28

Singapore Hong Kong Kaohsiung Shanghai Busan Tokyo

Savannah

22

18

4

22

18

4

21

18

3

25

18

7

25

18

7

22

19

3

23

16

7

24

16

8

22

18

4

21

14

7

23

14

9

25

14

11

26

14

12 26

14

12 24

16

8

Source: Own elaboration based on the liner schedules reported on the websites www.apl. com, www.hanjin.com, www.nykusa.com.

However, from Hong Kong southward, the all water service is almost identical to the landbridge. Figure 10.7 focuses more specifically on the respective advantages of New York and Savannah with water services to Southeast Coast ports become more competitive from Shanghai southwards. The most significant time difference concerns ports among the Middle coast of China, including Kaohsiung. They fall in the 3–4 days difference, which starts to be close to the threshold of indifference from a shipping time perspective. Under such circumstances, reliability in distribution can play an important role in tipping the balance. Singapore appears to be the equilibrium point transit time-wise; the point of indifference to destinations along the East Coast. There is however a zone of contestability for services to New York (and other ports such as Hampton Roads) that includes most of Southeast Asia and up to Hong Kong. This zone is crucial as it includes several established manufacturing clusters (namely the Pearl River Delta) as well as emerging economies such as Vietnam and Malaysia. For services to Savannah, the zone of contestability could even be expanded a bit further to include Shanghai. Since Singapore is the major transhipment hub for Southeast Asia, it may actually capture additional traffic for the All Water Route to the East Coast. Currently, the West Coast landbridge route accounts for more than 75 percent of the cargo from Asia destined for New York/New Jersey (PANYNJ). With the Panama Canal expansion and the increase in all water routes, the share of the landbridge is expected to decrease to 60 percent. As a result, the Port of New York is expecting a shift of 2.5 million TEU from West Coast ports to All Water Services to the East Coast by 2020. The planned expansion of the Panama Canal to accommodate about 12,000 TEU ships, makes any traffic distribution forecasting extremely hazardous. It will impact economies of scales on the all-water route

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Figure 10.7 Eastbound and westbound maritime routes: zone of contestability

via the Panama Canal, the configuration of shipping networks and the use of intermediate hubs. It can however be assessed with relative confidence that the share of all water routes to the East Coast is very likely to increase. The number of all water services serving the East Coast ports increased from 17 in 2002 to 26 in 2007, underlining the emerging commitment of maritime shipping companies. While the Panama Canal route accounts for the vast majority of all water routes, the Suez route is gaining new attention as it can employ bigger ships beyond the current 4,500 TEU Panamax restriction. However, traffic volume is not yet high enough to justify the usage of the larger container ships capable of fully taking advantage of the scale economies of the Suez route. Still, the long sequence of intermediate hubs along the Asia-Suez-Gibraltar route (e.g. Singapore, Colombo, Salalah, Jeddah or Algeciras) confers traffic capture opportunities by connecting different markets along the same route (South Asia, Middle East, Southern Europe). As a result, there are emerging East Coast hubs and calling

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configurations using the Suez Canal where the first North American port of call is Savannah and New York depending on the service configuration. Transit Time and Reliability Since the vast majority of retail good shipments are containerized, corporations are using supply chains to gain a competitive advantage through distribution strategies (Hesse and Rodrigue 2004). Lower logistics costs and time are key factors in the distribution process (Mongelluzzo 2008). In a typical supply chain, there are three major cost components: transportation costs, in-transit inventory costs and warehouse inventory costs. To manage the supply chain effectively, reliability tends to be more important than price. According to a survey conducted by MergeGlobal, transit time reliability was ranked as the number one importance among all logistics service attributes; price came in second. Transit time reliability has a direct bearing for in-transit inventory carrying costs (just-in-time) and safety stock costs (just-in-case). High transit time variability and unreliability impose additional costs during peak season resulting in lost sales and potential inventory write downs (MergeGlobal 2007). Since 80 percent of the American population lives east of a line drawn from Chicago through Dallas, recently there is a propensity for shippers to favour allwater service over the landbridge service via the West Coast ports so that supply chain reliability and integrity can be maintained. Most logistics processes involved transhipment and intermodal movement are deemed increasingly risky since they are prone to convey additional delays and even additional risks of damage (Ambruster 2007). Even if East Coast all water services from Asia are a few days longer than a Transpacific/Landbridge segment, reliability makes this service comparatively attractive from a supply chain perspective. In maritime shipping delivery before schedule is very rare since shipping networks are configured with allotted port call slots. Both segments are facing the same problems of port congestion along pendulum routes, which can often compound delays. If intermediate hubs are used (such as Singapore, Pusan or Algeciras) some additional delays may incur, but at the benefit of generating more traffic. Even though the landbridge route offers a shorter transit time service, there are additional delays and risks involved with its use. This includes port congestion along the West Coast which has gotten worse with the growth of containerized traffic and the difficulties to add more terminal capacity due to environmental pressures. Rail capacity along major long distance corridors is also a problem since many rail segments are running close to capacity. The average train speed is impeded due to limited rail line capacity, which in turn delays train departures from intermodal terminals and cause backlogs cascading up the entire network. Ultimately, rail congestion impacts maritime terminals by causing port congestion delaying ship schedules. Furthermore, drayage operation in Chicago may also add additional delay since containers have to be trucked across town from one railroad

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Table 10.2

Port infrastructure development at the top five east coast ports: the harbour/hinterland duality New York

Hampton Roads

Charleston Savannah

New container terminal at Contrecoeur.

Channel deepening (50 feet). On dock rail (Expressrail).

New Craney Island Container Terminal ($2.2 billion; 2017). APM terminal in Portsmouth.

Construction of a new 1.4 million TEU terminal ($600 million; 2013). Channel deepening (47 feet; $148 million).

New berth at Garden City Container terminal. Join with Charleston to develop a new container terminal at the bank of Savannah River.

New rail terminal, CN. Development of a logistics cluster.

Port Inland Distribution Network (North Kearny, NJ, South Kearny, NJ, Port Elizabeth terminal, NJ, Port Newark terminal, Croxton, NJ, and New York Container Terminal, NY).

Virginia Inland Port. Heartland project. (CSX – Portsmouth Marine Terminal, VA, Norfolk International Terminal, VA, Newport News Marine Terminal, VA).

CSX – Charleston, SC. NS – Charleston, SC.

Georgia Port Authority, Savannah, GA, Savannah ICTF, GA.

Hinterland

Harbor

Montreal

terminal to another, adding a day or more (Rodrigue 2008). Congestion along the East Coast transport system, particularly if a truck service is selected between Chicago and East Coast distribution centres, will compound additional delays. For all water services there may be delays related to the usage of the Panama or Suez canals. Consequently, several distribution activities related to retail may find it less risky to trade a few extra days of transit time (which can be easily mitigated with frequency) for a better time reliability (Figure 10.9). Since many retailers work from a just-in-time perspective, the reliability factor is particularly important. The location of several new distribution centres in the vicinity of Savannah in recent years is an indication of these factors at play. Therefore, transit times to East Coast ports not only reflect geographical distances, but more importantly, are driven by product value and supply chain strategies. The short transit time from Japan and Korea to East Coast ports caters to the supply chain requirement of minimizing inventory carrying cost for high value products.

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Port Regionalization and Port Hinterland Divergence Port Logistics Infrastructure Development and Intermodal Services The overall growth of the American East Coast ports indicates the need for infrastructure development. Furthermore, the volume growth leads another issue of traffic congestion especially in New York metropolitan area. Intermodal solutions become increasingly important. Port regionalization underlines that ports are following a hinterland strategy with the usage of inland terminals and corridors linking them to the main marine terminals (Notteboom and Rodrigue 2005). Successful port regionalization creates a context promoting divergence by leveraging inland accessibility. All major ports along the East Coast have been undertaking infrastructure improvement projects to accommodate growing demand for port capacity. This includes not only the major ports, but also a variety of capital improvements projects to accommodate additional cargo at smaller ports. Still, the most ambitious projects are both concerning the harbour and hinterland access for two purposes, accommodating larger size container ships – post Panamax upward and competing for discretionary cargo in contestable hinterland markets. The combination of port-captive markets and efficient hinterland access via intermodal network becomes the core strategy for ports, underlining the divergence thesis of port regionalization (Table 10.2). In addition to maritime related infrastructure, the availability of modern distribution centres in proximity of the port is another determinant to affect port selection. As distribution centres are part of the supply chain network, the locations of distribution centres are of importance. Currently, shipping lines are reluctant to serve inland markets because of the repositioning of empty containers they involve, particularly since the costs of repositioning are not always recoverable from shippers. Further, it complicates the management of their container fleet as it is sometimes uncertain when containers shipped inland will be available again within maritime pendulum services. A growth of inland flows is often accompanied by a decline in container turnovers. Therefore, shipping lines prefer to turn containers around as quickly as possible. From a shipper’s perspective, it is preferable to locate distribution centres near the port so they can conveniently perform warehousing activities, transloading and distribute merchandises accordingly. Therefore, port logistics parks have become very attractive to shippers. For instance, Savannah developed the first American master planned logistics park with 1,700 acres of land. As a result, the metropolitan area hosts more than 18 import distribution centres totalling more than 15 million square feet (Biedeman 2007). This further increases the port attractiveness as shippers benefit from supply chain integration. The Hinterland Factor Port expansion can be perceived as a matter of capital investment valorizing a favourable site with the accumulation of infrastructure, flows and logistical

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Figure 10.8 The reemergence of the ‘hinterland factor’: inland corridors

activities (Notteboom and Rodrigue 2007). Although suitable sites are not common, particularly as draft requirements increase, the East Coast offers several alternatives. Pressures have also been made to dredge port channels to deeper drafts, such as for New York, Charleston and Savannah, which again underlines that capital investments can be a factor of convergence. To reconcile the theoretical convergence framework with a contradictory reality the ‘hinterland factor’ remains, which in the context of long distance trade, congestion and rising energy prices, has become the dominant vector of port divergence. For North American freight distribution, the hinterland system is articulated by a set of major long distance rail corridors dotted by inland freight distribution clusters and load centres. In light of the substantial growth in rail traffic, all the major rail operators have undertaken since 2000 a phase of substantial investments aimed at strengthening strategic corridors (Figure 10.8). Outside the main Transcontinental corridor which links the San Pedro port cluster to Chicago, the spatial pattern of the investments underline a strategy at better linking the Southeast to the continental system (e.g. the Meridian Speedway, the Southeast Corridor and the Crescent Corridor). It illustrates the growing hinterland importance of the Southeast maritime facade. One particular project, the Heartland Corridor, links directly the Hampton Roads gateway to the Chicago rail hub, increasing its competitiveness in regard to New York. In an effort to capitalize on the growing traffic by offering a new rail corridor suitable for double stack trains, Norfolk Southern Railroad expects by 2009 to complete a major rail project that will initially connect the new port terminal facilities of Maersk in Portsmouth, Virginia, with rail lines through West Virginia

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and end in Columbus, Ohio. At this point the corridor will link up with western rail networks or with the double-stack rail corridor to Chicago. Prior to this improvement, double-stack trains heading towards the Port of Virginal went through Harrisburg, Pennsylvania because of insufficient tunnel clearance. Through an increase of the clearance of 28 tunnels at a cost of about $266 million, the Heartland Corridor project will bypass this loop, cutting 233 miles and 36 hours off the present route from Virginia to the Midwest. This setting is thus likely to increase hinterland competition at the margin of the Boston – Washington corridor and offer a new alternative to long distance transcontinental freight distribution (Virginia Port Authority 2005). In 2008, Hanjin Shipping reached an agreement with the Jacksonville Port Authority for a new 170-acre container terminal facility, which could handle 2 million TEU. The rail operator CSX will provide connectivity to its Southeast Corridor to Birmingham and Chicago (Figure 10.8). In this case the hinterland factor in terms of rail accessibility was very important.

Conclusion After more than 50 years of containerization and intermodal transport developments, the North American Eastern Seaboard is going through a phase of divergence where major ports, as part of a system of gateways, are capturing a greater share of the traffic. This process corresponded to a phase of acceleration of globalization, notably with the setting of NAFTA and the emergence of China as a manufacturing cluster. The diffusion of production abroad and its corresponding traffic growth has been associated with traffic concentration along large gateways. The five largest ports accounted for the bulk of the absolute growth, leaving smaller ports with essentially niche market growth. This is a significant shift from the trend until the mid 1990s when smaller ports tended to grow at a faster rate. Since 1995, a clear divergence has emerged advantaging ports above the one million TEU threshold. Although no unique factor fully explains this reversal, a few have been underlined. In light of larger container ships and the higher volume they imply, the number of suitable port sites appears limited. Additionally, the terminal facility must provide the capacity to handle the associated container volumes. It is thus not surprising that smaller ports are a risky proposition compared with large established terminals having access to nearby consumption markets. If globalization is to reach a phase of maturity implying stabilization or even a decline of traffic in some markets, the position of smaller ports is likely to be even more compromised. The emergence of all water services represents a new configuration for port calls where supply chain management practices are playing a significant role. In spite of longer transit times, all water services tend to have a more reliable time window, which fits well the freight distribution strategies of large retailers. For the Eastern Seaboard, this has favoured growth for Savannah, Charleston and Hampton Roads. Albeit,

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due to its large surrounding hinterland, the port of New York/New Jersey remains unavoidable and a must-call market. The hinterland is also playing a growing role in port divergence, particularly in light of growing levels of congestion. While containerization has levelled the playing field for port competition and afforded new players the possibility to capture a market share, particularly if containers were moving inland by truck, the growth of container flows in the hinterland eventually reached a phase where conventional natural accessibility factors are reasserting themselves. The development of long distance rail corridors and major inland freight distribution centres also tend to reinforce the accumulation of infrastructure at specific high volume gateways. Indirectly, the strategies pursued by rail companies in terms of investment in corridors and terminals reinforce convergence along a specific number of gateways. At this point there is little evidence that would indicate that the ongoing divergence could be reversed in a new cycle. Even the slowdown of globalization that began in 2008 is likely to promote divergence even further as maritime shipping companies rationalize their networks. The expansion of the Panama Canal, scheduled to open in 2014, may be the next paradigm triggering a wave of changes along the Eastern Seaboard. The setting of a new Panamax standard around 12,000 TEU and a draft of 15 metres (50 ft) is likely to become an important norm in shipbuilding, but the most important impact will involve the setting of an equatorial ring of circulation using high capacity ships in both direction (Notteboom and Rodrigue 2008). Since the Suez and Panama canals will be ‘on par’ in terms of capacity, an equatorial highway serviced by high capacity ships becomes a tangible reality with a set of major intermediate hubs, each being the regional point of convergence. The emergence of direct high capacity all water routes from Pacific Asia to the East Coast where a few port calls would be performed is much a possibility in this new context. This would place Southern East Coast ports at an additional advantage for distribution activities as considerable volume would be shifted from the landbridge route to the all water route (through the Panama Canal and Suez Canal). The reinforcement of transhipment activities at offshore hubs in the Caribbean can also be expected with some of the East Coast traffic serviced by short sea shipping services to intermediate hubs such as Nassau, San Juan or Kingston with connection opportunities to the east coast of Latin America. The configuration of such networks will be the outcome of the strategies of maritime shipping companies that will try to reconcile economies of scale, frequency of service, energy prices as well as the usage of specific gateways and intermediate hubs.

Chapter 11

Competitiveness of Green Gateways: A Blueprint for Canada Claude Comtois and Brian Slack

Introduction We live in an increasingly exchange-based world economy, an economy that is fuelled by the globalization of production and consumption. The form and structure of production systems represent the key drivers of the geography of trade. Trade flows themselves are being concentrated at a few gateways and along a small number of trade corridors. Gateways represent massive concentrations of infrastructures and require complex organisations. This new infrastructural arena brings to light the cumulative connections between gateways and the environment, since the concentration of trade activities generate significant environmental impacts. We argue that in the perspective of extracting the maximum potential from existing infrastructures, it is necessary to consider the role of sustainable development in maintaining the growth, performance and organization of gateways. The environment must be considered as a factor in the competitiveness of gateways. Gateways are made up of many stakeholders. Governments play an important role in financing infrastructure and in trade facilitation. Private businesses, however, are the drivers of trade and are increasingly involved in infrastructure provision and management. In the past it has been widely held that it is up to governments to address environmental concerns through their role in establishing standards and fixing legal requirements. It is our contention that corporations have little alternative than to embark on a quest to ensure that transport services through gateways are competitive whilst minimizing the adverse effects on the environment. We demonstrate that becoming greener can confer short and long term economic advantages. These advantages are very poorly understood however. In view of this, there is a pressing need to identify the challenges, explore the opportunities and realistically assess the impacts of sustainability on gateway’s efficiency and competitiveness. We begin by examining the context that allows gateways and sustainability to be discussed simultaneously. The study then outlines key drivers for an efficient gateway. We then present the transportation industry’s competitive factors underpinning sustainable development strategies. In considering these issues attention focuses on Canada’s Asia Pacific gateway.

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The Multilayered Hub and Sustainability The concept of gateway is not new (Klink and Berg 1998). The concept has been actively studied since the 1950s. Initially the concept referred to a node providing access and/or transport services to places for the flow of goods, people and information. Recent advances in transport and communications have significantly altered the concept of gateway. Container shipping, increasing vessel size, freight trains, freight airports and airplanes, hub and spoke systems, advanced logistics and the extensive application of information technologies to the management of traffic have all contributed to a new infrastructural arena. The concept of multi-layered hub has been developed to counter past preoccupations that only analyzed individual transport modes. A gateway does not only include land and sea networks, but also air and telecommunications connections. The establishment of synergies between these different modes is critical to the success of gateways. Intermodalism cannot be avoided (Comtois and Rimmer 1997). This is most apparent in the largest markets, those that generate the highest revenues and offer the greatest potential for growth where the transportation industry recognizes the need for multi-modal alliances. Terminal operators, shipping lines, railway companies and trucking firms are working together in various organizational structures to offer seamless, multimodal and worldwide transport services. Another key factor to consider in the unfolding of a fully-fledged gateway is the development of a portfolio of trade in goods and services. This suggests the need for gateway stakeholders to exploit global production networks, to increase trade, to integrate transborder manufacturing processes and to create value added. Transportation based trade gateways represent and combine: (a) flow of products, services, people and information resulting from a concentration of production, transformation and distribution functions; (b) transport systems and infrastructures facilitating these flows; and (c) policies and rules regulating these elements. The concept raises several observations. First, gateways generate economic development. As a result many governments continue to exert an important role in facilitating trade gateways, e.g. through infrastructure development. Major preoccupations address economic and operational efficiency of trade gateways and the strengthening of commercial activities in relation to the presence of transport nodes and corridors. Second, gateways are the result of decentralized decision making processes underpinned by market forces. This has been made possible by commercialisation and liberalisation of transport systems. Third, gateways are not immutable. Gateways can be developed, reoriented or neglected in relation to the introduction of new technologies, the construction of new infrastructures, the elaboration of policies and the adoption of land use measures. Evidence also suggests that a major factor in the transformation of gateway is competition from other gateways.

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Gateways are essentially concentrations of international trade flows. They allow economies of scale to be maximized through the use of larger vessels and aircraft and longer trains and at the same time permitting more frequent services while reducing empty moves. The economies thus realised are significant and explain the dominance of a small number of gateways in international commerce. At the same time the efficiency of terminals rests on the organization of trade that requires a wide range of business services, from companies directly involved in transport, such as forwarders and logistics providers, to activities such as insurance, banking, ship chandlers and aircraft maintenance. This cluster is an essential complement to the ports, airports and rail yards and trucking depots that represent the physical manifestation of gateways. Concentration is at the heart of many of the environmental problems generated by gateways (Hensher and Button 2003). The volume of traffic produced by trade concentration has an inevitable impact on a wide range of environmental conditions: •

•

•

•

• •

Traffic density has a significant impact on air quality. Air and truck modes are amongst the greatest contributors of greenhouse gasses, and even ships and trains, generally regarded as more environmentally benign, produce large quantities of SO2 and NOx. All modes employed in gateways generate noise, either in the actual movement of the vehicles or in their loading and unloading. High intensity traffic movements taking place 24 hours a day give rise to major problems at the local level. Growth in maritime traffic under varied hydrological and meteorological conditions and near densely populated coastal areas has an impact on water quality. Ballast water discharges, waste disposal, oil spills, contamination from anti-fouling paints are a few of the water quality issues. Transport terminals occupy large amounts of land in gateway regions. Ports are particularly problematic, since they require large sites adjacent to waterways, and thus contribute greatly to the loss of wetlands and coastal zone sites. Soil contamination can occur through the use of toxic materials by the transport industry. Transport infrastructures disturb adjacent ecosystems. Land transport routes frequently require land drainage, thus reducing wetland areas and drivingout water plant species. The need to maintain road and rail right-of-way or to stabilize slope along transport facilities has produced changes in plants with the introduction of new species that disturb native ecosystems.

The negative externalities of gateways already have an impact on their development. Because many of the impacts are felt most intensely at the local level, there is growing opposition to transport developments in many gateways. Citizens feel that they bear all the pain, while the local gains may be limited. More and more

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expansion projects are being held up or abandoned because of opposition from environmental groups and local citizens associations. Evidence shows that in Europe it is now common for projects to require a decade or more to proceed from initial conception to final implementation (Potter and Bailey 2008). These delays represent serious obstacles for gateway growth and competitiveness. Concentration of traffic not only produces environmental problems, it also represents an increasingly important commercial challenge. Gateways are becoming congested everywhere. The growth of trade and transportation is confronting the physical and organizational capacities of all but a few. Delays and traffic interruptions are unfortunate features of ports, airports, rail yards and urban highways everywhere. Ports like Los Angeles and Long Beach suffer from increasing sclerosis, with delays that ripple along entire logistics chains. Congestion aggravates environmental problems, but because of the opposition mentioned above, expansion plans are frequently delayed, further compounding congestion. The concentration of transport flows and related congestion inevitably draws purely commercial and environmental interests together. They both have a fundamental interest in resolving some of the problems. Gateway stakeholders cannot ignore legitimate environmental concerns, and local communities who bear the brunt of negative externalities from gateways need to work with the stakeholders to resolve the problems. We argue therefore that implementing sustainable development strategies is potentially the single most important issue facing the growth, performance and organization of gateways. Key Drivers for an Efficient and Sustainable Gateway The concept of sustainable development when applied to transport refers to its role in securing a balance between equity, efficiency and the capacity to answer the needs of future generations. More specifically, this implies: (a) maintaining a level of economic growth that would create the necessary wealth to achieve sustainable development; (b) environmental protection, at the local and global scale, through limited use of non renewable resources and the development of new technologies; and (c) protection of individual well-being by reducing the impacts of pollution and poverty. While there is a general consensus on the objectives of sustainable transport, the implementation of sustainability faces serious problems because of regulatory uncertainty and a lack of clearly accepted definitions and standards for monitoring and verification. Furthermore sustainable transport is perceived as an issue of physical infrastructure, that the ports, airports, rail yards, truck terminals and the physical links that bind them together are the causes of the problem and hence it is there that the solutions have to be found. A gateway is more than a transport infrastructure, it combines the activities and relations of a large and diverse business cluster. The cluster embodies capital, knowledge, labour force and

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resources, and has amongst others the capacity to make a contract of carriage, to perform transport and to negotiate transfer agreement in specific legal, financial and political frameworks in different parts of the world (Lakshmanan and Anderson 2002). It is the decisions and actions of stakeholders that are managing the trade activity taking place in gateways. Any approach to sustainability must take into account these non-physical actors and their common interests and capacities. The issue of sustainable development applied to gateway development must embrace both actors that manage physical assets (terminals, trucks, rail tracks) and actors that provide services related to trade flows (e.g. forwarders, commodity financing and trade insurance firms). In this broad definition of a gateway, most of its stakeholders are private firms and the fundamental question is how and why should these actors participate in developing more sustainable gateways? Participation may add costs and impact on competition. Given the industry’s concern over financial sustainability, the most important challenge for the industry is to implement environmentally sustainable transport while firms in gateways can continue to compete internationally (Comtois and Slack 2005). Environmental legislation is frequently perceived as imposing a constraint on shippers, carriers and terminal operators that limits their activities and increases the industry’s costs, since it can forbid any action or decision that could impact on ecosystems. These restrictions can reduce competitiveness of the transport industry by halting physical expansion and by forcing stakeholders to meet regulatory requirements which may add costs. Evidence drawn from the top international container shipping, air hubs, railway smart yards and dry bulk load centres suggests three key drivers related to the issue of concentration affecting the efficiency of gateways: internal efficiency, unimpeded accessibility and expansion capacity. Internal Efficiency A fully-fledged gateway displays several terminals. Terminal operators are often central players in gateways. They attract mega-carriers, expand their markets, concentrate traffic and provide efficient loading and unloading of cargo into/from carrier’s aircraft, vessel, truck or train. The performance of these terminals depends to a large extent on cost-efficient infrastructures. As infrastructure charges must be cost-related, non-discriminatory and transparent, there is a need to develop a charges regime that underpins terminal’s efficiency, provides a reasonable return to investors, and supports a competitive industry. Internal efficiency can be measured in terms of eliminating empty moves on rail and bulk vessels, curtailing cargo dwell time, reducing delays on runways, etc. These actions are directly related to energy consumption and its related environmental impact in the form of gas and particulate matters emissions that affects air quality causing damage to human health. The emergence of multiple regulatory frameworks on polluting emissions reductions of transport activities are a certainty. Sustainability underpinning terminal efficiency focuses on improving fuel efficiency, reflecting the costs of

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non renewable resources in terminal operations and adopting production processes respective of the environment by eliminating negative externalities. Unimpeded Accessibility The functioning of gateways rests on the continuity of transport network, minimum headways, high frequencies and regularity of movements. A fully-fledged gateway depends to a large extent on shippers developing cluster of services in the assembly, collection, shipment and distribution of freight with a view to offer door-to-door services. Spatial interaction is the operating force of gateways. There are numerous gateways in the world. They all display a concentration of activities, demographic growth and increasing economic weight. Conditions for the development, performance and organisation of gateways rest on: (a) an exchange structure produced by a network of transport arteries between a string of cities; (b) the functioning of comprehensive logistics chains; and (c) the constant adaptation of infrastructures and technology. Carriers perform transport by sea, air, rail, road, inland waterway or by combination of such modes. Advances in transport technologies such as post-Panamax vessels and jumbo jets have permitted to reduce the cost of transport by achieving scale economies. Landbridges are an important part of global transport and logistics systems and one of the unavoidable outcomes of gateways as they provide intermodal structures and connectivity with continental hinterland. Managing flows has become a key feature in the success of carriers. All transport and trade gateways are affected by congestion problems. The safety of trade rests on the notion of passages as resources. Supply measured in terms of corridors is limited, while demand expressed in terms of number of vehicles, ships, truck and trains using these passages increases. The geography of routes combined with increase in vessels size and weight capacity, movement of hazardous goods, growth in traffic and increasing acceleration intensify the risks of congestion. Ultimately, the ideal gateway would provide immediate transfer of everything, towards any mode in all directions at market cost where distance decay would be negligible. No technology will ever allow reaching that objective. Sustainability problem is expressed in terms of congestion that closes or impedes access to routes or passages affecting gateway’s economy. Capacity Expansion Capacity is a perennial issue of gateways. The capacity issue applies to flow at the terminal entrance and exit of gateways. In the context of economic growth with increasing modal competition, efficiency rest on the quality of multimodal transport services. But traffic growth, dominated by road transport, the importance of airfreight in logistics services, the increasing size of ships and the improvement in rail facilities requiring additional spaces for transport terminals, represent challenges that cannot be answered by the current status quo. The issue of capacity is expressed in terms of land use pertaining to the provision of sites for

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expansion. Environmental conditions can complicate, postpone or prevent terminal development projects, creating serious difficulties to follow market demand. Emerging Practices It is important to underline that these key drivers have a cumulative effect. Improvement in environmental performance in one area frequently results in further gains elsewhere, as awareness grows that greenness may confer competitive advantage. Furthermore, greenness can take many forms. Even cluster firms that are not involved in physical handling can take it upon themselves to conserve energy, to recycle paper, to offer incentives to employees to use public transport etc. A commitment to achieve greater sustainability will help it address community concerns about environmental and social impacts. As environmental challenges are unlikely to disappear by themselves, firms may need to become actively involved in seeking solutions to expand capacity. While the traditional solution is to seek infrastructure investments from the State, various public-private partnerships to address some of the problems are beginning to appear. In southern California for example, the Alameda Corridor and the PierPASS programme are helping overcome some of the difficulties of interconnection between the port and rail yards and warehouses in the Los Angeles metropolitan area. The former represents a multi-stakeholder investment in a rail corridor, the latter a private initiative to try to resolve the problems of gate access and hours of operation in the port terminals (Fairbanks et al. 2006). Given the fragmented nature of multilayered hubs, transportation corridors and gateways, there are major difficulties in developing an integrated sustainable strategy of gateway development. Our argument is that we cannot avoid confronting these challenges, and that new gateways that wish to establish themselves had better consider embracing sustainability from the start. One prospective candidate is Canada’s Asia-Pacific gateway. Strengthening Canada’s Asia Pacific Gateway The emergence of China as an industrial powerhouse is opening opportunities for further exports of Canadian raw materials and the import of Chinese consumer products into the Canadian and US markets through British Columbia. Freight, passenger and information traffic generated in this region has been growing very rapidly. The Canadian government has established as a priority the enhancement of Vancouver and Prince Rupert as gateways to the rest of the country for Asian trade. It is investing heavily in infrastructure development. In 2005 it committed $590 million to improve transportation infrastructure, a that has recently been increased to $1 billion. In addition the provincial government has committed $3 billion to the Pacific gateway initiative in coordination with federal investments. Much of the investment is going to improve connections between the port terminals and

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the railways. It is designed to make Canadian entry points on the Pacific Rim alternatives to US gateways for access to eastern markets. We suggest that the Asia Pacific gateway represents a unique opportunity to employ sustainability as a fundamental feature of the development. Embracing the goal of developing a green gateway would send signals to the local urban communities that their interests will be taken into account. It could become a significant marketing tool in competing with US gateway alternatives, most of which are facing enormous environmental pressures. Most of all it might help the gateway escape the worst of the environmental problems that the commercial success as a gateway will inevitably produce. Promoting an efficient and sustainable gateway and corridor is not strictly matter of market organization or regulatory controls. There is a need to strengthen the overall governance of transport system and physical flows. The objective is not to create another administrative layer. The governance of sustainable transportation facilitation concentrates on innovations in the physical, economic and social environment. The improvements to green logistics practices through changes in conveyances coming and going in a gateway depend on regional leadership, benchmarking and an operational calendar. Leadership is essential in developing sustainability. The Canadian government appears to be assuming this, but there is a need for the private sector and its top executives to embrace visions of sustainable development. It will then be possible to: (a) integrate sustainability in management practices; (b) seek and obtain government support and the participation of partners in building policies; and (c) facilitate the elaboration of strategies seeking equilibrium between environmental and commercial concerns. Benchmarking allows the establishment of minimum sustainable standards for transport operations. These standards must identify the specific environmental status addressing climate change, water, air, soil, noise, biodiversity and land take issues within the gateway area. The standards will clarify the risks, impacts and responsibilities of key stakeholders in implementing gateway logistics in a sustainable manner. An operational calendar provides an agenda for work by government, industry and academia on facilitating sustainable gateways and corridors. The scope is to concentrate on changes in gateway development and performance, the transformation in the organisation and policies of transport system and physical flows and the impact of business logistical systems and practices.

Conclusion Gateways have become an integral feature of modern transport systems. This chapter argues that traffic concentration, the essential feature of gateways, is becoming unsustainable. Fuel consumption, congestion and capacity expansion are now the key features of many gateways, and the resultant economic costs are

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being matched by environmental and social dislocations that are threatening their success. It is a vicious circle that can only be broken by espousing sustainability as the guiding principle. While governments have a central position in addressing these issues, the fact that gateways are made up of many stakeholders suggests that private actors have an important role to play too. There is a need to convince the private sector that it is in their interests to adopt greener practices. In this way many of the inherent difficulties of gateway concentration can be mitigated, and greenness can become a competitive advantage. As Canada is developing a coherent strategy to develop a Pacific gateway, it needs to integrate sustainability in its planning. Not only must the transport carriers and terminal operators be brought on board, the port and airport authorities, the railways for example, but the entire transport industry cluster has to participate in order to avoid the kinds of difficulties other West Coast gateways are presently experiencing. This represents a challenge and an opportunity.

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PART IV THE EUROPEAN CASE: COORDINATION IN A COMPETITIVE ENVIRONMENT

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Chapter 12

A Best Practice in Cross-border Port Cooperation: Copenhagen Malmö Port Peter W. de Langen and Michiel H. Nijdam

Introduction Ongoing European integration, including integration of transport infrastructure, tax laws and culture enables cooperation between ports in different countries. While most port users are international companies (this applies for shipping lines, see Heaver et al. 2000, terminal operating companies, Slack and Frémont 2005, and forwarding companies), many ports are still strongly ‘territorially constrained’, e.g. the institutional structure of such organizations prevents investments outside their ‘territory’. This territory is often a municipality. Some ports have actively aimed to develop port networks (Van Klink 1997) but such efforts are aimed to strengthen the competitive position of the ‘home port’. Furthermore, these port networks are often not the result of the strategy of the port authority, but an issue of the port community at large (De Langen and Chouly 2004). This internationalization of all types of port users leaves many ports as ‘pawns in the game’ (Slack 1993) and leads ports to reconsider their spatial scope. Ideas of port coopetition have emerged (Song 2003). Recently, in 2001, two ports in Sweden and Denmark, Malmö and Copenhagen, joint forces to become the first bi-national port in Europe. The case of Copenhagen Malmö Ports (CMP) is a best practice case with regard to cooperation between ports. In this chapter we analyze the merger process of the two ports and the rationale behind the merger. In doing so, lessons for other ports in Europe are derived. The experience in Denmark and Sweden can be used to prevent pitfalls and streamline the process in future port mergers or strategic cooperation between ports. The chapter is structured as follows. First, we discuss the cooperation between ports worldwide to asses how common cooperation between ports is. This overview points at the unique case of CMP. This case is further detailed in the remainder of the chapter. In the second section, some background information about the Öresund region is provided. Third, the structure of the new port authority (CMP) is discussed. Fourth, the merger process is described. Finally, an analysis of factors that explain the success of the merger are identified and discussed. A brief concluding section, with some conclusions relevant for other ports, finalizes the chapter.

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Table 12.1

An overview of cooperation between ports based on annual reports

Category 3 Port of San Francisco Port of Seattle (USA) (USA)

Port of Helsinki (Finland)

Port of Jacksonville (Florida, USA)

Port of Montreal (Canada)

Port of London (UK)

Port of Portland (Oregon, USA) Port of Long Beach (California, USA) Port of Corpus Christi (Texas, USA) Port Everglades (Florida, USA) Port of Tacoma (USA) Port of Oakland (California, USA) Port of Philadelphia (Penn., USA) Port of Los Angeles (USA) Port of Houston (Texas, USA)

Port of Vancouver (Canada) Port Darwin (Australia) Port Newcastle (Australia) Port Dampier (Australia) Port Hedland (Australia) Port Brisbane (Australia) Nangbo (China)

Port of Göteborg (Sweden)

Category 2 Port Port of New York and New Jersey (USA) Port of Baton Rouge (Louisiana, USA) Port of New Orleans (Louisiana, USA) Shanghai (China) Rotterdam (Netherlands) Amsterdam (Netherlands) Ports of Stockholm (Sweden) Category 1 Copenhagen Malmö Port (Denmark/ Sweden) Merger of ports of Copenhagen and Malmö

Port of Le Havre (France) Port of Marseille (France) Port of Barcelona (Spain) Port of Aarhus (Denmark) Malta Freeport (Malta) Port of Oslo (Norway)

Singapore

Port of Hamburg (Germany)

Hong Kong (China) Auckland (New Zealand)

Port of Valencia (Spain) Port of Antwerp (Belgium)

Description cooperation Cooperates with inland port of Albany to provide good multimodal links. Has initiated container barge service with other Lower Mississippi ports and Memphis. Cooperation with other Lower Mississippi ports, e.g. in marketing. Not very strategic (yet). Cooperation with other ports in Yangtze delta. Stake in port development company for Zeeland Seaports. Cooperation between North Sea canal ports (Amsterdam, Zaandam, Beverwijk en IJmuiden), joint masterplan for port development. Stockholm, Södertälje and Mälarhamnar cooperate and develop a joint strategy.

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A Review of Cooperation Between Ports in Proximity The analysis of annual reports of port authorities provides information of the extent of cooperation between ports. We analysed the annual reports of large ports worldwide that have annual reports in the English language. For all port authorities we reviewed, a classification was made in three categories (Table 12.1): 1. Port authorities that have developed strategic cooperation with other port authorities in their vicinity. Indicators of such cooperation are joint investments, a joint holding and joint acquisitions. 2. Port authorities that do have some form of cooperation, but not at a strategic level. 3. Port authorities that do not have any form of cooperation with ports in their vicinity. Such port authorities in many cases are member of port associations (such as the European Sea Ports Organization) and may participate in networks with other ports (such as Ecoports), but do not cooperate with neighbouring ports. Two remarks are relevant with regard to this table. First, there are a number of state-owned port authorities that administer various ports. Examples include South Africa (SPA), India (Indian Ports Corporation), Georgia and South Carolina (Georgia Ports Authority and State Ports Authority South Carolina respectively) and Queensland (the Ports Corporation of Queensland, Australia). These cases are not included since the joint management of various ports is not the result of a bottom-up process of integration. In a number of these cases, splitting up of the central administrative body is proposed. Second, cases of fully privately-owned ports are not included either. Such organizations only exist in the UK. Associated British Ports (ABP) and PD ports both administer a number of ports. Mergers and take-overs have taken place after privatization. This shows that from a business perspective, integration makes sense. This is a relevant observation, but in this chapter cooperation between public (autonomous or commercialized) port authorities is centre stage.

The Öresund Region The Öresund-region consists of the Danish island Zealand and the Swedish province Skåne. Both areas are separated by the Öresund, the sea strait between Sweden and Denmark. This strait is quite narrow: at the most narrow point there is no more than 18 km between both countries. By far the largest city in the Öresund is Copenhagen, capital of Denmark, with around 1.9 million inhabitants. The second city is Malmö, third city of Sweden, with about 265,000 inhabitants. Furthermore, the university city Lund and the port city Helsingborg are located

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in the Öresund, on the Swedish side. The Öresund in total has about 3.5 million inhabitants, making it one of the largest metropolitan areas in Scandinavia. Until 1658 Skåne was Danish territory, and there always has been economic interaction between the two areas. Therefore, the idea to connect the two areas with a ‘fixed link’ emerged in an early stage, the first ideas date back to 1872 (OECD 2003). The Öresund Council, established in 1964, aims to enhance the integration of the two regions. This provides a basis for initiatives to develop the ‘fixed link’. The final decision to build a bridge across the Öresund was taken in 1991. This fixed link, the Öresund Bridge, has become the symbol of the economic integration in the region. The bridge was opened in 2005. The bridge is clearly aiming to enhance integration in the cross border region: the location of the bridge is chosen in such a way that Malmö and Copenhagen are perfectly connected. Alternatively, the bridge could have been built to connect Helsingborg and Helsingor, a location that is more ideally situated from a transport corridor perspective. Indeed, the ferry service that connects these ports continues to be an important ferry crossing and still attracts large amounts of trucks, as it is part of the Stockholm-Germany corridor. Since the opening of the bridge, the Öresund-region positions itself as an internationally oriented metropolitan region, where ‘competence based clusters’ such as the medical cluster, the IT cluster and design are rapidly developing. Copenhagen has developed into the commercial capital of the area and in many respects also as a commercial capital for the whole of Scandinavia. Malmö traditionally is a city dominated by manufacturing industries, especially shipbuilding and chemicals. However, the largest wharf has closed down and employment in other manufacturing industries is declining. Consequently, Malmö transforms to become a university city, with the associated knowledge intensive industries. The redevelopment of Malmö’s waterfront, with Calatrava’s ‘turning tower’ shows this transformation. Following the opening of the bridge, the economic integration in the Öresund is increasing, even though at a slow pace. For instance, the labour markets in Skåne and Zealand are still rather separated (OECD 2003). The integration in the transport sector is also still rather limited. The Öresund is centrally located in the Baltic, and a huge consumer market. For this reason, the region is attractive for transport and logistics activities. Even though these industries are not central in the economic vision for the Öresund, the opportunities are acknowledged by policy makers.

Copenhagen Malmö Ports On 1 January 2001, the ports of Copenhagen and Malmö merged, to become Copenhagen Malmö Port (CMP). The shareholders of CMP are the Port of Copenhagen and Port of Malmö. CMP only engages in port activities, the Port of

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Copenhagen is still active in urban redevelopment of old port areas. Port of Malmö also still administers some investments that have been left outside the merger. The Port of Malmö is 50 percent owned by the city of Malmö and for 50 percent by private investors, amongst others Beijers Industrial Group (17.5 percent), the Swedish Shipowners Association and the Swedish Farmers Association. These shareholders are not actively involved in the management of CMP. CMP is open for other private investors. When CMP was formed, it was explicitly decided not to distinguish between a ‘Swedish’ and a ‘Danish’ business unit. Such business units would lead to questions regarding where profits were made and where these profits should be re-invested. Instead there are five business units, for the five most important market segments. This structure ensures that CMP does not administer which part of turnover, profits or investments are made in Copenhagen and which part in Malmö. For the customers in both ports, little has changed since the account managers have remained the same for most companies. CMP is a ‘service port’ that is responsible for operational activities in the port. CMP provides cargo handling services. The port land is still owned by the municipality and or state: The division of responsibilities between CMP and the port owners is the same as in many other European ports. CMP owns and invests in all loading and unloading equipment, while the landowners, the Port of Copenhagen A/S and Malmö Council, invest in all the fixed assets, e.g. quays and roads. CMP pays rent based on the level of investment (CMP, Annual Report 2004: 8).

CMP leases port land for a period of 20 years, obviously with the intention to renew the lease after 20 years. CMP provides services for shipping lines, shippers and logistics service providers. CMP is open for partnerships with these companies, where these companies are partly responsible for the operation of the terminals. Such partnerships have been developed with Toyota (the car terminal)

Table 12.2

Cargo turnover at CMP (2006)

Total Throughput (million tons)

16.6

Containers, TEU 175,000 Trucks and trailer, units 294,000 New cars, units 440,000 Oil products, million tonnes 6.2 Bulk, million tonnes 3.4 Passengers, million 1.5 Source: Own elaboration based on CMP (2007), Annual Report 2006.

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Table 12.3

Throughput Malmö and Copenhagen combined (1000 tonnes)

Year Throughput Malmö and Copenhagen 1998 18.562 1999 16.141 2000 14.672 2001 13.259 2002 13.400 2003 14.800 2004 14.800 2005 15.200 2006 16.600 Source: Own elaboration based on CMP (2007) and OECD (2003).

Table 12.4

Key figures of CMP (1 SEK is approximately € 0.105)

2006 2005 2004 2003 Net sales (SEK millions) 649 602.9 544.6 509.7 Operating profits (SEK millions) 93 79.7 35.2 31.0 Total assets (SEK millions) 425.3 431.2 288.0 249.5 14 13.2 6.5 6.1 Net margin (%) Solvency (%) 61 50.3 56.2 60.6 Profit/equity ratio (%) 39 42.1 22.5 21.8 Net sales per employee (SEK 1378 1302 1184 1151 1,000) Net sales from operations per 548 503 457 392 employee (SEK 1,000) Number of employees 471 463 460 443 Source: Own elaboration based on CMP (2007), Annual Report 2006.

2002 473.4 13.2 226.8 2.8 58.4 10.2 1081

2001 464.0 8.8 224.8 1.9 56.6 7.1 1052

379

343

438

441

and Unifeeder (the container terminal). The throughput figures for CMP (both ports) are given in Table 12.2. The throughput figures of both ports declined after the opening of the Öresund Bridge, due to the loss of ferry traffic (and some container traffic). Since the merger in 2001, throughput has grown consistently (see Table 12.3). Some key figures of CMP are given in Table 12.4. These figures show that the turnover, productivity, profits and solvency all have increased following the merger.

The Merger Process of CMP One of the key reasons for the merger was a common threat: the Öresund Bridge would lead to the loss of virtually all ferry traffic between Copenhagen and Malmö.

A Best Practice in Cross-border Port Cooperation

Table 12.5

169

Advantages of cooperation

Better utilization of resources.

Port infrastructure.

Scale economies in management and administration. Specialization, no double investments. A new selling point.

Professionalization of port management.

CMP can use resources (labour, land, capital) more effectively. The cost reduction was around 10–12% in the first three years. These benefits could be quantified in advance relatively accurately. The CMP labour force works on both sides of the Öresund. CMP can provide facilities ‘on the other side’ when capacity on one side is fully used. This is especially relevant in the cruise market, where ships that cannot be accommodated in Copenhagen are handled in Malmö. Consequently, Malmö handled the first cruise vessel ever in 2005. For containers and finished vehicles the same mechanism (provide other facilities when capacity at one terminal is fully utilised) can be used as well. Cost savings have been achieved, but are less relevant than savings on operational costs. Facilities at both sides of the Öresund can specialize on specific commodities. This leads to scale economies. The port as a whole still can accommodate all major commodities. CMP can demonstrate that the whole Öresund region, with a strong economic performance and roughly 3.8 million consumers, can be served effectively from one port. Copenhagen is a strong brand while Malmö has relatively much space for new investments. CMP is a stronger player, with more financial resources. This is relevant in an industry with large and international customers. Due to the scale increase, especially the quality of the middle management has improved, according to respondents from the industry.

This traffic accounted for roughly 20 percent of the turnover and 50 percent of the profits of both organizations. This threat led the CEO of Port of Copenhagen to contact the CEO of Malmö Hamn to discuss the opportunities for cooperation. A merger was one of the options discussed during this first meeting. The CEOs of both ports were familiar with the opportunities for further economic integration in the Öresund region, and were convinced that cooperation could accelerate such integration. The CEO of Port of Copenhagen also benefited from his previous experience as top-advisor in the Danish ministry of spatial planning, engaged in the fixed link project. Both CEOs shared the vision that strategic cooperation could be beneficial for both ports, and commissioned studies to estimate operational advantages of cooperation. The most important advantages are given in Table 12.5. In this phase of investigation opportunities, employees and labour unions were involved in the process. The threat of loss of traffic, studies showing the opportunities of cooperation and the promise of no forced lay-offs convinced

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the labour force of the benefits of cooperation. The support of unions is partly explained by their attitude towards change: ‘cautious but not conservative’ in the words of the CEO of CMP. Relatively early in this process, it became clear, at least to the CEO’s, that a merger was the most desirable form of cooperation, since unless a joint ‘bottom line’ was created, both ports would by nature be competitors, and this would severely limit the benefits of cooperation. In spring 1999 the formal decision to strive for a merger was taken by the boards of Port of Copenhagen and Malmö Hamn. At this moment, port activities in Copenhagen were more profitable, but opportunities for expansion larger in Malmö. After the decision to merge, barriers that could prevent a merger were identified. Cultural differences and disagreement concerning the judicial form of CMP were identified as most relevant barriers. A team of three individuals from both ports was formed to further detail the merger process. From Copenhagen, these three were the CEO and two board members, from Malmö one city council member, one representative from the private shareholders and one senior civil servant. The first meetings were in June 1999, and due to the upcoming opening of the bridge, the time pressure was considerable. The team came up with a shareholder agreement that lists the most relevant agreements: 1. The new company will be administered under Swedish law and formally located in Malmö, due to a favourable Swedish tax regime; 2. The headquarters will be located in Copenhagen; 3. Both ports will have a 50 percent share in the new company; 4. The board of commissioners will consist of 12 members, both ports appoint six members, one of which represents the employees; 5. The CEO of Malmö Hamn will be CEO of CMP; Port of Copenhagen appoints the first chairman of the board of commissioners; 6. Urban redevelopment activities and other non port related activities will be kept outside the new company; and 7. Both partners have the right to separate activities again, without major sanctions, in the first three years after the merger. At the end of 1999, an unexpected hurdle threatened the success of the merger. The existing laws governing Port of Copenhagen had to be changed to allow for a merger with a foreign company. There was widespread consensus among politicians that this merger was desirable and the law change thus necessary. However, the national government linked this law change to a change of the institutional structure of Port of Copenhagen itself. This port was a ‘self owning institution’ (and thus not state owned) a structure that had existed for centuries. This institutional structure became an issue when in the 1990s Port of Copenhagen began to make huge profits through urban redevelopment of port land. This port land, relatively close to the centre of Copenhagen was very valuable because of

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the strong real estate market in Copenhagen. The national government claimed the ownership of Port of Copenhagen, because it wanted to use its resources to finance infrastructure expansion. The proposed transformation of the institutional structure of Port of Copenhagen was controversial. The political parties opposing the national government, the city of Copenhagen, the Danish Ports Organization and the board of Port of Copenhagen opposed the proposal. The latter two filed a court case against the Danish state. This case started in 1999 and was resolved in 2004. This controversy postponed the merger with roughly one year. May 2000 the law that prevented the merger was changed and the merger could go ahead January the first, 2001, six months after the opening of the Öresund Bridge.

Success Factors of the CMP Merger First of all, the leadership of CEO’s from both ports was crucial in the merger process. This leadership was demonstrated in a number of cases: 1. The CEO of Port of Copenhagen contacts his colleague in Malmö shortly after he is appointed, and is from the start convinced of the benefits of strategic cooperation; 2. The CEO of port of Malmö shares this vision. Both CEO’s decide to aim for a merger in an early stage; 3. During the court case of Port of Copenhagen, the CEO’s remain committed to the merger and separated the institutional issues from the merger; 4. During the delay caused by Danish politics, Port of Malmö attracted a very large customer and faced some internal scepticism. Nevertheless, the CEO of Port of Malmö remained committed to the merger; 5. After the merger, when politicians wanted to get figures on the profitability of port operations in Malmö and Copenhagen, leaders of CMP stick to their approach and refuse to make such calculations. Second, the common threat of the loss of revenues due to the Öresund Bridge provided momentum for the merger process. This threat also ensured a drive to finish the merger rapidly. Third, there was substantial political and societal support for the merger. The aim to increase economic integration in the Öresund and the need for success stories of such integration, following the huge investments in the Bridge and huge EU funding for cross border integration provided a basis for strong political and societal support. The support for the merger was developed bottom up: first senior management, then employees and finally political and societal stakeholders. Fourth, cultural differences were overcome and turned into an advantage. There are clear cultural differences between the Swedish and the Danes. The differences listed in Figure 12.1 were used in presentations (internal and external) by the CEO of CMP. These differences are of course stylized.

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Cultural differences Sweden –

– –

Denmark

Industry and large natural – resources (ore, forest, telephones, cars) Large multinational companies – People form associations/NGOs – The Swede

Agricultural and trading nation (grain, beef, butter, bacon) A lot of small companies The individual in focus The Dane

–

Organizer and Controlling

–

Merchant and Businessman

–

Business plans

–

Informal plans

–

Consensus and Delegation

–

Top-down decisions

–

Careful decision-making

–

Quick decisions – learn while doing

Figure 12.1 Cultural differences between Swedes and Danes (according to CEO of CMP)

Danish are commercial (want to win every deal) and flexible. Swedish are structured, focused on the long term and agreement-minded. These differences are visible in the preparation of the merger: the Swedish invested considerable time in developing effective structures and business models while the Danish preparation was less structured and more ‘learn while doing’. The delay due to unforeseen legal problems was thus hard to accept for the Swedish. After the law change, the Swedish started to implement the plans they already had prepared ‘and then the Swedish train started running’ (quote from Danish senior executive of CMP). Fifth, a focus on visible results of the merger, including a cost reduction of 10 to 12 percent, due to better utilization of resources, prevention of double investments, and a stronger brand. This focus on visible results also explains the limited attention for regional economic development goals. Finally, the merger also enabled a more commercial focus of CMP. CMP is fully commercially driven. Responsibilities for some public interests (e.g. spatial planning) have shifted to other organizations. Table 12.6 shows the division of responsibilities after the merger. CMP is no longer committed to port development in a particular place. CMP is open for further geographical expansion, e.g. to the ports of Helsingborg (Sweden) or Koge (Denmark).

A Best Practice in Cross-border Port Cooperation

Table 12.6

173

Division of responsibilities between CMP and other public agencies

CMP

Municipalities Malmö and Copenhagen

National governments (esp. Ministry of Transport)

Exploitation of terminals. Acquisition of customers and traffic for port area. Port marketing. Port development projects. It may be that CMP asks public agencies to invest in the publicly-owned land, and pays land fees in return. Ensuring safe traffic of ships in port. Financing port development and setting up lease contracts with CMP. Ensure (approved) port development plans are in line with spatial planning and other regulations. Redevelopment of port areas for urban purposes. City of Malmö: supervise CMP through board of commissioners and as shareholder. Develop and monitor regulations governing port development. Develop and monitor regulations concerning safety and security in ports. Regulation of pilotage and provision of pilotage services. Investment in hinterland transport infrastructure. Danish ministry of transport: supervise CMP as shareholder.

Conclusions and Implications for Port Management First and foremost the merger of Copenhagen and Malmö ports into CMP show that a successful integration of two ports in different countries is possible. However, the conclusions of this case cannot be generalized; it is no blueprint. Features that make this case unique are: (a) both ports are relatively small ports, (b) CMP is a ‘service port’, as opposed to a ‘landlord port’ (structure of most EU ports), (c) one port had expansion opportunities and the other port had limited expansion options and (d) the introduction of the Öresund bridge, that both enabled economic integration and posed a threat to the ports. The lessons from this case are especially relevant for small and medium sized ports in proximity. Such small ports can benefit substantially from cooperation, because they have complementary clients, hinterlands and capabilities. The complementarity gives a business incentive for cooperation. For cooperation between large ports, competing for the same hinterland, such benefits are less clear. In terms of the process of strategic cooperation, we can learn the following from the case:

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• • • •

There should be an economic reason for cooperation that is acknowledged by both parties. Commitment and determination of the port directors eases the process and prevents hick-ups in the merger process. A shared bottom line should be maintained at all times. This will align the incentives in both organizations. Strategic cooperation, especially when leading to joint ventures or a merger, strengthens the commercial focus of port authorities.

Finally, on a more abstract level, this case shows the ‘deterritorialization’ of port management. This process is partly in reply to the increasing internationalization of port users (Heaver et al. 2000). Private port companies are already internationally active and not restricted to one particular region. This case shows that public port companies also can broaden their spatial scope. Further deterritorialization of port management is to be expected, especially for ports in proximity.

Chapter 13

Rethinking Proximity: New Opportunities for Port Development. The Case of Dunkirk Antoine Frémont and Valérie Lavaud-Letilleul

Introduction Port regions could be defined as groups of closely located ports whose role is to link a part of the hinterland, such as a metropolitan area, to overseas. Port proximity is first of all geographical. Some seaboards have been able to produce a large number of ports on a limited length of coastline, for example the Northern Range in Europe, the East Coast of the United States or the South Coast of Japan (Vigarié 1979). However, the concept takes on its full importance when port proximity is perceived as a resource that provides several actors with the port apparatus required for multiple flows at several points along the coast. In this connection, port proximity raises a number of different questions: what determines the degrees of competition or complementarity between ports? Which actors create and manage the links between ports? Are the aforesaid links technical, commercial or administrative in nature? This chapter will begin with a theoretical analysis of the types of relationship that can exist between closely located ports. The aim of this chapter is to investigate the major tendencies affecting maritime and port activities and local social contexts in order to explain, in spite of an increasingly competitive global economic environment, today’s paradoxical increase in interport cooperation. In the second part of the chapter, the French port of Dunkirk is considered as an extreme textbook case for exploring the possibilities for links between closely located ports. Both its history and industrial nature mean that, on the face of it, this northern French port appears as a challenging case in order to highlight interport relations, either with other French ports or neighbouring Belgian ports, whatever their size or type of activities. The last part of the chapter will show how recent changes motivate Dunkirk’s progressive integration within a nascent subset of the Northern Range.

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Geographical Proximity Between Ports: An Opportunity? Competition is the Rule Links between the world’s ports, including those that are geographically close, are not founded on cooperation. Cooperation can be defined as action by which the actors work together to further the general interest of all the actors (Song 2003 and 2002). However, with the exception of commercial links between an island and a continent (Calais–Dover, Copenhagen–Malmö) or across a strait (Algeciras– Tangiers), no examples of such interport co-operation exist anywhere in the world. On the contrary, the principal changes at work both in the global economy and the maritime transport sector itself are tending to strengthen interport competition

INTERNATIONAL

1. The port in maritime and land transport networks : ports as "pawns in the game" (reticulated logic)

Competition Cooperation The port's triptyque (A. VIGARIE) (systemic logic)

Vessel

Port

REGIONAL

Foreland

2. The port in its range : port proximity as an opportunity or a disadvantage ? (linear logic)

City Hinterland

Competition Cooperation 3. The city-port's territory : the rise of new constraints (logic of area) Port

City

LOCAL

(c) V. Lavaud-Letilleul, A. Frémont, 2007.

Figure 13.1 The threefold spatial context for a port: network, range and territory

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177

(Van de Voorde 2001). The principal goal of each port authority is to develop its port, which usually entails increasing traffic at the expense of its immediate neighbours or in the same maritime range. Liberalization and privatization policies have meant that the ‘landlord’ port model has come to dominate (Strubbe 2002; World Bank 2007). Each port attempts to attract and obtain the loyalty of the major maritime transport operators by offering long-term concessions to operate terminals or set up warehouses in or near port zones, or by encouraging the agencies that are required for commercial development to open at the port (Heaver et al. 2001; Notteboom 2007a). This change was accompanied by the emergence of global operators which completely altered the relationship between the port and its clients (Slack 2002). Shipping lines have been constituting global maritime networks since the 1990s while some cargo handlers have been able to constitute a global network of terminals (Slack et al. 2005). A small number of freight forwarders or logistical service providers are able to provide their shipping clients with global scale transport solutions. In opposition to the traditional port area model in which the different entities, from shipping lines to the port authority, worked together, united by the aim of developing local socio-economic potential, the ports now find themselves dependent on operators which are free to move elsewhere (Notteboom 2004). Competition between ports has also increased as a result of transport chain integration (Figure 13.1) (Robinson 2002). Insofar as ports belong to door-to-door logistical chains that are controlled by global operators, the competitive position of one port compared with another is determined by inequalities in the performance of these chains (Slack 1993; Panayides 2002). Last, in the last thirty years, the reorganization of the global industrial system for finished and semi-finished products has led to a boom in containerized flows. This volatile traffic which consists of regular shipping lines is responsible for a new type of interport competition. It has generated a new port hierarchy in which each port attempts to attain a prime position. Rising Constraints With the exception of the pure transhipment hubs, the world’s major port groupings are all located in conurbations with populations of several million which are the market of destination for the transported goods (Veltz 1996). The uninterrupted growth in which increasing metropolization, the internationalization of firms and rising trade all play a role is perhaps reaching its limits today as the result of two contradictory factors (Figure 13.1). On one hand, in metropolises, ports are increasingly seen as a major source of additional congestion and pollution in a context of increasing environmental constraints. They are less and less perceived as creators of wealth and added value, a view which is particularly justified in a metropolis with diversified activities (De Langen 2007) even if large metropolises also launch planning policies in order to avoid congestion (Lee et al. 2008). On the other hand, to provide the competitiveness and

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reliability that are required of transport chains and cater for rising traffic, which is marked in particular by increasingly large container ships (Stopford 2002), ports must increase their infrastructure and provide new transport services, both in the area where they are located and in their hinterland (Notteboom 2002b). The new transport services need large reserves of land and will ultimately increase traffic and pollution, which are frequently incompatible with the development of other activities. If the increase in traffic continues, land availability will eventually become a key issue for future port development. In East Asia, the saturation of some existing sites has led to the creation from scratch of new ports that, without being located inside the dense urban zone, are nevertheless near and linked to it (Busan New Port in South Korea, Yangshan port in Shanghai). In China, the development of special economic zones has been accompanied by the creation of new ports which have no link with existing port sites (Wang et al. 2007). In Northern Europe the expansion of the largest ports along their rivers can go no further, and the ports now need to develop new sites on the sea (Maasvlakte 2 in Rotterdam), on estuaries (Port 2000 in Le Havre), or on the opposite bank of the river (Deurganckdock in Antwerp) or to envisage a restructuring of their port space in the future (Hamburg). But these extensions, which will give the ports in Northern Europe enough capacity for the next ten years, are extremely costly and slow to build because of fierce opposition from fishers, green activists or associations of local residents. We can therefore make the hypothesis that in Europe, as is currently the case in Asia, it will be necessary to create new terminals from scratch – as is already happening incidentally in the case of the construction of Jade Weser port – and there will be an increasing tendency to use existing secondary ports that belong to mediumsized towns that are located near megaports. This is already happening in various parts of the world, for example Gwangyang and Busan, Ningbo and Shanghai or Zeebrugge and Antwerp. What Kind of Links Between a Megaport and a Secondary Port? The nature of the links between two ports, in a position of competition or, conversely, in a position of complementarity or cooperation, is determined initially by the respective ‘profiles’ of the two ports (Figure 13.2). In the first case, a port which is focused on varied freight traffic is not in competition with a bulk port even if the two are close together because their different profiles mean that they tend not to compete with each other (Figure 13.2 – 2-a). On the contrary, two ports with similar profiles that are close together are de facto in strong competition even if they connect different value chains or if they serve different customers. However there can be practical benefits for two closely located ports of differing sizes that enter into a system of ties which encourage the development of the traffic in both of them (Debrie 2007). In the case of the secondary port, this involves the ‘peripheral port challenge’ described by Hayuth (1981) and the possibility of increasing the scale of the port’s activity. As for the megaport, it is

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1. Ports linking a strait or an island and a continent : a necessary cooperation for ferry traffic

PORT 1

PORT 2

2. Ports with different profiles : from an absence of competition to cooperation and coopetition 2.b) Cooperation through the megaport's specialization

2.a) Absence of competition through ports' specialization

General cargo Bulk

2.c) Coopetition through the traffic's diversification of the secondary port

3. Ports with similar profiles (general cargo) : from competition to coopetition 3.a) Competition to gain new traffics

General cargo

3.b) Coopetition

General cargo

(c) V. Lavaud-Letilleul, 2007.

Figure 13.2 Typology of ports and interport relationships

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Ports in Proximity

in competition not only with the world’s other major port regions but also with the other major ports in its own maritime range. Its interests lie in taking advantage of the growth in traffic to achieve the highest possible added value while at the same time adapting to an increasingly constraining environment. The development of new flows in the secondary port may mean that it is able to maintain its control or even develop new transport chains which are of benefit to its entire port region. But the difference in the sizes of the two ports, one of which is very large and whose development is restricted by the risk of congestion, and the other which is secondary and keen to handle new types of traffic, may lead, in the case of necessity, to changes in the profiles of the ports and the nature of the links between them in three situations. There may, for example, be benefits in developing co-operation between them, with both of them becoming more specialized in order to make space available for expanding flows in the megaport (the example of the Dutch port policy towards Rotterdam, Flushing and Moerdijk) (Figure 13.2 – 2-b). In addition, the two geographically close ports may wish to develop a complementary relationship involving flows of the same type, if one of them has good maritime accessibility (a location at the mouth of the estuary near the major maritime routes, and the ability to accommodate deep draught vessels) and the other has good terrestrial accessibility (location within a metropolis, links with terrestrial corridors) (Figure 13.2 – 2-c). This would provide the benefit of increasing the diversity of traffic through the secondary port, particularly as regards the container market segment. In addition, as all ports, even the largest, are highly dependent on a few very large operators (Maersk and Hutchison for example have a dominant position at Rotterdam, and MSC and PSA do the same at Antwerp), it could be in the interests of the port authority of the megaport to increase interport competition by encouraging the arrival of new operators in order to avoid perpetuating an oligopolistic situation (Frémont et al. 2007), acquire a position where it can choose between a number of operators and ultimately, foster the development of port traffic. The support of a secondary port and the new port spaces made available may enhance such diversification. In addition, for seaports to serve a distant hinterland, dry inland ports must exist which act as hubs in their region. These dry inland ports need very high volumes in traffic carried by rail or waterways from or to the seaports. Here too, by having the support of a secondary port, a megaport may increase volumes and reinforce inland rail and/or waterway services to the dry inland ports (Notteboom et al. 2005). In this case, the difference in the sizes and profiles of the two geographically close ports explains the interest for the two ports not to have, in spite of proximity, real competition taking place between them, but more with the other very large ports in their maritime range. The growth of the port region, formed by the megaports and the secondary ports will place it in a better position at both regional and global scales. This could lead to a win-win situation for the megaport and the secondary port.

Rethinking Proximity

Interport competition

Interport cooperation

Autonomous management by local port authorities (PA)

Public actors

181

Regional or national port policy

PA7 State/ PA6 region 3 PA5 PA4 State/region 2 PA3 PA2 State/region 1 PA1

PA4 PA3 PA1

Model of the harbour place

PA2

State/region 2

Model of the port terminalization

Port community 1

Private actors

State/ region 3

State/region 1

Globalized company 2

Port community 2 Company 1 Company 2 Company 3

PA7 PA6 PA5

Company 4 Company 5 Company 6

Globalized company 1

Terminal P2 Terminal P3

Terminal P1 Terminal P2

Port 3 Port 1

Port 2

Port terminals

Port 2 Port 1 (c) V. Lavaud-Letilleul, A. Frémont, 2007.

Figure 13.3 Strategies of actors in terms of interport competition/ cooperation Who Establishes the Links Between the Ports? The links which are forged between the megaport and secondary port cannot be based upon mere competition. In order to compete with the other major ports in the range or in the world, they are bound in a joint destiny based on the relations created by the actors (Heaver 2002; Slack 2007) (Figure 13.3). The first possibility is that the cooperation process will involve the two port authorities growing closer together, for example in order to create a concerted plan for both port zones. While this is possible in theory, it requires a high level of mutual trust and experience of working together, which is only genuinely the case for traffic to islands or across a strait. Generally, regional and national institutional levels are more able to implement a coordinated development policy, if not in the framework of port policy as such, at least via the decisions they have to make as regards investment in the two ports. However, it is above all the globalized transport actors which, as a result of their network development strategy, are currently encouraging interport complementarity by taking advantage of the respective qualities of the various

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ports in a given region. These new commercial practices which are motivated by globalization therefore open the way for ‘co-opetition’, which combines competition and cooperation (Brandenburger and Nalebuff 1996), through terminalization of the ports (Slack 2007). This may be introduced in ports both by private operators wishing to increase their profits and port authorities attempting to make economies of scale for economic development (Song 2003).

Dunkirk: An Isolated Port Next to One of the World’s Major Port Regions A National State-run Port for Heavy Industry Dunkirk has nothing in common with the traditional profile of a Northern Range commercial port. Its main characteristic is that three-quarters of its traffic (56 million tonnes) consists of bulk, more precisely half of it consists of dry bulk (Figure 13.4). In particular, a quarter of the port’s total traffic (13.4 million tonnes in 2006) consists of ore imports for the Dunkirk steel plant which belongs to the Arcelor group. As far as liquid bulk is concerned, hydrocarbons, in particular destined for the Total-Fina refinery at Mardyck, account for an additional quarter

Container throughput in 2006 (in million TEUs)

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of Dunkirk’s traffic. Dunkirk is thus essentially a bulk port that provides raw materials to the heavy industry in its MIDA (maritime industrial development area). This maritime industrial zone, inherited from the 1960s and 1970s, is almost completely the result of French government policy and owes virtually nothing to a local trading culture. But these inherited facilities have outstanding qualities which made it the best port complex in Northwestern Europe. The Western port is a fast port, with no locks and whose 6,500 m of jetties, surface area of 560 hectares and depth of 23 metres make it accessible 24 hours a day to oil tankers with a deadweight of between 250,000 and 300,000 tonnes. On the right bank of this dock, a rapid port for ferries and container ships was built in 1976. This enormous complex has also the advantage of possessing large reserves of land and potential for building new docks. The Absence of Synergy with Calais or Antwerp/Zeebrugge The creation of the Autonomous Port of Dunkirk in 1965 saw the definitive separation of the port of Dunkirk from local economic interests, as the maritime industrial complex was managed by a partnership consisting of the State and the major industrial groups (Castells and Godard 1974). However, while Usinor used the bulk quays and the autonomous port authorities’ land, it did not manage to breathe a new dynamic into its commercial activity, in particular for export flows. Usinor was oriented towards the national market, and for steel Dunkirk could not stand up to the competition of Ghent and, in particular, Antwerp (Malézieux 1981). Thus, far from operating in a cooperative context, the port of Dunkirk was challenged by the neighbouring Belgian ports for the transport of steel products manufactured in Dunkirk as it was for other products. In addition, Dunkirk did very little to expand its range of commercial operations until the end of the 1990s. After peaking at over 7 million tonnes in 1992 and 1993, cross-channel traffic suffered from competition from the Channel Tunnel and disappeared completely in 1998 (Joan 1998). However, for this type of traffic, the port of Dunkirk remained in direct competition with the port of Calais, (40 million tonnes and 11 million passengers in 2006) which, thanks to its advantageous position in the Straits of Dover, derived its wealth entirely from trade with Great Britain. Competition has traditionally been the order of the day between Calais and Dunkirk (Bruyelle 1976). Last, and above all, with traffic of 205,000 TEU in 2006, the port of Dunkirk currently handles only 1 percent of the Northern Range’s containerized flows, which puts it at the bottom of the list with Rouen or Amsterdam-Ijmuiden, whose traffic is nevertheless starting to increase. Dunkirk is seriously behind its nearby competitors. The comparison with the dazzling success of the neighbouring port of Zeebrugge is salutory in this connection: since the 1980s, Zeebrugge has been able to attract containerized traffic by using infrastructure which was also designed in

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the 1970s for industry and its traffic of 2.2 million TEU handled in 2008 put it in sixth position just behind Le Havre among the ports of the Northern Range! An Industrial Port in Crisis The port of Dunkirk had all the appearances of an industrial port in crisis located in a conurbation in crisis (Perret 1978). Since the mid 1970s, we have been witnessing a halt to the process of port industrialization which has led to a general crisis in the maritime industrial zones of Western Europe. Industrial firms have made productivity savings which do not exclude workforce reductions, as at Dunkirk where the number of jobs at Usinor-Sollac fell from 10,700 in 1974 to 7,000 in 2000. The local shipyards did not resist to the international competition and they were closed in 1989. This represented a loss of 3,000 jobs for the local economy and put the finishing touches to the socioeconomic slump which resulted in massive unemployment (slightly less than 20 percent in 1999) and, its electoral corollary, the vote for the extreme right among working-class voters. This was the context within which once more in 1984, Dunkirk received government support and was linked with Calais in a national plan to support industrial centres in crisis (Veltz and Davezies 2004). This was the last episode in the history of a port and industry pairing which had gone wrong, before the end of the 1990s when the managers of the autonomous port of Dunkirk envisaged a new strategy, this time commercial, for the port which broke with its traditional industrial role, bringing it out of isolation and closer to its Belgian neighbours.

Towards Integration Within a Regional and Global Port Dynamic The Nord-Pas-de-Calais: From a Border Region to a Crossroads: The Consequences for Dunkirk The Nord-Pas-de-Calais region, where the port of Dunkirk is located, has historically been a border region. In forty years, the region has undergone the triple blow of de-industrialization, the opening up of Europe and the metropolization of Lille. Industry accounts for only a third of its jobs compared with two-thirds in 1971. The region has taken on a role as a European crossroads. The network of high-speed rail lines and the channel tunnel, opened in 1993, place it at the centre of a metropolitan triangle consisting of Paris, London and Brussels. This position at a crossroads has resulted in a growth of logistic terminals, in particular the Delta 3 terminal at Dourges which was opened in December 2003. A number of major distribution groups with origins in the North of France and which are today of European significance, such as Auchan, La Redoute or Castorama, symbolize the importance of this new logistical function for the region. Finally, a process of metropolization has started in the region whereby Lille attracts activities and the most highly qualified jobs at the expense of the other cities in the region.

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These upheavals have had many consequences for Dunkirk. Its fate more than ever depends on the specialization of its port, but the port can no longer operate as an isolated national industrial entity. The future, in this region as elsewhere, depends on containerized flows of varied goods, a market in which Dunkirk has no tradition, particularly as regards the commercial aspects. However, the near hinterland of the port of Dunkirk is directly in the zone of influence of the Antwerp/ Zeebrugge/Rotterdam port complex. With regard to this state of affairs, Dunkirk has three major assets. First, it has a deep water harbour on the Straits of Dover, which is on one of the world’s most important maritime routes. Second, it has considerable possibilities for extension with 3,000 hectares of available land, both for new terminals and for logistical zones. Third, it is close to the ports of Antwerp and Zeebrugge whose development projects are likely to encounter more and more constraints in the coming decade. Dunkirk is well linked to its hinterland and to the Benelux by motorways but also by rail and canals even if connections have to be improved. This would be done with the ‘Seine Nord Europe canal’. The First Adaptations to Internationalization The first adaptation to internationalization dates from the early 1990s (Charlier and Lambert 2000). At this time, traffic was stagnating, as a result of the lack of vitality of bulk markets, the absence of new traffic and very poor industrial relations. Caught in a pincer movement between Le Havre on one side and the Benelux ports on the other, Dunkirk was literally on the road to ruin. A realization took place within the port community, particularly amongst the dock workers, that it was essential to innovate to avoid bankruptcy. Dunkirk was the first French port to change the status of the dockers (1992 reform) and to move towards the landlord port model in which terminals are under the control of the terminal operators. These transformations were carried out by the entire port community acting together (Lavaud-Letilleul 2002). In concrete terms, this means that no strike has taken place at the port of Dunkirk since the early 1990s. An initial outcome of this progress has been the perpetuation of existing activities which are now dominated by foreign rather than French capital (Arcelor Mittal and Rio Tinto). At terminal level, the Belgian Sea-Invest group is the principal shareholder in the Sea-Bulk terminal. The activities of this terminal are growing, with the coalfield hinterland of Lorraine, but also transhipment traffic towards the United Kingdom. Sea-Bulk is counting on new transhipment flows, particularly towards Germany. These groups which are now international, are confirming their presence at Dunkirk by making investments for the next ten years, which was not at all sure at the outset. The decisions of these international groups are largely explained by the favourable port conditions in what is an extremely competitive environment at regional and global levels.

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Ports in Proximity

The Competition Between Dunkirk, Calais and Boulogne In theory, the creation of a single port entity for Calais and Dunkirk, which are 30 km apart, would produce more freight and passenger traffic than the port of Marseille. However, since 2007 Calais and Boulogne have been owned by the Nord-Pas-deCalais Region (Debrie et al. 2007). The future of cooperation between the ports in the North of France now depends on bipartite negotiations between the Region and the State which still owns the Autonomous Port of Dunkirk. Despite official cooperation policy, competition is the rule in practice between the neighbouring French ports to seize the Channel traffic. Calais is starting to build a new dock on the sea, Calais 2015. Boulogne-surMer is building a roll-on/roll-off terminal on long-standing industrial wasteland. As far as Dunkirk is concerned, cross-channel activities have resumed since 2000. Norfolkline, a subsidiary of the Danish group Möller, has successfully entered the market, aiming specifically for the Heavy Goods Vehicles (HGV) market by offering very attractive pricing. Norfolkline now handles 14 percent of the HGV traffic across the strait. The tendency is therefore for the public authorities to increase investment, supported by strong competition between the large number of cross-channel operators. Towards an Antwerp-Zeebrugge-Dunkirk Port Region? Until now, Dunkirk’s position on the container market has been completely marginal, with traffic of only 200,000 TEU. Its three principal assets mean that this market will represent a major opportunity for Dunkirk in the next ten years. Dunkirk must find a place within the activities of the world’s major freight handling operators and shipping lines. Several factors make this necessary, the main one without doubt being that the situation at the ports of Antwerp, Rotterdam and Zeebrugge is now fixed for the next ten years. Our grounds for stating this relate to the distribution of the major operators. After the disengagement of local freight handlers at the end of the 1990s, Hutchison and APM Terminals have a ‘historical’ presence in Rotterdam and PSA and MSC at Antwerp. The port extensions which have already been made or which are scheduled have enabled the port authorities in the two ports to strengthen the position of the actors which are already in place while at the same time introducing greater competition. In Rotterdam, the first concession for Maasvlakte 2 was awarded to APMT but the second was awarded to DPW in a joint venture with the shipping lines of the New World Alliance. Hutchison has in a way been marginalized, or at least made less powerful than it was. At Antwerp, the opening of the Deurganckdok in 2006 provided PSA with an opportunity to strengthen its position via the Antwerp International Terminal in a joint venture with K Line, Hanjin and Yangming, but it also allowed DPW to assert itself as a new operator by controlling the Antwerp Gateway. Finally, for slightly more than a year, Zeebrugge has been acting as the seaport of Antwerp with one of

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its terminals controlled principally by PSA (CHZ), and the other by APMT which previously had no presence at Antwerp. A first question is raised for MSC. Its Antwerp terminal is located behind the locks and has some difficulty in accommodating ultra-large container vessels (ULCCs). But the MSC Home terminal plays a major role in all MSC’s transhipment operations in the Northern European range. This could now become a handicap. It is no doubt for this reason that MSC and PSA applied for a concession at Maasvlakte 2, which was rejected in favour of DPW. Following the same logic of strengthening the role of deep sea ports, the managing director of the port of Rotterdam has stated that ‘ultimately there should only be two major competing ports in Northern Europe: Rotterdam and Wilhemshaven’. What can MSC do? The extension possibilities at Zeebrugge are not unlimited. Le Havre is located at some distance from the backbone of Europe formed by the Rhine, as are the German ports. So why not Dunkirk? This hypothesis is far from being unrealistic as other operators could be interested. CMA-CGM, the world’s third largest shipping line, has only a marginal presence as a freight handler in the ports of Northern Europe, with the exception of Le Havre. MSC like CMA-CGM often opens premises off the beaten track, where there is as yet no competition. Likewise, we can speculate about the arrival of an Asian shipping line which is not part of the alliances, such as Evergreen, or a Chinese freight handler wishing to start to internalize its activities, for example China Merchants Holdings. Dunkirk can provide such operators with the opportunity to move into a completely oligopolistic position at the centre of a growing market where there nevertheless remain possibilities for activities in its near periphery, close to the centre. The operator which made no mistake is APMT, the new concessionary of NIFTIou, Dunkirk’s only container terminal, in a joint venture with CMA-CGM until 2034. When the concession was signed, Kim Fejfer, the managing director of APM Terminals stated: ‘Dunkirk provides our clients with a competitive advantage thanks to its location between Paris, London and Brussels, i.e. a market of 100 million consumers, its exceptional industrial relations and its ability to accommodate the largest vessels’. Commercial promotion aside, the argument is a valid one. In practical terms, it has resulted in the modernization of the terminal and the installation in 2008 of two new gantry cranes. Moreover, Maersk Line has included Dunkirk as a port of call on one of its services between Europe and the Far East. The AP Möller group therefore seems to be placing a long-term bet on the port of Dunkirk. As far as CMA-CGM is concerned, it is present through its services between the West Indies and France. In addition, MSC has recently opened a new weekly service between Europe and the West Coast of Africa, which will also handle imports from Asia as a result of transhipment. All the above is on a very small scale compared with Antwerp, Rotterdam or even Zeebrugge. But, in these ports, the game of monopoly between the major operators is drawing to a close because no new terminals are available. It is up to a

Ports in Proximity

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port like Dunkirk, which is currently in a marginal position but nevertheless close to the centre, to take advantage of this.

Conclusion The growth in containerized traffic is leading to high demand for container terminals all over the world. But, as a result of saturation and a lack of space at the largest ports, as well as growing hostility amongst the population, it is becoming difficult to open new terminals. Antwerp and Rotterdam provide perfect illustrations of this problem, even if until now they have managed to cope with the increase in volumes. In this context, is there an opportunity for secondary ports located near the largest ports to develop? The case of Dunkirk is interesting, as on paper is has all the necessary assets to play a role as both a transhipment hub and a hinterland port. Its geographical closeness to Antwerp has until now been a handicap, as Antwerp has taken the containerized traffic and Dunkirk has applied a strategy that is solely focused on France, without directly competing with Antwerp, and which expresses the lack of links between the two ports, and also between Dunkirk and Europe in general. Today, as a result of the oligopoly operated by the two freight handlers at Antwerp and Rotterdam, there is an opportunity for Dunkirk to attract new

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operators which have not been able to set up at the two main ports. It is this which has been demonstrated in this chapter. It remains to be seen in what way it is possible to take advantage of this opportunity. The choice of planned cooperation between several ports is not one which is compatible with the current climate. It is by exploiting the strategies of operators, essentially shipping lines and freight handlers, that Dunkirk can hope to find new traffic.

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Chapter 14

Italian Port Authorities Approaching the Post-reform: The Ligurian Case Claudia Caballini, Laura Carpaneto and Francesco Parola

Introduction: Vertical and Horizontal Coordination in Ports Port policy is generally decided at a central level; only in federal States some competences are exercized at a local level. The ‘national’ dimension of competences on ports is also confirmed by the current slowness of supranational cooperation on port policy. This is particularly evident within the European Community (EC) where, despite the integration achieved, it is still difficult to harmonize national port legislations. According to the UNCTAD classification (UNCTAD 1999), ports are now entering their ‘fourth generation’: from being logistic distribution centres, namely ports that in addition to cargo handling offer value-added services such as warehousing, packaging, etc., they are now evolving into real logistics and transportation solutions providers (Marlow and Paixão Casaca 2003; Bichou and Gray 2005; World Bank 2006). Horizontal and Vertical Coordination ‘Vertical coordination’ refers – for the purposes of this chapter – to the general need of coordinating the activities of all players involved in port governance representing both public and private interests. Being strategic nodes in supply chains and having a significant impact on the territory, the ‘port community’ should be involved in port governance decisions. However, a wide participation in outlining port governance strategies may obstruct and ‘fragment’ the decisional chain, whilst market developments demand for an efficient decision-making process. Legal systems, in particular in a federal structure, often rely on the principle of subsidiarity, according to which decisions are best taken at the ‘lowest’ spatial level, close to citizens. This implies that the exercise of competences at higher decisional levels needs to be adequately motivated. In order to delimit EC and Member States concurrent competences and to realize the vertical coordination in the port sector, the subsidiarity principle (art. 5 of the Rome Treaty) is a key element.

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Besides this trend towards ‘vertical’ coordination, there is also an emerging need for ‘horizontal coordination’ among ports in the same coastal area (i.e. ‘ports in proximity’), which often share a part of their inland infrastructural network. There has recently been a tendency towards the creation of ‘port systems’, a form of coordination between two (or more) ports sharing the same transportation network and/or serving the same hinterland. In such cases, the creation of a system has been considered preferable rather than the management of individual ports acting as independent and uncoordinated entities. This trend of coordination among ports is partially driven by the spectacular sea traffic growth over the last 20 years and in the consequent need for port space. The extension of port boundaries allows the development of additional space to handle the future increase in traffic flows, so coping with the intensification of international competition. More specifically, the goals to be pursued may regard various fields of activities: enhancement of port competitiveness avoiding unfair competition among neighbouring ports, rationalization of port spaces and more rational use of available transport infrastructures, building of additional infrastructures, pooling Port Authority (PA) financial resources, creation of a ‘lobby’ for getting State funds, port promotion through joint-marketing activities, realization of market studies and common projects on environmental and safety/security issues, etc. An in-depth study of the major typological forms of port coordination/ integration goes beyond the aim of this chapter, but, a tentative classification is proposed below (Table 14.1): 1. Collaboration on single projects. Some competing ports in proximity undertake projects of common interest, such as building of inland infrastructures or working on joint initiatives on security or environmental field (i.e. Los Angeles and Long Beach or Algeciras-Tangier Med). 2. Creation of an ad-hoc body in charge of specific and limited functions. The more incisive and wider the executive power of such body, the more intense the coordination is. This new entity, however, does not replace individual ports except for those specific functions granted to it; in this regard, many relevant examples can be brought: (i) the Flemish Port Commission, interfering between the Flemish Government and the major Belgian ports, in order to avoid a destructive competition among them and to enhance the competitiveness of the overall ‘system’, (ii) the ‘BremenPorts’ company, in charge of the management of the German Ports of Bremen and Bremerhaven and (iii) the Malta Maritime Authority created with the intent of promoting a coordinated maritime strategy. Within the Italian context it is worth mentioning the example of ‘Logica’, an ad hoc agency for the coordination of the Campania ports; 3. ‘Takeover’ of the leading PA on minor ports. The biggest port in terms of economic and ‘political’ power extends its jurisdiction over one or more neighbouring ports, which generally do not have national relevance.

Table 14.1

Major typological forms of coordination among ports in proximity

Model I

Cooperation on single projects or functions

Degree of coordination Low

Major drivers

Port authority

Mainly public (environment, security/safety, marketing, infrastructure) Public/private

Ad-hoc body in charge of specific and limited function

Medium

Municipality/ region

III

Extension of a port authority jurisdiction over some minor ports

Full integration

State

Public/private

IV

Amalgamation among port authorities

Full integration

State

Mainly private /commercial (enhance competitiveness, traffic growth)

II

Potentially shared functions/activities Marketing, infrastructure development

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Promoter

Examples San Pedro Bay Ports, Algeciras/Tangier Med, Ligurian ports

Lobbying for getting public financing, marketing and research studies, logistics and infrastructures development

Flemish ports commission, Malta Maritime Authority, BremenPorts, Campania ports

all

Civitavecchia PA, Valenciaport

all

PA of New York/New Jersey, Vancouver Fraser PA, Copenhagen and Malmö PA

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An example is given by the Valencia PA, which has taken over the ports of Sagunto and Gandia (1985) and, as regards Italy, by the Civitavecchia PA which in 2003 took over the ports of Gaeta and Fiumicino. 4. Full amalgamation among ports. It represents the strongest form of integration among ports and leads to the creation of a new PA, replacing the former ones. This is the case of New York–New Jersey PA, created in 1921 to avoid unfair competition between the two ports. A further interesting case is the recent (2006) amalgamation of the Port of Vancouver and the two ports on the Fraser River in Canada. Even ‘weak’ forms of coordination can lead to successful results, especially related to public interests, such as environmental protection and security. If the achievement of a common economic and commercial strategy is the dominant goal, the adoption of more integrated forms of integration is preferable. An intense degree of integration requires the direct involvement of the central government whilst lighter forms of coordination can be done by PAs and local public entities as key promoters of the process. Aim of the Chapter and Research Agenda The aim of this chapter is to open a discussion on the Italian port sector and its crisis, with specific attention for port governance issues, which are now under review in the Italian Parliament: the PAs’ role, their financial independence and their relation with other public authorities. In particular, the debate is focused on the growing need of vertical and horizontal coordination among public bodies, in order to find a balanced institutional framework in which PAs can quickly react to market changes. In fact the reform law resulted in a framework characterized by a severe institutional fragmentation and an excessive centralization of port financing. This chapter addresses the Ligurian case as a relevant case study calling for some forms of coordination among ports in proximity. The major research questions faced in the chapter can be summarized as follows: • • •

•

Which new role PAs have to play in the coming few years? How achieving a higher degree of vertical coordination between the PA and the other players? Can horizontal coordination really represent an effective solution for ports in proximity? If so, which port governance models (see Table 14.1) can better fit the Ligurian case? Which policy guidelines should be pursued at the state and the regional level? Is any further legislative intervention required?

In this regard, the last section generates a discussion and outlines some policy guidelines.

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The Italian Institutional Framework: is there any Scope for Vertical and Horizontal Coordination? The most important element introduced by the 1994 reform is the ‘separation between services and infrastructures’: port services are reserved to port operators, whilst the body governing and managing port infrastructures is expressly denied to perform economic activities. Italian PAs are public bodies that manage port infrastructures for public purposes, having a very limited financial autonomy and being subject to the control of the competent Minister (Carbone and Munari 2006; Carbone 2000). By virtue of the reform, economic activities in Italian ports can now be run only by private operators, subject to the possession of an authorization issued by the PA. Those operators may also be granted of a specific license (i.e. concession), giving them the chance to run, as ‘terminal operators’, a specific port area and/or berth. The Concepts of Vertical and Horizontal Co-ordination in the Reform Law The legislative and institutional framework of Italian ports, now under review, apart from sporadic references to the subsidiarity principle as the general rule to be followed in case of concurrent competences, does not expressly provide any specific guidance for vertical coordination in ports. Likewise only some vague references are mentioned in relation to the need for coordinating ports in proximity and creating ‘port systems’. The national legislator is now trying to find a way out through a specific reform of this sector, in order to provide efficient solutions in compliance with the EC law. Moreover, it is also looking for a new balance among all the public interests involved (i.e. local, regional, national and international) in the development of ports and their cluster. Currently vertical coordination is mainly realized through the existence, inside the PA, of the so-called ‘port committee’, a body which represents the interests of all the major actors involved in the management of port activities. The Port committee approves the most important programmatic tools: the ‘Master Plan’, outlining the long-term guidelines of port development and the ‘3-year operational plan’ which should implement the goals defined by the Master Plan. However, despite their ‘landlord’ status, PAs find tremendous obstacles in approving the Master Plan as territorial entities and the State are important stakeholders in this process (Table 14.2). Such a situation is worsened by the lack of PAs’ financial autonomy for investing in port infrastructures. Even more complex is the process for building and restructuring landside infrastructures: a dramatic fragmentation of the executive power, even for outlining development plans, hampers landside infrastructure development. Moreover PAs are not yet ready for the enhancement of intermodal services from/to the port and they are not involved in promotion and coordination activities.

Table 14.2

The vertical fragmentation of power among the major players Port infrastructures

Player

Ownership

Planning

Financing

****

***

****

****

****

Region

***

**

***

***

Province

***

**

***

Municipality

***

***

***

Port Authority

****

Seaport TO1

***

Public

State

Private

Road and rail infrastructures Management Planning Financing of concessions

**

****

Intermodal services Trains

Inland terminals

** ***

MTO

****

***

Inland terminal oper.

***

****

****

***

Railway company2 high ****

medium ***

*** low **

null

Notes:1 A seaport Terminal Operator (TO) can be both a pure stevedore and an integrated shipping line. 2 In Italy over 90% of rail services is supplied by Trenitalia Cargo, belonging to the public-owned Italian Railways Group. The rest is operated by small emerging private companies, that have entered the rail market after the liberalization. Source: Our elaborations from PAs and corporate interviews.

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In summary, looking at the vertical relationships between the different players, some bottlenecks can be identified. Each actor involved in the ‘decisional chain’ is somehow entitled to take part in it but nobody is really the manager of the overall procedure. Therefore a sort of ‘institutional sandwich’ emerges: the autonomy and the executive power of landlord PAs is severely constrained by the municipality and the central government (i.e. the State), both entitled to make decisions in port planning, financing and implementation. As regards horizontal coordination, although the Italian legislative framework seems to be sufficiently open to the adoption of possible means of coordination among ports, there is no evidence of horizontal coordination. A highly controversial point concerns in fact the high number of PAs established by the reform law: from the 18 authorities created immediately after the entrance into force of the law, the number has progressively raised up to 25. In addition to this, the issues related to port financing also hold a strategic importance. In fact, the above mentioned fragmentation is coupled with a strong centralization of financial resources at State level. The outlined framework presents a dramatic contradiction: most port revenues are passed on to the central government, which later provides to PAs indiscriminate financing. In this way, the biggest and the most efficient ports ‘finance’ the minor and least efficient ones (cross-subsidization).

Beyond the Law no. 84/1994: Towards Decentralization and Coordination It should be noted that the 1994 reform was founded on the assumption that the State had exclusive competence regarding ports and the maritime sector in general. However, this assumption has been progressively eroded and some significant functions have been transferred from the State to Regions and local entities. The recent Constitutional Law no. 3/2001 states that, as regards the legislative competence, some subjects are the exclusive competence of the State (e.g. governance of public bodies) whilst others (i.e. territorial governance, ports and airports, transport and navigation networks) are a shared competence between central government and Regions. Under this scheme, a PA’s governance falls within the State’s exclusive competence, whilst State and Regions exercise joint competence on ports. By contrast, administrative powers should be exercised by public bodies and entities (i.e. City Council, Local Government and Regions) in compliance with the subsidiarity principle. Therefore, art. 118 of the Italian Constitution leaves space for the Italian PAs, which can directly exercise their administrative competences and powers on ports maintenance and infrastructures (Taccogna 2006; Carbone and Munari 2006). Despite the Constitutional reform, the State still plays the most relevant role in establishing the general legislative framework, whilst Regions exercise their

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legislative powers and cooperate in the decision process for appointing the most relevant PA’s bodies. The only relevant Italian form of coordination among ports in proximity, i.e. the integration among the ports of Civitavecchia, Fiumicino and Gaeta (model III) illustrates this situation. The Civitavecchia’s port system was created in 2003 through the extension of the territorial competence of the Civitavecchia PA over the two regional ports of Gaeta and Fiumicino, by virtue of some Ministerial decrees, adopted at central level. Since some attempts at creating forms of coordination amongs port in proximity are carried out at regional level (as for example in the Liguria Region), it is important to consider whether a new legislative and institutional framework may provide Italian ports with a real ‘new deal’.

Italian Port Authorities Today: What’s the Heritage of the Reform? Undoubtedly, the innovations yielded by the 1994 reform law initially had a deep and positive impact on port operations and development. Nevertheless over the years the characteristics of this reform also led to dramatic institutional problems. This section, after describing the major changes imposed on Italian PAs, aims at revealing the most relevant institutional bottlenecks resulting from the above framework. First, it should be considered that Italian PAs, with their institutional deficiencies appear as weak players in relation to private actors, such as carriers and stevedores, as well as other public bodies. Port governance is still managed by the central government and PAs are scarcely embedded in the territory. Therefore, in most cases the awareness of the port role for the local economy and the consequent public consensus by the local communities are still ‘under construction’. In fact, contrary to the Hanseatic model, where the port management is linked to the municipality, in Italy the gap between these two public actors is still profound. In the Northern range PAs are decentralized public entities, often corporatized and with the municipality as the dominant shareholder, for which the main goal is to create value for the local community. PAs have a managerial approach and they look beyond the port borders, trying to coordinate the cluster players and to enhance hinterland connectivity (De Langen 2006). In Italy, PAs are only regulators and administrators of the port domain belonging to the State. In this regard, they can not act as autonomous managers of the land, having to debate with other public entities. A managerial approach is also thwarted by the excessive number of members in the PA board, which does not allow for

 On the contrary, as stated by Olivier and Slack (2006), throughout the recent decades the conceptual view of ports evolved, going from abstract and homogenous spaces to places embedded into a specific socio-economic and cultural environment.

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making quick decisions. In addition to this, Italy is one of the latest EU countries in which PAs are not financially independent. The Major ‘Bottlenecks’ of the Reform This institutional framework described earlier has led to many concrete problems and inefficiencies, thwarting the benefits produced by the reform law and the competitiveness of the overall Italian port system. In some cases, however, bottlenecks directly result from inadequate port governance choices of public managers. Anyway, also in this case, some responsibilities can be addressed to the institutional framework. In fact, PA’s top managers are not directly elected by the local population on the basis of their expertise and competences but they are appointed in relation to political criteria more than on merited ones, even if the reform law expressly requires the possession of technical competences and experience in relation to port issues. Finally, the current major criticalities that came out after the reform can be summarized as follows: a. Port governance – Master Plan approval and implementation; the procedure of editing and approval of the port Master Plan is too complex and long; so port planning risks to become obsolete as implementation is delayed; – Cross-subsidization among ports; as a paradox, the current system of centralized financing drives the most efficient ports, which generate the highest throughput, to cross-subsidize small or inefficient ports; – Management of tenders and concessions; tenders are often managed through procedures which are not transparent and it is not rare to have a bidder going to the Court; – Aversion to the dedicated terminal model, probably due to the traditional approach of Italian PAs, which want to have independent concessionaires looking for any potential third-party traffic thus maximising the land use. Reasoning in a long term perspective, it appears risky to refuse a   Concerning this, some authors (Haralambides et al. 2002) talked about the inefficient land use of dedicated facilities as one of the strongest drivers orienting the choice of the multi-user formula. This debate clearly goes beyond the aim of this chapter but it is worth recognizing the changing approach of PAs around the world in relation to the dedicated/ multi-user dilemma. Besides USWC ports, traditionally preferring integrated carriers, since the early-2000s many European and Asian ports are progressively offering spaces to those shipping lines asking for dedicated facilities. This is what the market asks and some PAs understood such changes and quickly altered their policy. Therefore, this PA objection bringing the inefficient land use of dedicated facilities does not appear sufficient to justify a fully multi-user policy, as so far this strategy was unable to attract relevant additional traffic flows and to exploit port spaces to the full. In conclusion, the adoption of a mixed approach (multi-user and dedicated formula) appears to be preferable.

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stronger linkage between top carriers and the territory; b. Hinterland accessibility The lack of vertical coordination among various players and the absence of a policy for managing the port cluster, inevitably lead to inefficient landside connections and to a decrease in port competitiveness. Moreover, the springing up of many competing infrastructural projects between ports in proximity, generates a destructive competition among PAs for getting finance (as well as the approval) from the State and the EU. Such ‘oversized planning’ of infrastructures, often going beyond the sum of the real needs required by all ports together, produces a slowdown in implementation plans and a dramatic delay in completion times; c. Sustainable growth: port versus city Italian gateway ports have become transit points where the real positive impact of maritime traffic flows on the territory is scarce, both in terms of employment and added-value. In addition to this, the throughput of those commodities potentially generating value for the territory (i.e. containerized trade) has been quite stable for some years and Italian gateway ports have found strong obstacles to a new paradigm in which sea traffic volumes can leave value on the territory (i.e. through distriparks, distribution centres, etc.). On the contrary, the negative impact of ports in terms of congestion and pollution is largely perceived by the local community. All this is clearly the result of the ‘institutional rift’ between Italian PAs and municipalities, that is generating deep contrasts and divisions in some historical port contexts such as Genoa, La Spezia or Naples; d. Scarce appeal for foreign players Undoubtedly one of the most appreciated innovations of the reform was the entry of private terminal operators in ports. In this respect, foreign actors are playing an important role, even though at the beginning their integration in the business environment generated some problems. Moreover, looking beyond port borders, in the induced activities the presence of foreign investors appears weak and not yet stable. Domestic players still dominate and foreign companies treat Italian ports as a local market and not as a potential gateway for serving wider regions. A ‘Two-Pace’ Reform Process: A Stage Missing In sum, the major outcomes reveal a ‘two-pace’ reform process. In the early stage of the reform (until 2000–2001), many Italian ports experienced a dramatic rise in throughput, partially generated by the creation of new transhipment facilities (Zohil and Prijon 1999; Musso and Parola 2007). In that period ports rationalized the land use and found a more stable work regime able to ensure a greater reliability to customers. After that, during the years 2000/2001 a negative turning point was experienced. When PAs were called to implement the Master Plans already approved, relevant problems came out soon: environmental constraints, insufficient

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finance, wrong management of tendering processes, loss in competitiveness and throughput and so on. In this case, the lack of coordination among public actors and the relatively marginal role of PAs were probably the strongest points leading to negative outcomes. In this respect, it is worth stressing that just after the 1994 reform law, the PA’s role was rightly restricted to that of a simple ‘regulator’, as in the mid1990s the real priority was to manage the transition leading to the privatization of terminals. Nevertheless, after the very successful completion of this stage, PAs had to turn their role into that of more ‘executive’ players along the institutional chain and to achieve a higher degree of vertical coordination (see last section). Nowadays, 15 years later, Italian ports are still awaiting the beginning of this second phase, which should transform PAs into powerful and independent ‘decision makers’. After having discussed about the current major bottlenecks of the Italian port system, we will introduce a relevant case study. For many decades, among Italian ports, the Liguria Region has been holding a dominant position both for its throughput share and maritime tradition. In this respect, our analysis will face in detail the above mentioned issues of vertical and horizontal coordination and

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will raise potential policy guidelines for reinforcing the growth in the case study area.

The Ligurian Ports Case The Ligurian case is highly representative of the overall Italian situation and therefore it offers some evidence on the effectiveness of the current framework. Liguria is a region located in the Northern part of the country, strategically close to the major manufacturing and consuming areas. In this region, there are three relevant ports, Genoa, La Spezia and Savona, representing the most important gateway for traffic volumes to/from North Italy. These ports, managed by three separated PAs, share a common hinterland and present a well diversified commodity portfolio (Figure 14.1). The maritime competition is also extended to landside infrastructures. The three ports partially use the same motorways and railway lines and also fiercely compete to get the approval and the financing of their own inland projects. Throughput, Port Impact on the Territory Being aware that ports can not be evaluated only on a throughput basis as their socio-economic function also requires the analysis of parameters such as employment and added-value (Musso and Ghiara 2007; Van Hooydonk 2007), we provide an overview of the major outputs of the Ligurian port system. The overall regional throughput is growing steadily but some relevant shipping markets are suffering quite a lot. In particular, looking at the gateway container traffic, Figure 14.2 reveals a stagnation during the last five years. Italian ports as a whole are doing slightly better while Northern range and mostly West Mediterranean ports (i.e. Spain) show tremendously higher growth rates (Gouvernal et al. 2005). Disappointing outcomes are also generated in terms of employment and added-value (Table 14.3). Comparing the added-value per employee performed by port activities in Ligurian ports, a dramatic gap is revealed with respect to Rotterdam and Antwerp. Ligurian ports reveal a very low capacity for producing value, equal to around 1/5th of that of Northern range competitors. The scarce availability of port spaces and the closeness of the port boundaries to the city downtown do not offer easy solutions for a further development of commercial and passenger operations. In addition to this, Ligurian ports also host other businesses, historically embedded in the territory and located within the port boundaries. All this dramatically complicates the picture. In the end, the emerging risk is to approach a ‘demaritimization’ scenario (Musso and Benacchio 2002), leading to a progressive loss in traffic, private investments and maritime culture.

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Throughput and added-value per employee

Port

Throughput 2005 (million tonnes)

Genoa Savona La Spezia Rotterdam Antwerp

55.2 16.2 17.1 370.2 160.1

Container and conventional cargoes/ total throughput (%) 46.2 23.0 73.3 29.6 61.6

Added value per employee (euros)

27,484 29,895 26,817 138,067 149,614

Some Facts The poor outcomes achieved in terms of throughput and added-value are basically the result of many managerial mistakes made by Ligurian PAs, embedded in a muddled institutional framework. Many concrete examples could be brought in this respect, but we are willing to concentrate on a few and relevant ones. First, the implementation of the Master Plans. All Ligurian ports approved their Master Plan many years ago but for various reasons, often going beyond shipping issues, no substantial works have started so far. In the meantime, mostly in Genoa, some lobbies keep proposing and supporting additional and often alternative development plans (SiTI Project, Renzo Piano Waterfront, etc.),

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with the aim of stopping the current Master plan implementation for favouring their own private investors and supporters. This is a typical oversized-planning scheme, in which the lack of coordination among public bodies and the scarce PAs autonomy lead to the freeze of the overall port development. Second, concessioning policy. As discussed earlier, Italian PAs are quite reluctant to lease out facilities to shipping lines. In this relation Ligurian ports follow exactly this approach and so far the only carrier acting as stevedore is Messina Line, a family-owned carrier based in Genoa. In the past, both MSC and APMT, were refused many times from having dedicated facilities as stevedores. Third, landside infrastructures development. Also hinterland transportation appears to be a weak point on the Ligurian PAs’ agenda. The overlapping between urban and port traffic often generates road congestion and Genoa rail infrastructures are frequently overloaded as they partially support the intermodal traffic generated by the two neighbouring ports. Currently, all the Ligurian PAs, instead of cooperating and creating a lobby for supporting common inland plans towards the central government, prefer to compete with each other for improving their own railway connection to the Po Valley. The consequent ‘oversized planning’ effect is then hardly manageable both institutionally and financially. Which Priorities for Ligurian PAs? The general stagnation of maritime traffic volumes in Italy and the critical state of Ligurian ports drive to outline some top priorities for inverting this negative trend. More specifically, PAs are now strongly requested to: •

•

•

Make the investments approved in the Master Plans but not implemented yet. Foreign investors, carriers and stevedores, should hopefully play a relevant role in this regard; Recover the city–port relationship; an effective territorial marketing policy should lead to a more friendly approach of citizens to port operation. This could be pursued decoupling the throughput growth from the creation of value, thus favouring logistics and distribution operations useful for the reinforcement of the port cluster; Enlarge the captive area of the port and adopt a market-oriented and managerial approach; the dramatic problem of hinterland accessibility

  As shown by Notteboom (2006), concession agreements can be a very strategic and effective port governance tool.  The aversion to dedicated facilities was also experienced by the Costa cruise operator which, after the refusal of the Genoa PA, decided to switch all its passenger volumes to the neighbouring port of Savona. More recently, both APMT and MSC seem to have found a greenfield opportunity in Liguria but these new facilities will not be ready for at least 5 years.

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must be solved by finding strategies capable of looking beyond the Alps and not simply adopting partial solutions to reach the Po Valley. In conclusion, PAs have to become decision-makers able to quickly react to market changes and, at the same time, they must be endowed with much larger financial capabilities. This should also lead to avoiding useless overlaps in investments which represent an enormous waste of public resources. The above discussion has proved the poor attainability of the above targets under the current institutional framework and port governance scheme. In this respect, a greater decentralization of the executive power with a reinforcement of the PA functions as well as the achievement of a higher degree of horizontal coordination (model II or even III?) among some neighbouring PAs (i.e. the Ligurian case), would probably enhance the competitiveness of the overall port system.

Which Solutions for Overcoming ‘Stagnation’? Previous sections pointed out the need of a restructuring leading to a definition of new roles and relationships among the actors. Italian PAs show a lack of executive and financing power and the city-port relationship often appears weak and conflictrich. The Ligurian case offered a powerful example of these bottlenecks and it also raised the issue of horizontal coordination among ports in proximity. The current legislative framework leaves space for the implementation of some solutions for gaining in competitiveness and efficiency. More specifically, as emerged earlier, policy guidelines should look at three major directions. They are discussed in the following sections. Decentralization and Subsidiarity for Strengthening PAs According to the principle of subsidiarity, PAs appear as the most proper level where legislative and administrative competences on ports may be exercised. In practice, however, PAs are still weak players mostly acting as port regulators and not like business-oriented players. In this respect, both PAs’ top managers (i.e. President and Secretary General) and the Port Committee have to be deeply transformed. The former should be appointed only in accordance to merited criteria and the latter should reduce the number of its members, in order to speed up the decision making. Furthermore, PAs’ strength may be increased by reducing the number of PAs. This would give more administrative and financial independence to those ports having a real international status (i.e. foreign traffic volumes) and a wide commodity portfolio. Besides the above problems of port organization and governance, also financial issues hold a strategic importance. At this stage Italy is one of the latest EU countries where PAs have no real financial autonomy. Besides concession fees, in

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fact, PAs can only keep a portion of port dues. The Law no. 296/2006, providing the Italian 2007 ‘financial’ regulation, tried to partially fill this gap, but it did not bring ultimate solutions. A very innovative option, recently proposed by the Italian Port Association, suggests to link port income – now almost exclusively based on vessels calls (port dues) and concession contracts (fees) – to traffic performances as well, keeping a quota on VAT revenues. Anyway such disputable solution could be reasonably coupled with a slight increase of concession fees, which are now below the EU average. Vertical Coordination: the Constitutional Reform and the Role of the Port Committee As mentioned earlier, an efficient vertical coordination appears as a sine-qua-non condition for a successful port development. Some tools for achieving vertical coordination are already made available by the current framework but, in practice, the constitutional reform entered into force in 2001 has not been fully implemented yet. As regards the legislative power, a (more) clear division of concurrent legislative competences between State and Regions should be realized through the adoption of eventual new laws by the Italian Parliament. These could provide the general guidelines in each subject, which could be therefore enforced by regional law. As regards vertical coordination among actors having interests in ports activities, a significant role could be already played by the Port Committee which, however, needs to become more flexible and agile. In this relation, an eventual downsizing of this body should not weak its representative function, as it plays a strong role in balancing port-city relationships. Horizontal Coordination Among Ports in Proximity: Which Role for the Region? The issue of horizontal coordination among ports in proximity is currently raised in some Italian Regions and particularly in Liguria. The present legislative framework would not entitle Regions to promote this sort of coordination, since the State still exercises full competences on ports of national and international relevance. Therefore, the only practicable solution seems to be a spontaneous coordination among PAs, which could anyway be favoured and supported by the Region. In the Ligurian context, however, the coordination at the Regional level is probably the more appropriate one, given their territorial dimension embracing some major ports and their inland infrastructures and their competences provided by the constitutional reform.

  Contrary to Northern range ports, Italian ports revenues mostly derive from concession fees and not from port dues. For instance the port dues/concession fees ratio in Genoa is 0.70, while in Rotterdam it is 1.32 (2004 data).

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With specific reference to the selected case study, some forms of ‘spontaneous’ coordination have been already experienced (i.e. ‘Ligurian Ports’), although limited to marketing functions. However, as already pointed out, within the Ligurian context there is a large need of coordinating Master Plans and inland infrastructural development. This would not mean to create a monopolistic market as it would simply drive to avoid the destructive competition effects, which often block the development of the whole system. In this respect, the Region’s intervention seems particularly opportune, since Ligurian PAs never developed spontaneous forms of coordination about planning and infrastructures. The Liguria Region is trying to promote such horizontal coordination and, to this purpose, is evaluating the possibility of creating an independent body, i.e. a sort of agency embedded in the Region’s structure. Therefore, the model of coordination that probably would better fit the Ligurian context is the creation of an ad-hoc institution entrusted of specific coordination competences (model II). On the contrary, more integrated as well as less reversible forms of coordination (i.e. models III or IV), such as a potential ‘amalgamation’ among some PAs, would require the primary involvement of the State and, moreover, they would find a large opposition by the same PAs willing to save their independence. In this regard, the adoption of the model II would preserve PAs’ autonomy through the creation of an ad-hoc public body looking for systemic and synergic effects. In this way, some relevant aims could be pursued, such as: (i) lobbying activities towards the central government and the EC to get finance for the realization of port and inland infrastructures; the establishment of this cooperation among ports would clearly favour negotiations with public institutions; (ii) defining a common policy for the building of shared infrastructures, thus preventing the current ‘oversized planning’; on the contrary, a more delicate issue would probably be the coordination among the different Master Plans. In this case, in fact, there is the need of avoiding incompatibility with antitrust rules also in relation to PAs’ independency; (iii) a progressive PAs’ reinforcement, leading to the legislative and administrative decentralization provided by the recent Constitutional Reform.

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Chapter 15

A Geographical Perspective on Port Performance in the United Kingdom, 1999–2007 Anthony Beresford and Stephen Pettit

Introduction It has long been recognized that there are complex relationships between patterns of social activity, economic progress and transport and that ‘viewpoints on relationships between transport and development continue to evolve’ (Hoyle and Smith 1992). The United Nations Conference on Trade and Development (UNCTAD) highlighted the ‘development of the commercial function’ and the promotion of the port as a ‘service centre’ (UNCTAD 1992). Radical changes in the organization and ownership of ports meant that they were being viewed in a fundamentally different way. Common threads linking these ideas have been the increasing integration of ports into the supply chain, the growing recognition of the port as a natural focus for industrialization and value-addition, and the development of port-related logistics activities taking account of corporate commercial strategies, technological developments and market forces. Research into regional disparities of the UK (Manners et al. 1980; Hensher and Brewer 2001) and Western Europe (Clout 1981; Minshull 1983; Hoyle and Knowles 1999) has long been carried out, but there has been little statistical analysis of the trends in port trade set in a regional context with some exceptions, for example, Beresford and Lalwani (1983), Beresford (1995), Pettit et al. (2003) and Mangan et al. (2008). Ports are clearly no longer simply places where cargo is stored, handled and moved between transport modes. They are now critical nodes in supply chains and the provision of logistics facilities has been established as a necessary activity in many ports for several years and in some cases decades. Further, Notteboom and Rodrigue (2005) discuss the development of ports in a regional context whereby the influence of the port extends beyond the port boundary by means of broader strategies which link the port to the wider market through the development of port located distribution centres. This, it could be argued, has to some extent already happened with the development of the range of logistics now available at the major UK container ports. There is a strong case for this ‘port centric’ approach to be developed further because maritime freight has

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Figure 15.1 General activity patterns in British ports

to pass through ports (Mangan et al. 2008). When this is linked to factors such as land availability, the removal of transport congestion between the port and the logistics centre and the already accepted ‘port cluster’ concept (De Langen 2003b) there is a strong argument for such developments. It is interesting to note that the London Gateway port project has been conceived on the basis of logistics and value-addition as on the core business of container import/export. This is consistent with the ‘port cluster’ concept. In order to explain the level of regional competition between ports, the analysis presented here quantifies freight movements by distance and cost inland from four selected ports – Hull, Felixstowe, London Gateway and Southampton. In a European context, these ports are in close proximity, and thus by implication they potentially compete strongly, particularly in the field of container handling as the liner companies are relatively footloose. A number of scenarios are tested in order to establish the competitive advantage which one port may have over another in terms of national cargo distribution. Real time container origins and destinations through these four east and south coast ports are analyzed and

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Figure 15.2 Regional port groupings 1999–2007; England and Wales

inland transport costs obtained from commercial sources are used. Of particular interest is the achievable inland reach from deep sea ports which may have important implications both for the attractiveness of the respective ports and for the overall efficiency of national container distribution. UK Port Traffic From 1999 to 2007 A geographical interpretation of British ports, highlighting port ownership, share of cargo traffic and inferred level of competition, is presented in Figure 15.1, which for clarity focuses on England and Wales. There is a wide range of cargo handling facilities in most regions but unit load capacity is greatest in

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southern and eastern England. Duplication of facilities is also at a maximum in this area, implying that the level of inter-port competition is also greatest here, and less in the north and west. Interestingly, this pattern is also mirrored in port or terminal ownership: only in Southeast England are several major port operators present. In all other regions large-scale cargo handling capacity is mostly in the hands of one or two operators. Thus, in the Southeast there appears to be enough business by volume, and a sufficiently wide range of cargo, to enable several port and terminal operators to successfully co-exist. It could be inferred, therefore, that the Southeast region of England is perhaps the only region capable of sustaining a number of competing port/terminal operators. Figure 15.2 provides an overview of the port groupings in the UK. Inter-relationships between port regions and between individual ports within a given region are complex. Early work by, for example, Senior (1982) showed that the ‘prosperity’ of a port is often intimately linked to that of its hinterland, but the hinterland itself is often difficult to define spatially. Cargo volumes through ports will also be influenced by the quality of the local and regional transport network. The most centrally located European ports (Antwerp, Rotterdam, Zeebrugge) have good transport links (classically road, rail, canal) as well as other good communications (Cross 1999). UK ports are also very different from the main continental European ports which have long had a high proportion of international transit traffic (Hoyle and Hilling 1984). Around 40 percent of traffic through Antwerp is accounted for in this way, while at Rotterdam up to 70 percent of import cargo is destined for locations outside of the Netherlands (Study Centre for the Expansion of Antwerp 1982; Port of Rotterdam 2002). In the UK, however, the situation is different: there is not the opportunity for the development of a major international gateway as the country has no major land boundaries with mainland Europe. This means that the UK (specifically the island of Great Britain) is unique within Europe having a large number of ports well distributed all around its coast (Aldworth 2005). However, the relationship between a port’s prosperity and its location is complex. In the short term, individual factors (e.g. major dock strikes, opening of new road links or terminals) may significantly affect port throughput figures while in the long term, large-scale market forces tend to take over and it may be expected that ports in more favourable locations would increase their share of traffic (Charlier 1992; Notteboom 2007c). Similarly, European Commission funded work (Transport Knowledge Research Centre 2005) suggests that neither port performance nor the economic value of the port industry is easy to quantify, despite the variety of possible indicators at the disposal of analysts; these include volume of trade, total value of commodity throughput, financial indicators, employment and rate of change in cargo handled over time.

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Most recently, Pettit and Beresford (2008) studied the relationship between the geographical location and connectivity of some of the major ports of the UK and their throughput performance from the 1970s to 2005. For example, all port regions saw a growth in traffic overall through the 1980s (see Figure 15.3). In the context of container port traffic, Felixstowe was at the centre of the 1970s to 1990s surge in volumes (see Figure 15.4) which triggered the construction of several new terminals and the reconfiguration of existing terminals. This surge also prompted a major review of overall national need in this sector, embracing possible additional developments at Southampton (Dibden Bay) and Shellhaven (Thames Gateway) as well as on-terminal efficiency improvements (see, for example, Dawe 2001). The purchase of Felixstowe, and subsequently Thamesport, in the 1990s by Hutchison Port Holdings reflected the importance of this growth as viewed through the eyes of foreign investors. The Northeast of England, East Scotland and the Thames all saw substantial growth, as did the south coast, often underpinned by Ro-Ro traffic to/from Europe. Northwest England and East Anglia however saw volume reduction as wheeled units and break-bulk general cargo declined in favour of containers (Pettit and Beresford 2008).

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By the late 1990s major changes in working practices and cargo handling technologies were in place and ports could attract any cargo they could realistically handle (Beresford et al. 2004a). This, perhaps surprisingly, appears to have led to growth in the volume of cargo handled in conventional form in virtually all the port regions, reflecting improved handling methods and flexibility of operating practices. Meanwhile, container tonnages grew in all regions except East Anglia and the Southwest of England (DETR 2000). Felixstowe, perhaps surprisingly, had measurable volume reductions shared equally between containers and Ro-Ro traffic (see Figures 15.4 and 15.5). This loss appears to have been to the benefit mainly of Southampton which saw increases in containerized tonnage broadly equating to the loss at Felixstowe. Growth in Ro-Ro traffic at Dover and increasing use of the Channel Tunnel may also have eroded volumes of wheeled units moving via Felixstowe. Relocation of shipping lines to alternative ports at the end of a contract period will clearly also play a significant role in the balance of volumes through these fiercely competing ports. The proximity of major container ports in the UK, and their proximity to the continental range ports, creates an intensely competitive environment where business is won or lost on small margins stemming either from port/terminal efficiencies or from through transport advantages. During the 1990s it became increasingly clear that container handling facilities in the major British ports were no longer able to cope with the growth in demand. At the same time, there was an increasing concentration of volume into the largest five ports of Liverpool, Felixstowe, Thamesport, Tilbury and Southampton (Dawe 2001). Two recent studies (Department for Transport 2006; MDS Transmodal 2006) confirm the continuation of this trend towards concentration and bring the need for additional port capacity in Britain into focus. The main drivers of growth in the containerized sector have been recognized as rapidly increasing imports from the Far East, deployment of ever larger ships on the main trade routes, the increasing power of Rotterdam as a European distribution hub and the location of the UK ports in relation to the main European ‘range’ ports. With more sophisticated pricing and more carefully defined logistics strategies, knowledge of the inland origins and destinations of containers has become a very important part of optimizing port choice and identifying minimum total transport cost solutions. Such issues have also contributed to UK government policy on ports (World Cargo News 2007) and a major study of how the UK should approach transport policy (Eddington 2006). The latter highlights the importance of geography in the performance of the UK ports, the concentration on a few large ports and the move towards a logistics and supply chain management approach driven by rapid growth in international trade and greater volumes of containerized and Ro-Ro cargo. Deep sea container traffic is concentrated into five ports, four in Southeast England, plus Liverpool (Dawe 2001). The development of London Gateway fits the thesis that capacity is mostly needed in this part of the country. Likewise, Ro-Ro freight is concentrated on Dover, the Channel Tunnel and certain other gateways, again mostly in the Southeast of the country. It is further observed that companies located

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in London and the Southeast account for 35 percent of imports by weight and 39 percent of imports by value (Eddington 2006) and these proportions are steadily growing despite a long-term programme of politico-economic inducements to encourage industry to shift northwards and westwards. In order to more fully understand the impacts of port choice on logistics, four ports offering a wide range of cargo routing options were selected for analysis here: Southampton, London Gateway, Felixstowe and Hull. Southampton and Felixstowe are established deep sea ports serving the whole of the UK, Hull is at the northern limits of possible deep sea calling and in practice is a short sea container/Ro-Ro feeder port; and London Gateway is to be a major new entrant, having received final Government approval on 30 May 2007 with full operational capability scheduled for early 2011 (DP World 2008). A mapping tool was used to quantify freight movements by distance and cost inland from the four selected ports and a number of scenarios tested in order to establish the competitive advantage which one port may have over another in terms of national cargo distribution. Real time container origins and destinations through these four east and south coast ports were analysed and inland transport costs, obtained from commercial sources, applied to the matrix. Here, of particular interest is the achievable inland range from these ports which may have important implications both for the attractiveness of the respective ports and for the overall efficiency of national container distribution.

Port Competition Analysis The methodology described in Pettit et al. (2005) is also appropriate for this study. A sensitivity analysis enabling an assessment of the competitive positions of geographically proximate ports is made from a distance/cost matrix. Especially interesting in the UK is the degree of competition between the main deep sea ports and the possible role of nearby feeder ports in the overall effectiveness of maritime logistics. Hull, Southampton, Felixstowe and the future ‘new entrant’ port of London Gateway will all compete, but competition is likely to be strongest between ports which are separated by the shortest distance. Roughly equidistant from a given pair of ports is a ‘competition zone’ which exists either side of ‘break-even’ lines which define the point at which one port has no competitive advantage over the other. As distances from each port increase, the ‘competition zone’ widens reflecting the fact that, near to the ports, the competitive edge will be most clearly defined. This clear competitive advantage one port holds in its immediate hinterland over its competitor reduces away from the ports such that, some distance away from both ports, neither has a distinct distance or cost advantage over the other. Using data obtained from shipping lines, the principal container destinations in Great Britain have been mapped. Inland container origins or destinations relate closely to concentrations of industry and population. Prominent are: the industrial

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axis of the Scottish lowlands; Northwest and central Northern England; Tyne/Tees; Humber; Midlands; parts of South Wales and Western England; and much of the Southeast. Large areas of the country receive or dispatch relatively few containers e.g. most of Scotland, the borders and Cumbrian areas of Northwest England, most of Wales and Southwest England. These main markets are quantified in more detail under ‘Trade Patterns’ below. In summary, Great Britain appears to be polarized into two separate major markets for containerized freight: Southeast England from Southampton to Norwich and, Wales/Northern England from South Wales to Humberside. Ease of access to these key areas can be decisive in the shipping lines’ choice of port. The data obtained were in miles and therefore, for clarity, miles are used throughout this discussion and kilometre equivalents are given in the main text only. For ease of discussion, and given that rail transport does not play a primary role in inland container distribution even from the major ports, the following discussion is restricted to container distribution by road only. London Gateway versus Felixstowe and Southampton The analysis shows that, for London Gateway versus Felixstowe, the break-even line runs along the axis Maldon, Cambridge, Nottingham, Manchester, Bolton, Fleetwood. The line is equidistant between London Gateway and Felixstowe, 25 miles (40 km) from each port in the south and approximately 240 miles (380 km) from each port in the northwest. For London Gateway versus Southampton, the break-even line runs along the axis Worthing, Reading, Ludlow. The line is equidistant between London Gateway and Southampton, 72 miles (115 km) from each port in the south and approximately 460 miles (730 km) from each port in central England. For Felixstowe versus London Gateway, the ‘competition zone’ includes central England, North Wales, and northwest Scotland. For Southampton versus London Gateway, the ‘competition zone’ is a much narrower band of central England, North Wales, and northwest Scotland. Hull versus Felixstowe and Southampton For Hull versus Felixstowe the break-even line runs along the axis Plymouth/ Exeter/Bristol/Oxford/Kings Lynn. The line is equidistant between Hull and Felixstowe, 100 miles (160 km) from each port in the East and approximately 300 miles (480 km) from each port in the Southwest. The ‘competition zone’ includes the whole of the Southwest peninsula and stretches across the West Country and South Midlands into Northern East Anglia. It is notable that most of this zone is broadly the agricultural region separating the industrial midlands from the generally densely populated Southeast. For Hull versus Southampton the breakeven line runs along the axis Cardigan Bay/Birmingham/Northampton/Harwich. The line is equidistant between Hull and Southampton, 220 miles (340 km) from either port in the West and approximately 170 miles (270 km) from each port in the Southeast. The ‘competition zone’ forms a band stretching across Central

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Wales and Central England running from Cardigan Bay through Shropshire, the West Midlands, Northamptonshire and into Southern East Anglia. North of this line Hull has a clear advantage while South of this line the advantage is with Southampton. Feedering Issues Notwithstanding the operational advantages of mainline call minimization (more efficient ship utilization, faster cycle times and cost savings) feedering to/from continental Europe is embedded in the maritime logistics systems which serve the UK. For example, around 30 percent of containers moved through Felixstowe are transhipped via Rotterdam, Antwerp and other continental ports. About 14 percent of deep sea containers destined for Great Britain (1 million TEU from 7 million in total) are routed via continental ports with Felixstowe handling easily the biggest share (MDS Transmodal 2006). In practice, due to ‘blanket’ or ‘absorption’ pricing on the part of the major lines and Alliances, it has been entirely normal for feedering costs to be ‘buried’ or ‘absorbed’ in a single charge for, say, the UK. More recently however, lines often prefer to charge according to a fine grid with the result that the feedering costs do show up, as do road or land haulage charges. Feedering costs will influence the break-even line between the major ports. For example, between Hull and Felixstowe the area in which Hull is competitive shrinks significantly as feedering costs are increased. This has the effect of adding-in road haulage distances roughly equivalent to between 90 miles (145 km) and 155 miles (250 km) depending on the level of feedering charge. For imports, the sensitivity to a change in feedering cost is greater the further the destination is from Hull/Felixstowe. This is because the greater the incremental distance, the smaller the distance advantage becomes for each port in proportionate terms. As feedering is relatively expensive, it pushes the position of the break-even line into areas where the line’s exact position is very sensitive to the additional cost of feedering. A small adjustment to feeder cost therefore moves the break-even line a considerable distance. North of a line running from Preston to South Humberside, conditions are very marginal with a small change in feedering costs bringing about a very large shift in the competitive position of one port against the other. South of this line, the competitive position of the two ports is much less sensitive to feeder costs. The following zones of land can be identified as being particularly sensitive to a change in feedering costs: virtually all of Scotland, Northumberland, Tyne/Tees, North Yorkshire, Cumbria. Rather less sensitive are: Central Northern England, Devon and Cornwall, Northwest Wales, Southwest Wales, West Kent and East Sussex. For example, if the feedering cost is set at £170, virtually all of Scotland is feeder cost sensitive; with the break-even line lying on a Dumbarton, South Glasgow, Berwick axis. However, when feedering costs are reduced to £150, then Northumberland, Tyne/Tees, North Yorkshire and Cumbria also become cost sensitive with the breakeven line running from Lancaster to Hull and then north

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to Scarborough. Reducing feedering costs to £130 and then £100 shifts the breakeven line only small distances south. At £130 the break-even line runs between Preston and Hull while for £100 feedering cost, the break-even line retreats South to run across North Wales to Liverpool, Manchester and Grimsby/Immingham. If feedering costs were as low as £90 for a twenty foot container, the competitive hinterland of Hull would include all of North Wales, Flintshire and Cheshire and the break-even line would run eastwards through Derby and Nottingham to Boston. As well as feedering or transhipment costs, the inland movement of containers represents a potentially critical process which, for the purposes of this study, is treated as a road based operation. The next section details road haulage costs for container movements as obtained from major shipping lines. Thus for reasons of confidentiality, rates have been generalized, although they remain realistic.

Container Haulage To and From Ports Whether London Gateway is to be competitive over Felixstowe or Southampton, or whether Hull may emerge as a key transhipment link with Rotterdam, will largely depend on the cost of transporting containers or goods inland. Container haulage data for Felixstowe were obtained for 2003 and 2007 (Table 15.1), Hull, 2007 (Table 15.2), Southampton, 2007 (Table 15.3) and Tilbury, 2007. Tilbury is used as a proxy for London Gateway, and haulage rates adjusted to account for the extra distance. In 2003, haulage quotes to/from Felixstowe were within a range of £1.00 to £1.35 per mile depending mainly on how effectively vehicles were being utilized in terms of loaded miles and average running speeds. Container deliveries to London and Southampton suffer from relatively high costs stemming mainly from motorway routing via the congested M25 and urban delays on the M25. Thus haulage to/from Felixstowe average £1.10 per mile (£1.08 excluding London). There appeared to be no consistent or clear reduction in per mile charges with increasing distance leading to the conclusion that in 2003 it was reasonably safe to generalize inland container haulage by road at £1.10 per mile, accepting that there is some variation according to route. Four years later, container haulage rates had risen to an average of £1.20 to £1.50 per mile (though with some regional and route variation) reflecting higher fuel prices, increased congestion (especially in/around London) and other differences such as level of competition (Beresford et al. 2004b; Pettit and Beresford 2007). Very noticeable from the data is that container transport, in, around and near to London is expensive with rates 15 percent to 40 percent higher than over less congested routes. What is equally clear is that inland container distribution to/from Hull is consistently 10 to 25 percent (average 11 percent) cheaper than inland transport to/from Felixstowe. This has potentially major overall implications for

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Table 15.1 Destination

Glasgow

Distances and haulage rates, Felixstowe to selected destinations 2003 2007 Round Typical Round Trip Typical Trip miles £/mile miles £/mile 864 1.00 840 1.30

Leeds Manchester

444 476

1.00 1.10

430 494

1.20 1.30

Birmingham

326

1.10

334

1.30

Bristol

382

1.10

446

1.30

Southampton

306

1.20

310

1.40

London

152

1.35

200

1.50

Average

1.10

1.32

Ave. excl. London

1.08

1.29

Table 15.2

Notes

Long distance, some congestion, all motorway Mostly motorway Different customer locations Motorway, some congestion Diversion for backloads, road congestion High percentage of dead time, road congestion East London, West London, road congestion, dead time

Distances and haulage rates, Hull to selected destinations

Destination

Glasgow Leeds Manchester Birmingham Bristol Southampton London Average Ave. excl. London

2007 Round £/mile Remarks Trip miles 508 1.00 Long haul, mostly uncongested 176 1.00 All motorway; Backloads available 190 1.10 Some congestion, but vehicle mostly full 264 1.20 Congestion, some empty running 428 1.20 Congestion, some empty running 490 1.10 Fits one day schedule; efficient 362 1.40 Urban and M25 congestion 1.18 1.16

overall logistics costs and hence, possibly, port choice. It is interesting to note that, superficially, international freight shipments are routed in such a way as to land minimize and sea maximize in order to reduce overall transport costs (Beresford 1999; Beresford et al. 2006). However, early work by, for example, Beresford

A Geographical Perspective on Port Performance in the United Kingdom

Table 15.3

Distances and haulage rates, Southampton to selected destinations

Destination

2007 Round Trip £/mile miles

Remarks

Glasgow

856

1.20

Long haul, efficient truck utilization

Leeds

468

1.30

Medium haul

Manchester

448

1.30

Medium haul

Birmingham

268

1.40

Short haul, inefficient truck utilization

Bristol

218

1.25

Short haul but vehicles mostly full

London

130–160

1.80–2.25 Congestion, delays, uncertainty

Average

1.29

Ave. excl. London

1.50

Table 15.4

Destination

221

Inland haulage from London Gateway:* Distances and projected rates to selected inland destinations 2007 Round £/mile Trip miles

Remarks

Glasgow 836 1.30 Shortage of full-distance backloads Leeds 426 1.32 Some congestion and empty running Manchester 462 1.29 Mostly full round trips Birmingham 300 1.38 Medium haul and congestion 1.33 Medium haul and some congestion Bristol 354 London 110–150 1.70–2.20 Short haul and congestion Average 1.32 Ave. excl. London 1.50 Note: *Assuming additional 10 miles round trip over Tilbury origin charged at £1.30 per mile.

(1986) and Hussain (1988) demonstrated that, for high-value Ro-Ro cargo, a ‘sea minimizing, land maximizing’ strategy is often adopted with cargo routing decisions being taken at least as much to minimize risk of delay as to minimize costs. Haulage rates to/from London Gateway, using Tilbury data in the first instance, were estimated by applying a distance correction factor of 5 miles (8 km) one way or ten miles (16 km) on a return trip (Table 15.4). Transferring the rate per mile

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directly from Tilbury to London Gateway would imply that, for example, for delivery to London North, an additional £22.60 would be charged. An example of a long haul delivery would be container haulage to Glasgow. In this case, application of the Tilbury per mile rate to a vehicle starting at London Gateway would result in an additional charge of £13.00. However, if access to the London Gateway development is clear of congestion, operators could conceivably reduce their rates pro rata such that the extra mileage vis-à-vis Tilbury could be charged at perhaps £1.30 per mile. For the longer haul destinations there is no marginal impact on the rate per mile. Where rates are charged at less than £1.30 per mile then the overall rate will be unaltered as there is no reason to charge more for the uncongested additional 10 miles (16 km) at the London Gateway end of the journey. In summary, the cost of inland transport of containers to/from the main gateway ports varies according to a complex mix of criteria. Particularly important is the haulage distance (longer hauls tend to encourage per mile costs), the level of road congestion (congestion brings uncertainty which converts to higher costs), and the availability of backloads. Some inland origins/destinations offer more frequent and more reliable back loading opportunities and this converts to a significant reduction in per unit transport costs. The macro pattern of movements within Great Britain is discussed below.

Trade Patterns Internal freight flows within the island of Great Britain are well documented (see, for example, Bristol Port Company 2007) and these give some idea of the level of trade between specific regions and the UK’s overseas trading partners. But, as such information is in the hands of shipping lines and their agents, it is generally commercially sensitive and data are vulnerable to bias stemming from the particular statistical source. Data published by, for example, the Port of Bristol Company referred to above, relate to 200,000 actual trips made by UK hauliers between January 2005 and May 2006. The trips are mainly all road, but road-rail intermodal movements are also included. As the information serves the purposes of a specific port, it is unlikely that it has been independently verified; the pattern of container distribution to/from a competing port could well be different. Nonetheless, the data enable a reasonable picture of international containerized cargo movements to be built up despite these shortcomings. The destinations of deep sea import containers fall into 6 zones as detailed in Table 15.5. The total demand in zone 4 is approximately the same as in zone 6. Zones 1 and 3 have few if any important markets for containerized goods. Although zone 2 is a significant market, its distance from London Gateway, Southampton and Felixstowe makes it very sensitive to transport costs; the competitive advantage one of the ports may have over another for serving this region is only marginal. Although zone 4 is technically the largest market area it is rather more

A Geographical Perspective on Port Performance in the United Kingdom

Table 15.5

Regional markets by percentage

Zone

Regions

1

Northern and Western Scotland. Demand low and widely dispersed. Central Scotland. Demand less dispersed overall and medium volume. Borders and North England, North Mid and West Wales. Demand is again low and widely dispersed. A ‘box’ bounded by Tyne, Liverpool, South Wales, Oxford. Generally medium to high volume. Southwest England, Central Southern England, Northern East Anglia. Demand is generally low and rather dispersed. Southeast England. Demand is high and concentrated.

2 3 4 5 6

223

Share of Market 1% 8–9% 2% 41–43% 7–8% 39–40%

dispersed with less distinct boundaries than Southeast England which is heavily concentrated and has mostly well defined boundaries. The size and concentrated nature of the Southeast England market works in favour of a southern mainline port call. In this sense the London Gateway development appears to be ideally suited to serving this market both as an importation point and as an inland distribution facility. A significant additional volume of international unitized traffic is moved by Ro-Ro which is the dominant method for short-sea (Ireland and near continent). For medium sea (Scandinavia, Iberia and the Mediterranean) the picture is mixed with both Ro-Ro and Lo-Lo interplaying in a complex fashion according to volume, route, alternative transport options etc. The European Union accounts for 53–58 percent of UK trade but only 38–40 percent of UK container traffic, reflecting the important role of Ro-Ro over many short intra-European routes (MDS Transmodal, 2006). What is certain is that both direct mainline calls and feedering of containers via container ports will remain extremely important for the economic well-being of the UK at large. The substantial additional Ro-Ro flows will interact with these in a complex way, such that many British ports will be dependant upon all three forms, rather than one in isolation. The choice of gateway through which lines choose to serve the UK will be dominated by a small number of deepsea facilities, mostly in the Southeast of England, supported by a number of established feeder ports such as Hull. The additional capability of several Ro-Ro ports will cushion the national container handling capacity as they have for a number of decades. What is notable in the UK is just how many ports continue to offer container and/or Ro-Ro facilities in a very small geographical area.

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Ports in Proximity

Conclusion The area for which each of the ports has a competitive edge over competitors has been highlighted. In addition, zones where ports appear not to have a clear advantage have been identified and London Gateway is shown to provide a good prospective location for freight flows into and out of the UK from two points of view. Firstly, it is shown to be potentially a good location from the point of view of total transport cost for serving the Southeast of England which is the most important market for unitized freight. Secondly, it will provide an effective access point to many of the principal destinations in the UK in terms of overall logistics. However, London Gateway may be vulnerable to inefficient inland distribution caused by a combination of road congestion and poor vehicle utilization both of which will almost certainly raise transport costs and bring uncertainty into the distribution service. Evidence from current road haulage container distribution companies clearly demonstrates that congestion and uncertainty translate into substantially higher rates in and around London. Ultimately the feeder port option e.g. distributing containers into or out of Britain via, for example, Hull could prove an effective and realistic alternative. In specific terms, the complexities of container feedering from a mainland European port such as Rotterdam, are such that it may be cheaper to serve northern England via a northern gateway such as Hull, rather than via an established southern deep sea port such as Felixstowe or Southampton. This would require further research. Despite the recent reduction in container traffic through Felixstowe, in aggregate Southeast England remains the most attractive area for mainline calls, as exemplified by the ongoing construction of what will be Britain’s biggest ever container facility at London Gateway. The choice of port in this sector is within Southeast England rather than between Southeast England and other regions. Port groups, such as those on the Humber or Thames estuaries, are best positioned to exploit the shipping lines’ desire to maximize cargo pick-up and minimize through transport costs. However, inefficiencies in inland distribution appear to be threatening the grip of the main deep-sea ports on the high volume marine flows into and out of Great Britain. Specifically it is notable that transport of containers to/from Humberside is significantly cheaper than distribution in the Southeast of England. The proximity of the main deep sea ports and some of the established feeder ports implies that restructuring of maritime based distribution by re-routing mainline calls could be comparatively easy and at a reduced overall cost.

Chapter 16

External Influences on the Humber Estuary Ports, the Largest Concentration of Port Activity in the UK John Mangan, Amy Proctor and David Gibbs

Introduction In a report on port reform published in 2007, the World Bank identified five key changes predicted to radically influence port operations in the 21st century. These were: the intensification of global competition; new technology; changing distribution patterns; environmental, safety and security concerns; and shifting bargaining power as a result of realignments and consolidations amongst port users and port operators (World Bank 2007). This chapter reflects in particular upon two of these five factors: changing distribution patterns and shifting bargaining power, and assesses their influence upon the Humber Estuary ports, the largest concentration of port activity (in volume terms) in the UK. The structure of the chapter is as follows. In the next section we detail the UK ports sector, and focus in particular on the relative role of the ports along the Humber Estuary. Following this, we examine the changing nature of port ownership, linking this to wider debates on the changing nature of the global economy. We then turn to the impact of logistics developments on UK ports, and in particular consider the development of port-centric logistics.

The UK Ports Sector and the Humber Ports The Ports Sector in the UK The UK is a major world economy, a member of the ‘Group of Eight leading industrialized nations (G8)’, and ranked the world’s sixth largest exporter in value terms. Ports, and more generally maritime transport, have played a key role in Britain’s trading history, particularly given its island status, geopolitical history and highly developed trading linkages. Maritime transport is one of the world’s most international industries and, to quote Stopford (1997: 2)

Ports in Proximity

226

in studying maritime economics we are drawn into a discussion of the world economy as a whole. Seaborne trade is, in a sense, at the apex of world economic activity.

Ports and economic activity are thus inextricably linked and play a key role in the UK economy. In fact the importance of UK ports, and the movement of international freight through them, can be assessed from the following statistics (Department for Transport, quoted in MDS Transmodal and Regeneris 2006): • • •

About 95 percent of the UK’s international freight tonnage is handled at UK ports; Nearly 30 percent of UK GDP is derived from international trade in goods; 6 percent of UK GDP is derived from the freight and logistics industry.

The wider logistics industry is a key economic sector in the UK. According to Skills for Logistics (a government funded agency for logistics skills development), the UK logistics sector is worth £74.45bn to the economy and currently employs approximately 2.3 million people spanning some 196,000 companies (Skills for Logistics, 2009). Logistics capabilities in the UK are well developed by international standards, with the UK ranking ninth in the Global Logistics Performance Index (LPI). According to UK Department for Transport statistics, in 2007 UK ports handled some 582 million tons of freight. The volume of freight handled by UK ports has grown by just 3 percent in the period since 1998. A number of important trends are however evident within this data. Bulk volumes have declined, while volumes of freight handled by unitized traffic (both container and roll-on/roll-off) have increased. In fact the number of TEU handled by UK ports has increased by

Table 16.1

Top ten ports in the UK in 2007

Port Million Tonnes Humber 90.0 London 52.7 Tees and Hartlepool 49.8 Southampton 43.3 Forth 36.7 Milford Haven 35.5 Liverpool 32.3 Felixstowe 25.7 Dover 25.1 Sullom Voe 16.6 Source: Own compilation based on data publicly available by UK, Department for Transport (2008).

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227

some 25 percent since 1998. The growth observed in the number of TEU is greater than the growth observed in the volume of unitized freight handled, reflecting the trend of average tons per container declining. This trend is set to continue with the number of TEU to be handled at UK ports growing faster than the projected tonnage growth of such container traffic. Unitized traffic handled at UK ports is set to grow considerably in the medium to long term. Estimates for the UK Government to 2030 (MDS Transmodal 2007) using 2005 as the base year predict a 183 percent increase in container TEU and a 101 percent increase in RoRo HGV (heavy goods vehicle) units. The Humber Estuary Ports Table 16.1 illustrates the top ten ports in the UK by volume in 2007. Total freight traffic through UK ports in 2007 was 582 million tons of which 565 million tons (over 97 percent) was through the 52 major ports. The Humber estuary ports (Hull, Immingham, Goole, and a number of smaller ports, wharves and jetties) represent the largest ports cluster (when measured in terms of volume of freight handled) with a combined volume of some 90 million tons (15 percent of the UK total). The geographical position of the Humber Estuary can be found on Figure 15.2 in the previous chapter. While this is very significant in the context of total UK port traffic, it is dwarfed by the volumes handled at some of the world’s largest individual ports such as Shanghai, Singapore and Rotterdam which individually handle multiples of this – in the case of Shanghai, for example, the 2005 estimate is 443 million metric tons (American Association of Port Authorities 2007). In terms of container traffic, according to the UK Department for Transport statistics, approximately 8.9 million TEU were handled by UK ports in 2007, with ports on the Humber estuary however only handling some 6 percent of these units. Ports in the South of England such as Felixstowe (3.3 million TEU) and Southampton (1.9 million TEU) handle the greatest shares of UK TEU. Again, these statistics are dwarfed by comparable statistics for the world’s leading ports with, for example, Singapore handling over 23 million TEU in 2005 and Rotterdam handling over 9 million TEU in 2005 (American Association of Port Authorities 2007). However, two pertinent, and largely unrelated issues, could lead to increased traffic through the Humber ports. The first concerns UK government policy which, via the ‘Northern Way’ initiative, seeks to redress the economic imbalance which currently exists between the South and the North of England (the latter being less prosperous across a variety of indicators). Greater economic activity in the North of England could in turn lead to higher traffic volumes through the Humber ports. The second issue concerns the environmental impact of road freight movements. At present, the majority of UK container movements are via ports located on the south and Southeast coasts of England. With increased emphasis on reducing the landside transportation of freight, especially that via road transport, there may be a redistribution of some container movements to ports which are nearer to

228

Ports in Proximity

their final destination (and are also linked to less congested road networks). It is important not to overestimate this potential however as the greatest demand for container traffic arises from economic activity in the Southeast of England and adjoining regions, thus favouring ports in those areas. Road congestion however is increasingly also an issue and, given increasing road congestion especially in the Southeast of England, ports linked to less congested road networks may be able to attract a greater share of traffic. In Pettit and Beresford’s (2007) analysis of container distribution patterns in the UK one of their conclusions was that it may be cheaper to serve Northern England via feedering from a port such as Rotterdam into a gateway such as Hull rather than via a mainline direct call at Felixstowe or Southampton. They do caution however that further research is required. The foregoing discussion leads to consideration of how the Humber’s hinterland can be defined. There are echoes here of the early work of Hoare (1986) on the rapidly changing geography of British Ports and their hinterlands. Traffic origindestination data was not available to us however and thus further work is required to define the Humber’s (changing) hinterland.

Changes in Ownership of UK Ports The World Bank report quoted in the introductory section of this chapter noted that there has been a shift in bargaining power as a result of realignments and consolidations in the ports sector. This section reflects in particular upon recent changes that have taken place concerning port ownership patterns and how this impacts upon the UK ports sector. On these wider changes the World Bank notes in their report: …a relatively small number of companies have been acquiring terminals in ports in all areas of the world, creating terminal operators with global coverage that have financial depth and negotiating strength to withstand demands of terminal users (World Bank 2007: 44).

Robinson (2002) observes that ports and port authorities are experiencing significant structural and functional changes in a rapidly globalizing marketplace. Indeed, following the changes in port administration which occurred in the 1980s and 1990s with the transition to ‘corporatized, commercialized or privatized entities’ (Robinson 2002: 244), ports are now operating in a new environment, one that is globalized and exceptionally competitive. The initial privatization of UK ports has already been documented extensively – see for example Thomas (1994) and Baird (1995). The prominent role of shipping and ports in a global economy has meant that port operators have become attractive targets due to their stable income streams, large property portfolios and buoyant (at least until very recently) shipping markets on the back of growth in Chinese trade flows. The growing significance of ports has led to increased investor interest, with ports becoming

External Influences on the Humber Estuary Ports

Table 16.2

UK port operator take-overs

Port Operator

Investor

Associated British Ports Holdings plc

Admiral Consortium (consists of 4 partners: Wall Street Bank, Goldman Sachs; GIC, the Singapore Government investment company; Borealis, the Canadian pension fund and the infrastructure business of UK-based Prudential)

The Simon Group plc

Montauban SA (subsidiary of the CdMG group, Belgium) Dubai Ports World (DP World) (backed by the Government of Dubai)

June 2006

Babcock & Brown Infrastructure (Australian Investment fund which also owns an Australian coal terminal and electricity and gas distribution networks) Peel Holdings (has extensive property holdings including Manchester’s Trafford Centre, Liverpool’s John Lennon Airport, the Manchester Ship Canal and Clydeport)

December 2005 (£337m)

P&O

PD Ports

Mersey Docks and Harbour Company

229

Date and value of takeover August 2006 (£2.8bn)

December 2005 ($6.8bn)

June 2005 (£771m)

Control of:

21 ports including Ayr, Barrow, Barry, Cardiff, Fleetwood, Garston, Goole, Grimsby, Hull, Immingham, Ipswich, Kings Lynn, Lowestoft, Newport, Plymouth, Port Talbot, Silloth, Southampton (joint venture with P&O), Swansea, Teignmouth and Troon. Sutton Bridge and the Humber Sea Terminal at Killingholme. Most of P&O’s port assets are overseas (DP World was forced to sell-on American port assets to another company following opposition to its takeover). In the UK, P&O had a joint development with ABP at Southampton and also owned Tilbury. Tees and Hartlepool ports.

Liverpool, Sheerness and Heysham.

Source: Own compilation based on House of Commons Transport Committee (2007: 13).

viewed as key global financial assets – 2006 saw the £4.26 billion takeover of P&O by Dubai Ports World, while Peel Ports paid £771 million for Mersey Docks, and Babcock and Brown Infrastructure spent £337 million to take control of PD Ports

230

Ports in Proximity

in 2005. Associated British Ports (ABP), the main port operator on the Humber, was the subject of competitive bidding activity between Admiral Acquisitions, a Goldman Sachs-led consortium, and Macquarie Bank, with the former eventually paying £2.8 billion for ABP. This series of mergers and take-overs in the port and shipping sector has led to a small group of operators handling a significant share of global trade. In 2005 for example, the top ten global port terminal operators controlled 168 million TEU or 36 percent of the world’s port throughput, with the five largest operators controlling 28 percent of all throughput (Drewry Shipping Consultants Ltd 2006, cited in World Bank 2007: 46–7). Looking to the future, the World Bank predicts that amongst the largest global terminal operators, there will be further consolidation as a result of merger and acquisition activity, with some of the larger operators further expanding their capacity, thus creating ‘…a small number of powerful players that change the way port services are bought and sold.’ (World Bank 2007: 59). One interesting point to note on this issue is the increasing role of Middle East and Far East companies in global port acquisitions activity. Indeed, Olivier and Slack (2006) argue for a rescaling of port geography to take account of the increasingly transnational nature of port operators, and in particular, the role of Asian TNCs. They argue that these are the key actors in this new port geography. The furore that developed in the US as a result of DPW’s acquisition of P&O illustrates some of the perceived risks associated with such a power shift. So what impact might these global changes in port ownership have at the national scale in the UK? In contrast to Continental Europe, where many ports are publicly funded and subsidized, the majority of ports in the UK became privately owned and operated from the late 1980s onwards. Over recent years however, the issue of overseas control and ownership of many UK ports has become one of increasing importance following a number of high profile take-overs (see Table 16.2) and more recently, there has also been ongoing speculation and rumours of a take-over bid for Edinburgh-based Forth Ports Plc, the last remaining independent UK port operator (The Independent online 26 June 2007 and 1 November 2007; The Scotsman online 24 June 2006). ABP are the dominant operator on the Humber, owning Hull, Immingham and Goole, and are also the designated pilotage authority. With only one independent UK port operator remaining, the recent changes which have taken place in port ownership raise a number of questions. It is difficult to speculate about what is driving investors to acquire particular port infrastructure, for example, whether decisions are being made based on the current or projected future performance of ports or are being driven by other factors. Whatever the reason, it is important to assess how such changes may impact at the local and regional level. This is particularly pertinent given that there are perceived threats posed by such changes, as the following extract clearly demonstrates: We are concerned that the ownership of UK ports by foreign companies, particularly those with no prior experience of owning and managing ports, may

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231

create instability within the industry. Port companies with foreign interests may decide on balance that investment and development is best prioritized outside the UK; similarly investment companies may see more profit in selling off ports for land. The Government must recognize the risks and develop an action plan to mitigate them’ (House of Commons Transport Committee 2007: 19).

The impact foreign ownership may have on UK ports is a key issue to be addressed in the Government’s Ports Policy Review (this review process is currently ongoing). In a report produced as part of this review process by the House of Commons Transport Committee, the concerns of various parties including the UK Major Ports Group (UKMPG), freight companies and trade unions are detailed (House of Commons Transport Committee 2007: 18–19). Three key issues highlighted include: • •

•

Fears that foreign owners could be further removed from the local communities in which ports are embedded; Concerns that port owners which are investment companies may not act in the best interests of the ports themselves, with a risk that port companies with foreign interests may direct investments to port interests elsewhere, particularly outside the UK; Worries that investment companies may see more profit in selling off ports for more lucrative forms of development such as housing.

These debates are of particular interest in the Humber Estuary, where the economy is heavily dependent on the ports sector and ownership of the main port operator, ABP, has recently transferred overseas.

Port-centric Logistics and the Humber Ports Logistics is set to become an increasingly important area of activity in the context of the Humber ports. A major assessment of the Hull and Humber city region by IBM Global Business Services (2006) identified three target sectors for economic activity in the region: renewable energies, healthcare and biomedical technologies, and value-added logistics. Development of the latter sector could have major advantages for the Humber ports. These ports are of course subject to the influence of many of the interesting trends that are evident in the global maritime transport sector today (e.g. consolidation and the emergence of global port operators, and the impressive growth in container vessel size), however most of these trends are not the focus of this chapter. One trend, however, the emergence of what has come to be labelled ‘port-centric logistics’ (Falkner 2006, Mangan and Lalwani 2006), is of particular interest, especially in the context of the development potential of the Humber ports.

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Looking beyond the ports’ physical boundaries, Notteboom and Rodrigue (2005) argue for a new phase in port development, viz. regionalization, where the reach of the port extends beyond the port perimeter and involves, inter alia, market strategies and policies linking it more closely to inland freight distribution centres. Indeed some UK ports are actively encouraging companies to locate distribution centres at ports rather than in their traditional locations, which tend to be in geographically central, inland locations, and which often suffer from congestion in their surrounding road networks. They argue that current patterns of (inland) distribution centre location ignore the fact that most of the freight that passes through these distribution centres first passes through a port. Therefore they argue it is logical (and often easier in terms of land cost, accessibility, availability of labour, and so on) to site such distribution centres at ports. The term ‘port-centric’ is sometimes used to refer to this approach (Falkner 2006; Mangan and Lalwani 2006). The gateway position of major seaports can also offer opportunities for the development of value-added logistics activities proximate to ports. Port clusters have thus evolved which Haezendonck (2001) defines as the set of interdependent firms engaged in port-related activities, located within the same port region and possibly with similar strategies leading to competitive advantage and characterized by a joint competitive position vis-à-vis the environment external to the cluster.

With port clusters, a modern seaport becomes a node in a global logistics chain, acting as a collection-distribution centre or logistics hub where many value-added activities can be conducted. Ports increasingly recognize that higher profit margins can be made on some non core port activities and this is driving them to engage in activities beyond simply providing berths for ships and other core port services. Analytiqa, a UK market analysis and business intelligence company, suggest that port-centric logistics may be what they refer to as ‘the next big thing in the supply chain’ (Analytiqa 2007). They cite as an example of port-centric logistics in action the case of the major UK retailer Asda (which is part of the Wal-Mart group) who have recently opened a major distribution centre at the port of Teesport in the North of England. An example from the Humber of port-centric logistics is that of a local company, Grange Fencing, who have built a factory at the port of Hull to process timber imported from Scandinavia into garden products (ABP 2002). Other examples of port-centric logistics on the Humber are likely to evolve as the ports see the potential to be leveraged from such activities.

Conclusion and Recommendations for Further Work This chapter has focused on the Humber ports, the largest concentration of port activity (in volume terms) in the UK. The impact of various disparate external

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influences on the Humber ports (economic activity in the UK, changes in ports ownership, and developments in port-centric logistics) were considered. It was contended that a number of pertinent, yet largely unrelated, trends could lead to the ports on the Humber Estuary enjoying an increased share of total UK port traffic: (i) efforts to redress the economic deficit between the North and South of England, (ii) emphasis on reducing landside movement of freight in the UK, and (iii) development of port-centric logistics activities. A significant unknown however within all of this is the impact from changes in port ownership given that the ownership of the main port operator, ABP, has recently transferred overseas. The spatial proximity of the Humber Ports to those on the south coast of England and to Continental Europe is also a key issue. Increased feedering into the Humber ports from Continental Europe, and whether there is potential to exploit/extend the ports’ hinterland, are also important issues going forward. A key issue then for the Humber ports is proximity, but how that is defined has yet to emerge, and needs to be the focus of further research, as does in-depth analysis of the ports’ hinterland. More generally, it is hoped that the chapter has given the reader an insight into some of the disparate issues currently impacting the ports sector in the UK.

Acknowledgments Amy Proctor and David Gibbs were funded through a Higher Education Innovation Fund (HEIF3) grant awarded by the HEFCE. The authors would like to thank all those individuals who have willingly given their time to be interviewed for the project.

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PART V THE ASIAN CASE: MAJOR CHANGES IN PORT SYSTEMS’ HIERARCHIES

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Chapter 17

Port Competition Paradigms and Japanese Port Clusters Masato Shinohara

Introduction Ports used to be considered merely as infrastructure, as roads and bridges. They were important as gateways for overseas trade. A side effect was that the construction of ports contributed to stimulating the local economy by the multiplier effect of public investment. These roles are still considered greatly important for the local economy. A port is nowadays regarded as an entity that pursues its own interest for growth and prosperity as if it were a profit-making firm. The organizational components of the firm are, however, not clear: there is no single firm but a variety of autonomous organizations, some of which are also operating at the competing ports. This makes the competition ambiguous and the question arises what constitutes port competition, and who are actually competing. Further, it may be questioned whether ports are supposed to compete with each other or not. We should cast a direct focus on this subject when we discuss port competition. In order to contribute to enriching the arguments on port competition, this chapter investigates whether Japanese ports provide a different perspective on port competition.

Port Clusters in Japan Japan is a maritime nation. The country is divided into many islands, among which four main islands where economic activities concentrate. Each island is separated into many local areas by mountains. These conditions cause each area to have its own port. At present, there are 1,064 ports in the country, of which 128 are major and 936 are regional ports. Of the major ports, 23 are designated as hub ports, which attract more intense public investment than the others. Under feudalism in the pre-modern ages and up until 1868, Osaka was the largest logistics hub in Japan. In those years, rice from various regions was first collected in Osaka as tax, and then transported to the political capital of Edo (present Tokyo) as necessity arose.

Ports in Proximity

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Figure 17.1 GDP of Asian countries in 2007

From the biggest source of rice on the Japan Sea side, ship owners carried rice all the way westbound to Kanmon Strait and then navigated the ships eastbound through the Setouchi Inland Sea to Osaka. The reason why Osaka was the logistics centre is that there was a 50 km waterway from Osaka to Kyoto, then the nation’s capital. River Yodo was an important infrastructure for the waterway transportation of rice and fish until 1868, the end of the Edo era. In Osaka, warehousing businesses to store the rice became exuberant and nurtured many entrepreneurs. The logistics centre also led to the development of industries such as crafts, sake brewery and textiles. This also made it possible to develop cultural activities. As such, being a logistics hub led Osaka City to become the greatest business and cultural centre of Japan. This was the ideal form of a port cluster. It was maintained for more than two centuries as the country kept the policy of national seclusion, with foreign trades limited to a minimal volume, which left the same pattern of logistics to continue for a longer period.

Port Competition Paradigms and Japanese Port Clusters

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Figure 17.2 Japan’s trade in containers by counterpart region (unit: million TEU) Japan and the Asian Economy In modern times, since World War II, Japan has been playing a role of a locomotive, pulling the growth of the Asian economy along. Currently, Japan’s GDP is still much larger than any of the other countries in Asia (see Figure 17.1). However, China is rapidly closing in behind Japan at the annual growth rate of approximately 10 percent. On the assumption that China’s economic growth continues at this pace and the Yuan/Yen exchange rate remains the same, China’s GDP will catch up with that of Japan in two years. At that point, China’s GDP per capita will still be as low as one tenth of that of Japan as China’s population is ten times as large. That is, China’s economy will have a large growth potential. Moreover, the neighbouring economies such as the ASEAN countries and India, with the population of 0.6 and 1.1 billion respectively, are also expanding rapidly. In terms of trades on a volume basis, the presence of Asia becomes much larger. Figure 17.2 shows a chronological movement of containerized cargo from/to Japan. Obviously, Japan’s main trade partners have shifted from North America and Europe to East Asia. For the last decade, Japan’s trade volume with the East Asian countries has rapidly been growing. It is expected that this trend will continue as East Asia’s production capacity grows and the people’s standard of living rises. This means that Japan’s maritime transport policy should cope with this tendency.

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Port Competition: Comparison Between Europe and Asia The history of the logistical relationship between the UK and the European Continent and that between Japan and the Asian Continent resemble each other. The Industrial Revolution started in the island nations and spread into the neighbouring continental countries. Both island nations have gradually been losing their economic hegemony. Current major port competition in Europe takes place among the ports in proximity on the northern coast of the continent; i.e. in the Le Havre/Hamburg range (Notteboom 2006d). On the East Asian continental coast, Busan of Korea and the neighbouring Chinese ports compete fiercely with each other for the position of a hub port for the last several years. Table 17.1 is a ranking of ports handling container cargo in the world. In 1980, when containerization was still limited largely to the ports in developed countries, Table 17.1

World port ranking in container handling 1980/2006 (in 1000 TEU) 1980

2006

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

New York/ New Jersey Rotterdam Hong Kong Kobe Kaohsiung Singapore San Juan Long Beach Hamburg Oakland

1947 1901 1465 1456 979 917 852 825 783 782

Yokohama

722

Busan

634

Tokyo

632

39

Osaka

254

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Singapore Hong Kong Shanghai Shenzhen Busan Kaohsiung Rotterdam Dubai Hamburg Los Angeles Qingdao Long Beach Ningbo Antwerp Guangzhou Port Klang Tianjin New York/ New Jersey Tanjung Pelepas Bremen/Bremerhaven

24792 23230 21710 18469 12030 9775 9690 8923 8862 8470 7702 7290 7068 7019 6600 6320 5900 5128 4770 4450

23 28 33 38 44

Tokyo Yokohama Nagoya Kobe Osaka

3665 3200 2740 2413 1906

Source: Based on figures provided by MLIT of Japan.

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US, European and Japanese ports were major players. Kobe was then ranked fourth in the world and the largest container port in Japan. In 2006, however, the US, European and Japanese ports were all ranked further down in the league. The top six ports were all located in Asia. The largest nonAsian container port is Rotterdam, which ranked 7th, and Japanese ports appear far below the 20th. This trend seems to be continuing as the Asian economies continue to catch up with Japan, Europe and the US. The Japanese ports are now of little importance in Asia from the viewpoint of maritime logistics. The phenomenon has caused a sense of crisis among the Japanese port policymakers. The alleged loss of hegemony in the Asian logistics urged them to take measures for increased competitiveness of Japanese ports.

Japanese Ports in Transition and Port Policies After World War II, Japan was allowed by the occupying Allied Forces to construct ports again only in 1948. In those days, the aims of port development were (1) to increase capacity of ocean transportation for reconstructing heavy industries, (2) to accelerate export in order to stabilize domestic economy and improve trade balance, and (3) to promote job creation by public works at ports. The 1970s was the decade of containerization. Public and private investments were made on the construction of container terminals, where major shipping lines brought in their own operators. At that time, independent port service providers were not financially capable enough to participate in the competition of costly container terminal construction. The latter half of the 1980s and 1990s were highlighted by the appreciation of Japanese Yen. At that time, the strong Yen spurred the relocation of manufacturing to low-cost countries. Consequently, the growth of port handling volume slowed down. The 21st century may be symbolized as Asia’s era. Thanks to market liberalization, China has become the world’s production and export centre. This has made Japan’s domestic production and cargo handling volume at ports slowed down. Current port policy of Japan is guided by the Council of Ports and Harbours, a committee of experts in various fields, the members of which are appointed by the Minister of Land, Infrastructure, Transport and Tourism. The current status of Japanese ports stands on the policy set out in 1999, when a nation-wide port development was proposed. This was worked out from the lesson of the Kobe Great Earthquake of 1995, which resulted in a complete destruction of lifelines via the Port of Kobe. Since then, dependence on a specific port in a supply chain has been regarded too risky. As a result, regional ports gathered political support in order to provide logistical services locally, and container terminals were constructed at every port without sufficient guarantee of ship callings. This was later criticized as wasteful

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public investment, benefiting only a limited number of civil engineering firms and local politicians. The review of this policy was reflected in the 2002 report of the council. In view of the relocation of manufacturing to neighbouring countries, ‘Prioritization and Intensification’ of public investment was proposed. By doing so, a reduction of port costs per container by 30 percent and a shortening of lead-time at ports from a few days to approx. one day was designated a policy objective. This new policy was realized as ‘Super Hub Port Project’. Certain criteria were set up for the new container terminal specifications and their operating conditions, which would realize the cost reduction and lead-time shortening. This project was intended for the Japanese ports to regain the competitiveness and drastically increase the volume of handling containers at the port. It was regarded as assistance to the domestic manufacturing industries to recover cost competitiveness against those in the neighbouring countries. In 2005, Super Hub Ports were appointed in the ports in three bays; Ports of Tokyo and Yokohama in Tokyo Bay, Nagoya and Yokkaichi in Ise Bay, and Kobe and Osaka in Osaka Bay. Those ports are, in fact, located in the most populated cities of Japan, in the centre of the country. As a consequence, logistics in the rural areas remains less supported by ocean transportation and sidelined from the major supply chains.

Super Hub Ports and Competitiveness In spite of the government efforts, Japanese major ports are likely to remain much smaller than those in the neighbouring countries. Even if the container handling volume of Tokyo and Yokohama Ports is put together, it will still be far behind that of Busan or Shanghai. Undoubtedly, more and more cargo is being carried to and from the Korean, Chinese and Southeast Asian ports. The goal that the Japanese ports should regain hub port positions seems to be a mission impossible. In fact the nation’s maritime industry has so far been casting a cynical eye on the ‘Super Hub Port Project’. One aspect lies in the fact that the Japanese major shipping lines are operating container terminals through their own subsidiary firms at those ports. It means that outside people are not allowed access to the data concerning the container handling costs incurred to the Japanese lines. Therefore, the policy objectives of cost reduction and lead-time shortening lack monitoring. Container handling charges are generally agreed upon privately between the terminal operator and the shipping line, whether it is Japanese or non-Japanese. For the Japanese lines, they are internal costs in most cases. For non-Japanese lines, the rates are largely determined by supply and demand. In either case, the port handling costs are incorporated into the ocean freight rate, which tends to fluctuate more according to the supply and demand of the transportation services in general rather than to be determined on the basis of the costs. Therefore, those

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Japanese policy objectives do not seem by nature to fit into the mechanism of port competitiveness argument.

Paradigm Shift: Back to the Primary Mission – Japan’s New Port Policy 2008 Japan’s port policy has been centred on the competitiveness against the ports in the neighbouring countries for the last several years. It was believed that reducing the port cost by 30 percent and the lead time at a port from a few days to one day would enable Japanese ports to be able to compete again with those mega ports in Asia such as Shanghai and Busan. However, although it was not clearly mentioned, the Japanese government realized these goals could not be achieved. That is, to regain the position of the Asian hub ports by modernizing the selected main ports seems futile with the fact that the cargo handling volume at the main ports in the continent (China, Korea) are growing faster than in Japanese ports. On the other hand, the economic position of the rural areas remains unimproved, widening a gap with the booming Tokyo. Why was the ‘Super Hub Ports’ concept applied to Japan’s port policy? It relates to the emigration of manufacturing from Japan to low-cost countries. In order to stop the industrial emigration and regain manufacturing from those countries, it was thought that ports should have been more efficient. By way of logistical cost reduction, the revitalization of Japan’s manufacturing would be possible. With the ‘selection and intensification’ policy, the major port cities would first recover, and the urban areas would follow next.

244

Ports in Proximity

There are now some signs that manufacturing in Japan has been regaining momentum, but its contributing factors were the rising costs and the unreliability of production quality in the host countries. The cyclical economic recovery in Japan also helped domestic investment. However, the economic gaps between the urban and rural areas have been widened. It is obvious that the recovery of general economy is not attributable to the ‘Super Hub Ports’ project. In fact, the 30 percent reduction of port costs is unlikely to be realized. One factor is the failure to liberalize the provision of stevedoring service. The exclusiveness of dock worker supply and their high costs have long been challenged both in Japan and in the Western countries. In Japan, the construction of Super Hub terminal such as in Nagoya and Yokohama did not trigger the liberalization of the supply of cargo handling workers. In March 2008, the Council of Ports and Harbours in Japan issued a report on the new port policy. The report proposes remarkable changes to the port policy as follows: 1. to create better linkage between Super Hub Ports and regional ports, and develop port areas by the construction of logistics centres; 2. to develop networks of short-sea shipping in the East Asian waters by cross border cooperation, which would contribute to revitalizing rural areas by providing direct shipping services; 3. to enhance development of large-scale multi-purpose terminals and promote industrial location in the port areas; 4. to construct streamlined logistical system by the use of ICT, which would enable single window administrative services; 5. to contribute to the environmental improvement by a modal shift, preservation of green spaces at port areas and provision of electricity from the land. It is notable that emphasis on the ‘competitiveness’ of the ports has been toned down substantially in the report. With these policy changes in mind, let us have a look at some of the currently existing port clusters in Japan. Tokyo and Yokohama form a port cluster with a large consumer market in the core. It is justifiable as the greater Tokyo region, which covers neighbouring cities such as Yokohama, Saitama and Chiba, has a population of more than 30 million Nagoya and Yokkaichi may be called an automobile industry cluster, as car manufacturers such as Toyota and Mitsubishi and the related component suppliers concentrated in the region. As of 1 December 2007, Hanshin port was created by the merger of Osaka, Kobe and Amagasaki-Nishinomiya-Ashiya ports. This is an epoch-making measure for the Japanese port management. Harbour dues are charged only once if a ship calls at two or three of the formerly independent ports. It was followed by the similar decision made by the ports of Tokyo, Kawasaki and Yokohama on 21 March 2008, which are located next to each other in the Bay of Tokyo.

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Osaka and Kobe have traditionally been known as the hub for the home electronics industry, which is represented by Panasonic, Sharp and Sanyo. The new Hanshin Port will remain to be serving the industry as well as serving Japan’s second largest consumer market of 21 million. One unique attempt is made by Kobe University to build up an intelligence cluster in maritime information exchange, research and education. However, it has not produced a significant outcome yet, partially due to the absence of maritime industries, which moved their management to Tokyo a few decades ago. Hakata Port is trying to establish a position as a gateway from/to Asian neighbours as it is geographically close to the continent. The Shanghai Super Express service ensures one-day shorter lead time for China cargo bound for Tokyo by combining RORO vessels with the railway at Hakata. The cities located on the Japanese Sea coast have long been suffering from marginalization of economy due to a difficulty in logistics. However, they have recently been developing their own supply route by using the Korean port of Busan, which is closer than any of the Japanese Super Hub Ports. Moreover, freight level for international shipping is much lower than domestic shipping as a result of cabotage restriction policy, which is maintained in most countries in the world.

Intermodal Network in East Asia and a New Paradigm As Japan is a long island country, it is not efficient to concentrate industries and goods movement in one place from a logistical point of view. Rather, it is desirable to have a variety of shipping services to cover the long coast of the land. Those ports are now connected to Busan, Dalian, Tianjin, Tsingtao, Shanghai, Ningbo, Keelung, Kaohsiung and the Southeast Asian ports to create a larger logistics network. From the ports in the continental countries, supply chains are also extended inland to Central Asia and, furthermore, as far as to the western end of Eurasia. Undoubtedly, there is great potential of logistical expansion in the Asian logistics. In order to make it advance further, problems should be seriously dealt with in the context such as streamlining of the Russian continental railway service, the rationalization of logistical administration, democratization and the political and economic liberalization of North Korea. The aforementioned characteristics of the relationship between Japanese port clusters and East Asian maritime network gives us some important suggestions. First, we may have put too much stress on advocating competition between ports. A port is not an economic entity that competes for profit. It is merely a cluster of various stakeholders with their own interests, which do not coincide with each other. Those who compete are individual firms, which have their own accounts and have liberty to develop their own business inside or outside the port cluster, i.e. those port service providers do not represent the port in the competition. Port policy makers should acknowledge their original role in the port cluster to provide convenience for supply chains through its hinterland and stimulate the

246

Ports in Proximity

local economy not only in the urban but also in the rural areas. The mission would, therefore, lie in the traditional Japanese concept of ‘harmony’ between ports. In this context, Japanese ports are not losing out in port competition with the ports in proximity. Japan’s economy would without doubt benefit from the growth of mega hub ports in East Asia such as Busan and Shanghai. Second, close cooperation between ports should be encouraged domestically and internationally. Port clusters may have various characteristics. In order to maximize synergy of the cluster members’ activities, cooperation between ports, for example harmonizing investment in infrastructure and streamlining logistical frameworks, will be an important element. It will be more suitable for sustainability and fair distribution of wealth in the global economy. Third, human resources are the most important factor for vitalizing port clusters. Harmony in societies cultivates longstanding co-working spirit. ‘Kaizen’ (continuous quality improvement) is realizable only where this spirit is shared among people. As a consequence, it should be stressed that there may well be a paradigm shift in port policy from ‘competition’ to ‘networking’ in harmony.

Conclusion This chapter has examined the universality of the port competition paradigm. By investigating the recent changes in the port-to-port relationships between the Japanese and the Asian continental ports, we have noticed a clear shift in the paradigm of port management in Japan. For an island nation such as Japan, it seems more beneficial to its economy that the port policy makers seek networking of logistics in the wider region rather than pursuing investment competition with each other and struggling for cargo handling volumes. This finding also brings a fundamental question to be asked: who are the competitors when we address port competition? If we take a glance at the activities and their underlying value system of the mega terminal operators and the large conglomerates of relating logistics service providers, who are not representing the interest of a particular port any longer, the port management paradigm may well be adjusted to be diverted from adherence to self interest. It will stand to reason that people will preclude the selfishness of pursuing handling volumes and put more stress on sustainability in their decision-making, by coordinated investment in infrastructure and by seeking interface between complicated bureaucratic procedures across ports, provinces and nations.

Acknowledgement The author expresses his gratitude to Mitsui OSK Lines for providing up-to-date statistics of containerized cargo movements.

Chapter 18

Port Challenge in Northeast Asia: Korea’s Two-hub Port Strategy Sung-Woo Lee and Geun-Sub Kim

Introduction Asian economies have been growing continuously, partly because of concentration of low-cost manufacturing activities in Northeast Asia (e.g. China), through the vertical and horizontal specialization of multinational corporations which are eager to extend their business networks in a global market. Busan, South Korea’s (hereinafter referred to as Korea) main port, has both benefited and suffered from such growth. Rising congestion in Busan has initiated the development of Gwangyang port further west in the peninsula, and the two ports became the objects of a national ‘two-hub port strategy’ in the late 1980s as a means to increase port capacity, balance regional development internally, and respond to regional competition from Chinese and Japanese ports. The Korean government is keeping this unique port policy to hold Korea’s regional and global hub position. However, the growth of China has brought a new environment globally and regionally. Because China has become a ‘world factory and market’, its port industry has grown quickly through the development of several main ports such as Shanghai, Shenzhen, and Qingdao that handle large amounts of cargoes. In addition, intra-regional trade in the region has quickly increased because of the different stages of industrial advance between Korea, China and Japan (KITA 2006; Lee et al. 2007). Those countries are stimulated to increase intra-regional container traffic and adapt their port structures domestically and internationally. In this respect, the ‘two-hub port strategy’ in Korea has faced some difficulties. This chapter focuses on the challenges brought by the rapidly changing Northeast Asian economies, and port systems and the efficiency of the original policy established by the Korean government. In addition, based on container cargo volume statistics, it investigates port specialization trends through a shiftshare analysis and a concentration analysis among the ports in the region since 1986. The first section briefly presents the historical background of two-hub port strategy in Korea. The second section demonstrates the environmental change of Korean ports based on international specialization, the growth of the Chinese economy, and the concentration of Korea’s metropolitan area. The next section

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analyzes the changes of container cargo throughput in Northeast Asia by the concentration index. In the last part, we suggest new alternatives to Korea’s twohub port strategy, based on the trends in global logistics markets.

Historical Background of Two-Hub Port Strategy in Korea General Trends Korea is situated in Northeast Asia. It is geographically connected to ocean economies such as Japan, the Southeast Asian countries, America, as well as to continental economies, such as China, Russia, Central Asian states, and Europe. Moreover, Korea has geographical adjacency with the west coast of Japan and the northeast part of China. This situation, combined with a new geo-economical context since the 1960s, has brought substantial benefits with regard to economic and port development. Ports facilities in Korea have mostly been built since the 1970s and many are currently under development through expansion and renovation plans. This continuous effort is understandable when looking at how the Korean economy has achieved its remarkable progress in such a relatively short period of time.

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Port Challenge in Northeast Asia

249

Nevertheless, Korea can be regarded as an island nation that is geo-politically separated from its Northern counterpart due to their different ideological and political systems. According to the classification by Brohman (1996), Korea belongs to exportoriented economies in terms of trade liberalization, direct foreign investment, and the export of goods for the world market. As a result, the national economy has developed remarkably with substantial increases in exports, which in turn has brought about a rapid increase in volume of exports and imports. This development has a direct impact on the advance of the port industry, as seaborne trade through ports accounts for about 95 percent of the country’s trade. In addition, the Korean port industry has been strongly influenced by the boost of the Chinese economy since the 1990s. At that period, big vessels could hardly anchor at Chinese ports because of physical constraints. As a consequence, China’s seaborne cargoes, such as the import of raw materials and the export of processed and finished products, had to use Korean hub ports for transhipment. Under these circumstances, the Korean government decided to take advantage of the limitations of Chinese ports by developing a number of ports as domestic import and export hubs and two big ports (Busan and Gwangyang) as international transhipment hubs in Northeast Asia. High levels of congestion and handling charges in Japanese ports also contributed to this hub strategy (Frémont and Ducruet 2005). Process of Two-hub Port Strategy Thanks to the geo-locational benefit and the aforementioned growth of national and neighbouring economies, Busan port as a single hub port experienced rapid traffic growth. However, it also encountered serious congestion in handling large volumes of container cargoes for both hinterland and transhipment traffic.

Table 18.1 Time 1985.1

Historical Process of Korea’s Two-hub Strategy

Content Decision of Busan and Gwangyang container ports development at the same time. 1991.8 Decision of masterplan of Gwangyang ports by central government. 1996.3 Decision of Busan New port development plan. 1996.7 Confirmation of Gwangyang port and Busan New port developments as one of 5 national projects. 1998.7 Opening of Gwangyang port. 2006.1 Opening of Busan New port. 2007.12 Busan port’s container throughput reaches into 13 million TEU. Gwangyang port’s container throughput reaches into 1.7 million TEU. Source: Modified from http://www.momaf.go.kr.

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Ports in Proximity

While the bay of Busan enjoys good nautical accessibility (15 metres), the spatial organization of the port city became a major threat to further port growth. Not only the mountainous site and rapid urbanization of Busan city – 4 million inhabitants in early 2000s – forces truck movements to and from the port to concentrate on a few highways and tunnels, but container terminals remain separated from each other causing delays (Lee and Ducruet 2006). In addition, as a response to the weaker economy of the Southwest region (Jeolla province), the Korean government decided to develop the new Gwangyang port as a means achieving balanced regional growth. Thus, the ‘two-hub port strategy’ emerged in late 1980s in order to boost cargo handling capacity but also to foster cooperation between Busan and Gwangyang ports as national hub ports. The government has promoted this port policy to hold Korea’s position as Northeast Asia’s hub since 1985 as described in Table 18.1.

New Challenges in Northeast Asia International Environment change Dynamic port market in Northeast Asia In recent years, the pace of growth in North-East Asia’s container port markets has been dramatic. This has been driven by globalization and international specialization of the world economy, notably the rise of the Chinese economy. As economies have expanded, trade has also increased to meet the demand of industries for raw materials and intermediate goods, and the demand of consumers for competitive products. Trade in manufactured goods and intermediate goods, and components – the prime constituents of containerization – has been at the core of this global economic growth. Northeast Asia is located at the centre of the phenomena. Especially, exports from Northeast Asia, including China, to the US and Europe are underpinning the growth of China’s manufacturing industry. Container port throughput in Northeast Asia (Korea, Northeast China, Japan and Far East Russia) expanded almost three fold between 1995 and 2005 reaching about 50 million TEU. Over this period, the share of Northeast Chinese ports rose from 10.4 to 32.8 percent and the share for Korean ports rose from 27.9 to 30.8 percent, while the share for Japanese ports fell from 61.2 to 35.5 percent. Container throughput of Japan’s top five ports increased by 16 percent between 2000 and 2005, while the whole Japanese port traffic increased by around 42 percent. This latter growth has been spurred by intra-Asian trade and transhipment at Korean ports. In addition, between 1995 and 2005, the Northeast Asian transhipment market expanded more than three fold reaching 6.85 million TEU (OSC 2006). The above changes have greatly spurred the development of deep-sea ports in Asia (Han and Song 2005). This has resulted in more concentrated traffic flows, growing intra-seaborne trade and deepening intra-Asia port competition, notably in East Asia. Under these circumstances, Chinese ports, such as Shanghai, Ningbo,

Port Challenge in Northeast Asia

Table 18.2 Ports

251

Container port ranking in East Asia   (unit: ’000 TEUs)

1995 10,800 Singapore (2) 12,550 Hong Kong (1) 1,527 Shanghai (19) 284 Shenzhen (94) 4,503 Busan (3) 5,232 Kaoshiung (3) 600 Qingdao (52) 702 Tianjin (43) Note: ( ) is the world ranking.

2000 17,090 (2) 18,100 (1) 5,613 (6) 3,959 (11) 7,540 (3) 7,426 (4) 2,120 (25) 1,708 (31)

2002 16,940 (2) 19,144 (1) 8,610 (4) 7,610 (6) 9,453 (3) 8,493 (5) 3,410 (15) 2,410 (24)

2004 21,329 (2) 21,984 (1) 14,567 (3) 13,625 (4) 11,442 (5) 9,710 (6) 5,140 (14) 3,814 (18)

2006 24,790 (1) 23,540 (2) 21,710 (3) 18,470 (4) 12,030 (5) 9,770 (6) 7,700 (11) 5,950 (17)

2007 27,940 (1) 23,990 (3) 26,150 (2) 20,190 (4) 13,260 (5) 10,260 (8) 9,460 (10) 7,100 (17)

Sources: Derived from Containerisation International Yearbook (various years); http:// www.kca.or.kr.

Qingdao, and Tianjin, as well as Busan have engaged in a logistics restructuring (Parola et al. 2006). For the purpose of achieving value-added logistics, Shanghai and Busan are developing huge distriparks such as Luchao distripark near Yangshan deep-sea port, and North distripark near Busan new port, for handling transhipment cargoes. Busan new port was designated as free economic zone to accelerate its transformation into a top class logistics centre. As a result, the distribution pattern of maritime container flows is affected by such processes. Kaoshiung in Taiwan, together with Busan played an important role in transhipment traffic until a few years ago. However, Shanghai has recently put a threat on Kaohsiung by developing its hub functions, while Tianjin and Qingdao have also complemented their gateway functions with hub functions, as shown in Table 18.2. Kaoshiung’s position in the world container ports’ ranking has decreased from 3rd in 1995 to 8th in 2007. In this context, the Korean government proactively implemented its policy to maintain a leading position in transhipment traffic, in order to avoid Busan’s decline. Deepening intra-trade in Northeast Asia The above changes of Northeast Asia’s port environment have also strongly affected distribution patterns related to trading and manufacturing. Before 2000, China depended on Korea and Japan for importing semi-finished products and raw materials such as steel, semiconductors, chemical goods and exported finished goods from all over the world

Ports in Proximity

252

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Figure 18.2 Trade and cargo movements in Northeast Asia

(Drewry 2003b). Later on, China’s manufacturing industry has quickly changed, following the dramatic economic growth labelling China as the ‘world factory’. Major manufacturers investing in telecommunications, automobile, machinery and high-tech industries, which were previously located in Korea and Japan, have shifted their factories to China. Evidently, the change of manufacturing location has influenced trading patterns and volumes among the three countries. As a result, trade and cargo movements in Northeast Asia have quickly increased as shown in Figure 18.2. Changing Container Shipping Routes in Northeast Asia The above changes have incurred fierce competition between shippers and ports, based on global international specialization of industry in low-cost clusters like China (Ernst 2002). They recognized the importance of connections between shipping and inland logistics to cope with customers’ needs and for catching additional cargo. In this respect, regional distribution patterns have shifted to Chinese ports, especially Shanghai, Ningbo and Qingdao, reinforcing their insertion as freight distribution platforms in logistics chains on Pan-Yellow Sea and Pan-East Sea levels (Rimmer 2004). In addition, many shipping companies have launched new services in order to catch these new cargoes. For instance, several shipping routes shifted to the Shanghai-Ningbo complex and to other Northern Chinese ports. In the early 1990s, liners were connecting North America via Taiwan, Busan and Japanese ports. Between the mid 1990s and 2003, the trend has changed and the shipping routes moved from Taiwan to Central China, calling at ports such as Shanghai. Therefore, carriers gradually removed Taiwan and Japanese ports from their schedules by inserting Central and North Chinese ports. Current shipping

Port Challenge in Northeast Asia

Table 18.3

253

Comparison of container cargoes throughput between metropolitan and two hub port (unit: ’000 TEUs)

Port Metropolitan Incheon region Pyeongtaek Busan Two hub Gwangyang

2001 663 21 8,073 855

2002 770 66 9,453 1,080

2003 821 152 10,408 1,185

2004 935 190 11,492 1,322

2005 1,149 228 11,843 1,441

2006 1,377 260 12,039 1,756

CAGR 15.7% 65.2% 8.3% 15.5%

routes confirm that main liners are now connecting North America and Europe via Shanghai, Qingdao and other Northern Chinese ports. More recently, Busan as well seems to face the same challenges as Taiwan and Japan, suffering from the competition of emerging Chinese ports. Changes in the Domestic Environment Change in the Industrial Structure  Korea’s main industrial structure has evolved from manufacturing sector to service sector since 2000. Like most multinational companies, a number of Korean manufacturing companies are shifting to more competitive locations in emerging economies such as China and Southeast Asia. This is the main factor explaining the decrease of the secondary sector within Korea’s economic structure (from 29.4 percent in 1995 to 26.8 percent in 2005), while the service sector has increased significantly (from 64 percent in 1995 to 69.5 percent in 2005). As a result, domestic cargo volumes have decreased since 2000. This directly impacted the growing trend of Korean container cargo throughput, with important consequences for further port growth despite the development projects in Gwangyang port. Polarization of the Metropolitan Area  Economic activities in Korea are concentrated in the metropolitan area. The metropolitan area hosts about 50 percent and 90 percent of Korea’s population and capital respectively. This enormous concentration is a major constraint to attract strategic activities to local and regional economies such as the Southeast and the Southwest where Busan and Gwangyang locate. In addition, trade growth between Korea and China has much favoured the core economic region of Seoul. In this context, ports situated nearby the metropolitan area have grown faster than the two hub ports. Incheon port, the gateway to Seoul, has increased its traffic by 15.7 percent while Pyeongtaek port, which is situated further south, has drastically increased its traffic by 65.2 percent over the last six years even though the total container throughput is quite small compared to the two hub ports. Busan and Gwangyang show an increase of only 15 percent in the same period as shown in Table 18.3. Especially, goods manufactured in China are directly shipped to the metropolitan area through Incheon and Pyeongtaek. By shifting their cargoes

Ports in Proximity

254

from southern Korean ports to the West coast, shippers and manufacturers save logistics costs by avoiding land transport. This trend is also made possible through government intervention by implementing Incheon’s Pentaport strategy through the development of free-trade zones, international airport construction (2001), and container terminal modernization backed by the Port of Singapore Authority since 2004 (Ducruet 2007b).

Measuring the Effectiveness of Korea’s ‘Two-Hub Port Strategy’ Concentration of Northeast Asian Container Ports Methodology of concentration measurement  Concentration analysis is a useful tool for assessing the degree of the concentration of various industries. It can be applied to the container port industry in order to evaluate port competition based on ports’ market shares. Several methods have been used measuring concentration of container port ranges, such as the Hirshmann-Herfindahl index and the Gini coefficient. Most previous studies related to general cargo and container port concentration applied the Gini coefficient (Kuby and Reid 1992; Hayuth 1988; Notteboom 1997; Kim 2007). High concentration reflects that container traffic is handled by a few ports, while low concentration means that traffic is more evenly spread among ports. This chapter applies both methods to avoid possible drawbacks caused by the small number of ports under study (see Notteboom 1997 for a discussion). First, the Hirshmann-Herfindahl index is represented by Dj as follows: where D j is the concentration index of the container port range, TEU ij is the n

Dj =

∑ TEU i =1

2 ij

   ∑ TEU ij   i =1  n

2

,

1  Dj 1 n

container throughput of port i of port range j , n is the number of ports of port range j . Second, the Gini-coefficient G j is calculated as follows; n

G j = 0.5∑ X i − Yi 0  G j  1 i =1

where Gj is the Gini coefficient for container port range j , X i is the cumulative percentage of the number of ports up to the i th container port, Yi is the cumulative percentage of the market shares of all ports up to the i th container port, n is the number of ports of port range j .

Port Challenge in Northeast Asia

Table 18.4

Concentration of Northeast Asian port range

Northeast Asia range Hirshmann-Herfindahl Gini coefficient

255

1986 1990 0.1765 0.1690 0.0833(1/n)

1994 0.1469

1998 0.1485

2002 0.1403

2006 0.1510

0.4334

0.3433

0.3867

0.3652

0.4110

0.4164

Port sample selection and data collection This paper chooses twelve ports for assessing concentration among the competing ports within the Northeast Asian region: Shanghai, Qingdao, Tianjin, Dalian, Ningbo (China), Busan and Gwangyang (Korea), Tokyo, Yokohama, Nagoya, Osaka and Kobe (Japan). These ports are competing to attract more transhipment traffic from/to mainland China. Data is derived from the yearbooks published by Informa UK Ltd, which are complemented by various websites of port authorities, for the period 1984– 2006. Results The degree of concentration of the Northeast Asian port region by Hirshmann-Herfindahl index (HHI) decreased from 0.18 in 1990 to 0.15 in 2006. The value of 1/n that reflects the equality of traffic distribution among selected ports equals 0.08. The average concentration degree remains very high comparing with 1/n along the period of observation. HHI decreased continuously from 1990 to 2002 due to growing container throughputs at Korean and Chinese ports. However, the increase of HHI in 2006 up to 0.15 highlights the growing throughput of Northern Chinese container ports, notably due to greenfield developments. The value of the Gini coefficient also rose from 0.34 in 1994 to 0.41 in 2006. This shows to what extent Northeast Asian ports follow the global trend of port concentration, stemming from increased vessel size, and service rationalization. Container Throughput Competition Among Northeast Asian Ports Changes in competition structure, based on container throughput dynamics, can be assessed by means of applying a Shift-Share analysis. Such methodology was developed originally in the framework of regional economics, and it has the advantage of being easily adjustable to port traffic growth, as first developed and applied by Notteboom (1997). The share effect indicates the potential growth of throughput assuming a constant market share in port range. The shift effect reflects the increase and the decrease of throughput because of competition among the ports within a given port range. The shift-share analysis can be calculated as follows:

Ports in Proximity

256

TCG = TEU it1 − TEU it 0 = SHAREi + SHIFTi

 n   ∑ TEU it1  SHAREi =  in=1 − 1 × TEU it 0  TEU  it 0  ∑  i =1 n

SHIFTi = TEU it1 −

∑ TEU

it 1

∑ TEU

it 0

i =1 n

i =1

× TEU it 0

where TCG is the total container growth in port i for the period t1-t0, SHAREi is the share effect of port i for the period t1-t0, SHIFT i is the shift effect of port i for the period t1-t0 expressed in TEU, TEU i is the container traffic, n is the number of ports. Table 18.5 presents the results of shift-share analysis applied to Northeast Asian container ports. A large proportion of container throughputs shifted from Korean and Japanese ports to Chinese ports along the period of observation. Busan attracted important throughput volumes from competing Chinese and Japanese ports before 2000, notably thanks to its efficient facilities and favourable geographical location. Therefore, Busan’s traffic estimated 8,477,735 TEU should have continuously increased based on its high growth rate over the last decade in the share effect. But Busan’s total container growth was calculated 2,585,503 TEU, resulting in a loss of 5,899,232 TEU to major competitors from Northern China such as Qingdao, Tianjin and Dalian. Indeed, most of this growth was based on transhipment traffic from Northern China in a context of limited infrastructure accommodating mega ships. Gwangyang port also lost 384,185 TEU during the period 2002–2006. In contrast with Korean and Japanese container ports, the throughputs of Northern Chinese container ports dramatically increased. Especially, Qingdao and Tianjin port attracted over one million TEU from Korean and Japanese competitors between 2002 and 2006. The main factor explaining these results are both the improvement of port facilities and the growth of direct calls of main shipping lines to Northern Chinese ports as mentioned earlier. Interpretation of Results The competitive environment among Northeast Asian container ports has been strengthened by the growth of Northern Chinese ports. China suffered from poor port facilities during the last decade while accommodating huge amounts of

Port Challenge in Northeast Asia

Table 18.5

257

Total container growth of Northeast port range (unit: TEU) 1986–1990

1990–1994

SHIFT

SHARE

TCG

SHIFT

SHARE

TCG

Shanghai

88,752

117,371

206,123

498,127

175,916

674,043

Qingdao

62,223

23,385

85,608

242,353

52,228

294,581

Tianjin

40,755

78,353

119,108

203,697

110,303

314,000

Dalian

79,827

16,432

96,259

123,117

Ningbo

-

-

-

Busan

220,334

679,916

900,250

-41,590

905,752

864,162

Gwangyang

-

-

-

-

-

-

Tokyo

-34,912

508,003

473,091

-349,520

599,781

250,261

Yokohama

-277,863

615,256

337,393

33,659

635,553

669,212

50,624

173,741

-

-

Nagoya

200,581

222,747

423,328

-19,612

346,253

326,641

Kobe

-170,979

883,998

713,019

-681,279

1,001,193

319,914

Osaka

-208,718

219,718

11,000

8,953

184,739

175,786

1994–1998

1998–2002

SHIFT

SHARE

TCG

SHIFT

SHARE

TCG

Shanghai

1,446,526

489,308

1,935,834

2,931,904

2,612,096

5,544,000

Qingdao

597,830

186,170

784,000

1,161,726

1,034,274

2,196,000

Tianjin

158,228

259,772

418,000

524,709

867,291

1,392,000

Dalian

38,051

132,051

170,102

471,732

404,766

876,498

Ningbo

353,000

-

353,000

1,206,260

300,740

1,507,000

Busan

1,342,057

1,390,920

2,732,977

-1,577,658 5,065,400

3,507,742

Gwangyang

68,000

-

68,000

1,000,067

1,058,000

Tokyo

-418,511

781,653

363,142

-1,303,698 1,847,503

543,805

Yokohama

-1,228,879 1,003,196

-225,683

-1,508,701 1,781,797

273,096

Nagoya

-296,463

233,654

-773,048

469,168

530,117

57,933

1,242,216

Kobe

-2,277,544 1,262,427

-1,015,117 -1,527,132 1,619,344

92,212

Osaka

217,703

501,194

-626,162

358,682

283,491

984,844

Ports in Proximity

258

(Table 18.5 continued) 2002–2006 SHIFT

SHARE

TCG

Shanghai

5,378,584

7,721,416

13,100,000

Qingdao

1,231,925

3,058,075

4,290,000

Tianjin

1,378,721

2,161,279

3,540,000

Dalian

648,290

1,212,110

1,860,400

Ningbo

3,531,959

1,668,041

5,200,000

Busan

-5,892,232 8,477,735

2,585,503

Gwangyang

-384,185

1,009,793

625,608

Tokyo

-1,479,772 2,432,424

952,652

Yokohama

-1,285,005 2,120,489

835,484

Nagoya

-903,912

1,728,345

824,433

Kobe

-1,582,998 1,787,269

204,271

Osaka

-641,375

716,968

1,358,343

throughput from their hinterland industry. But the aggressive port development policies led by the Chinese government have changed the competition structure, in line with the vast greenfield development plan of container ports presented in the 11th five-year national master plan. This long-term master plan constitutes a severe and unprecedented threat with regard to Korea’s two-hub port strategy. Moreover, the Chinese government pushed ahead the plan for integration and cooperation among main coastal ports in order to strengthen their port competitiveness. The growth rate of Korea’s container throughput has decreased continuously by losing important transhipment throughputs – that occupied over 35 percent share of total traffic since 2001 – to Northern Chinese container ports. Import and export cargoes sourced by Korea’s traditional export-oriented economy also decreased because of structural changes in the country’s economy from industry to services. Nevertheless, the Korean government keeps maintaining its strategy based on Busan and Gwangyang through infrastructure expansion and new port facilities. This strategy was relevant in a context of expected steady growth of transhipment throughput thanks to the growth of China’s economy. However, time the has come to adapt the two hub port strategy to the new context through better integration and cooperation that would respond efficiently to external and internal changes in the country’s environment. For this, Busan and Gwangyang ports have to cooperate firstly in terms of development, operation and management for surviving fierce port competition and attracting more container throughputs.

Port Challenge in Northeast Asia

259

Some Alternatives for Korea’s ‘Two-Hub Strategy’ Limitations of ‘Two-hub strategy’ The rapid industrialization of Asia, notably Northeast Asia, has triggered the globalization of manufacturing, sustained by substantial capital inflows (Lee et al. 2008). This has led to a demand from producers for an integrated global logistical system to handle increasing containerized cargoes comprising raw materials, components, finished and semi-finished products moving to and from the Asian economic region (Rimmer 1998). To respond to such changes, Korea government established its ‘two-hub port strategy’. The government still keeps this strategy to reach the goal of transforming the two ports into a global logistics hub. The government has increased investment for those two ports through the development of logistics parks, free-trade zones (FTZ), port alliances, and through marketing initiatives. However, the government did not foresee the speed and the direction of changes brought by globalization. The ‘two-hub port strategy’ faces a number of obstacles in terms of international specialization, global shift of local manufacturing companies to other countries resulting in decreasing FDI, rapid economic changes in Northeast Asia, challenges from nearby Chinese ports, inefficient policies regarding domestic logistics, and traffic concentration at Korea’s core economic region. Evolution of Korea’s ‘Two-Hub Port Strategy’ Short-term strategy To cope with such challenges and changes, the Korean government should gradually change its policy from a small to a big scale. Currently, due to small operating size such as 1~2 berth in terms of scale economies, terminal operating companies in Busan and Gwangyang are weaker than their international competitors. Notably, it was estimated that Hyundai and Hanjin, the main Korean shipping lines and terminal operators, had a dominant position in Busan in terms of traffic share, concentrating alone one third of Busan’s throughput (Frémont and Ducruet 2005). Local terminal operators do not hold sufficient bargaining power against global shipping companies in the market and are losing their profit because of cutthroat competition. In this respect, the two ports need to increase their competitiveness through integrating other neighbouring terminal operators for their operations in terms of economies of scale. In addition, the Korean government should arrange efficient transport connections between the two ports with regard to road, rail and barge shuttles. Such efforts would facilitate the use of the two ports as one single hub for customers. Medium and long term strategy In the middle and long term, the Korean government should imperatively reform the port governance structure. First of all, there is a need to gradually unify each port’s governance system into one control body or arrangement committee. After the corporatization of Busan port

260

Ports in Proximity

in 2004, competition between Busan and Gwangyang has risen for both domestic and international markets. It makes the competitiveness of Korean ports in general for international competitors and global shipping lines weaker. Thus, making one single port authority to manage and operate the two hub ports would prevent useless competition between the two domestic players, and maximize their resources. In a final stage, an integrated approach to restructuring the South and West port systems into one single port system under a ‘two group ports system’ concept would consolidate complementarity among the two sub-systems, notably through valorising their specialized strategies. Strategically, Incheon and Pyeongtaek, as metropolitan ports, would concentrate on regional trade across the Yellow Sea, while Busan and Gwangyang would connect preferentially to global trading. Within the latter, Busan and Gwangyang may focus on ‘hot delivery cargo’ and ‘slow cargo and heavy cargo’ respectively. It may upgrade Korean ports’ competitiveness against their competitors and attractiveness towards global shipping companies.

Conclusion This chapter has examined Korea’s ‘two hub port strategy’ by reviewing changes in global and domestic environments with regard to regional port and economic competition. Specifically, the ‘China Effect’ and ‘International Specialization’ have negatively influenced Korea’s ‘two hub port strategy’. Through Shift-Share analysis, this study confirms that container cargoes have decreased in the two ports concerned. The strategy, implemented by the Korean government, provides a unique case throughout port studies. This uniqueness is believed to have been induced from a specific economic-driven policy led by the government. However, drastic changes in the regional and domestic environment have requested that this policy should cope with a new global and regional context. To respond to such changes, the Korean government has to address several issues related to the weaknesses of its strategy in line with the market needs. In this respect, this chapter proposes that the government should implement a further integration of small size berths in Busan and Gwangyang, while developing efficient transport connection systems through road, rail and shortsea shipping between the two ports as a possible short term strategy. In addition, the government may consider unifying the two ports under one authority, while implementing a ‘two group ports system’ that would replace the ‘two hub port strategy’ in the middle and long term. Further research shall verify whether Korea’s port policy fits the new context in which it takes place, depending on the recognition of market trends, changes, and needs in the region as a whole.

Chapter 19

Hong Kong in Transition from a Hub Port City to a Global Supply Chain Management Centre James J. Wang

Introduction Hong Kong as a major container port has been studied by many from a port development perspective (Chu 1989; Comtois 1994; Wang 1998; Airriess 2001; Song 2002; Slack and Wang 2002; Cullinane et al. 2004; Notteboom and Rodrigue 2005; Wang and Olivier 2007a and 2007b). After more than three decades of development since the first specialized berth for container ships was put into use in 1972 in Kwai Chong, this container port has experienced four stages of development, as initially theorized by Hayuth (1978), modified by Wang (1998), and now in another stage – port regionalization, as suggested by Airriess (2001) from a firm-based approach and Notteboom and Rodrigue (2005) from a geographical approach. The latter is in line with most of the recent port studies on the third generation port, in recognizing a common strategy offering more comprehensive logistics services to lock in port users, both shipping lines and shippers, and to add more value along the global supply chains (GSC) at the port. However, when a region has several gateway ports and when the service quality of terminals at various gateways becomes similar and the prices competitive, we know little about how the GSCs should be reorganized and its impacts on the logistics sector; and hence about port development in a region such as the Pearl River Delta (including Hong Kong). This knowledge about the impact of port regionalization in the HK-PRD region is not only relevant for our better understanding of the interplay between GSCs and ports, but also of critical policy implications for Hong Kong. In this connection, this chapter can be seen as public policy research, to examine how the value-added activities of GSCs in Hong Kong are associated with transport gateways, including both port and airport. In the remainder of this chapter, we shall first analyze the general situation of Hong Kong in terms of its transport and logistics sector for external trade. We follow the discussion with the presentation of results of a survey, revealing some interesting statistics and views from within logistics providers on the role of Hong Kong as a logistics hub. Finally, based on our observation of Hong Kong,

262

Ports in Proximity

we suggest a conceptual model of global value-added logistics space for further study.

Hong Kong: The Role of Container Load Centre is Over? Unlike some major city-ports such as Rotterdam and Antwerp where the entire city has been integrated naturally as a single gateway into a country or region for long time, Hong Kong has had a history of being a colonial city-state and entrepôt for almost a century, with very tight control on its land border with the Chinese mainland. For a few decades since the 1950s, particularly after the first container terminal started operating in 1972, the port was for, and grew up hand-in-hand only with, the local export-processing industries. A dramatic role change came about in the mid-1980s when the Shenzhen Special Economic Zone was established on the Mainland side next to Hong Kong, and the Hong Kong manufacturing sector began to move northwards to cross the border. As the only gateway port in the South China region at the time, Hong Kong experienced its most rapid growth period until new ports in Shenzhen picked up their own momentum in the mid-1990s. The first decade of the 21st century witnessed the regionalization of the container port business. Hong Kong, two other ports (Yantian and Shekou) in Shenzhen, and Guangzhou, together with a group of feeder ports provide a multiple gateway system. This system has been working well in linking up with the ‘world factory’ that has spread out across the entire Pearl River Delta, and its markets all over the globe. While the port competition, cooperation and governance in this region have been widely addressed and analyzed in the existing literature, not much has been discussed in detail on how such port regionalization affects the local economy in Hong Kong. Wang (2006) once pointed out that the port throughput and the GDP of Hong Kong shows a highly correlated linear relation, implying that port and maritime business has been an important contributor to the local economy. However, concerns about the decline of port business in Hong Kong have appeared widely as more and more cargo has been handled at the Shenzhen ports. According to McKinsey and Associates (2006), a slight decline of the real number of laden containers handled in Hong Kong took place in 2005. They recommended several practical measures to retain the momentum of traffic volume via the Hong Kong port, such as the use of Mainland truckers to reduce land transport cost. They did not, however, look into a long-term structural issue: is the port still of the same importance to Hong Kong economy as before? For a closer look at this situation, we have examined the value added generated in the transport and logistics sector in Hong Kong from 1996 to 2005, as shown in Figure 19.1 (the data of 2006 is in processing stage). In a top-down order, the figure shows the value added in air, ocean and coastal, and then land transport and their supporting logistics services, respectively. It reveals a few major facts during this 10-year period:

Hong Kong in Transition

263

1. air transport and supporting services are the most prosperous sub-sector; 2. freight forwarding (in relation to all modes of transport) is also a growing business; 3. shipping, container terminals, and other supporting services for water transport have kept a static volume of value added overall, with an exceptional high value added in ship owners or operators for the first half of 2000s; 4. a slow decline is found in land transport of goods and related services. Employment is another aspect of transport and logistics contribution to the local economy. In this regard, we are fortunate to have a data set of a longer time period. Figure 19.2 shows the changes of the employment from 1981 to 2005 in the major transport and logistics sector. It not only confirms the faster growth of air transport and related forwarding services (here shown in the category of services incidental to transport), but also reveals an important fact – the employment in land freight transport, in fact, reached its peak employment as early as 1992, when Yantian International Container Port began to operate in Shenzhen. For the same time period, it is worth examining some firm characteristics of the sub-sectors in transport and logistics, as it may help us understand whether or not there are some substantive changes at the firm level that might lead to or reflect

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on the global changes. We selected average firm size as an indicator, noticing that in the Hong Kong logistics and freight transport sector, most of the firms are very small except for container terminal operators and airlines. The changes in firm size may reflect either consolidation of local firms, or stronger presence of large international logistics enterprises in Hong Kong. Figure 19.3 shows a very clear divergence in this regard among the subgroups: while the three water-borne transport related subgroups were getting smaller than 25 years ago, firms in land freight transport, air transport and logistics services (such as freight forwarding) have become bigger on the average. Being aware of the fact that container terminals comprise the major part of ‘ocean and coastal water transport’ and are capital-and-technology intensive while other subgroups are more labour intensive, the growing employment and value added in the subgroup of ‘services incidental to transport’ may not necessarily be due to the growth of air and land freight transport. It is possible that all the three modes of transport, i.e. land, air, and shipping, are highly associated with the logistics and activities of global supply chains. To differentiate the role and contribution of each mode of transport, or the role of different gateways, we need to examine the trade volume, re-export values, in particular. As defined by the Hong Kong Census and Statistics Department, ‘re-exports of goods are products which have previously been imported into Hong Kong and which are re-exported without having undergone in Hong Kong a manufacturing process which has changed permanently the shape, nature, form or utility of the product.’

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Technically, the total value of re-exports equals the total value of imports minus the total value of retained import goods. In other words, the total value of reexports can be treated as a good indicator of global value-added logistics (GVAL) activities in Hong Kong, because it includes the value added both by the transport and logistics sector and by trading firms and at the same time, the total exports of goods of Hong Kong origin is fairly small. Figures 19.4 to 19.6 show the export, import, and re-export values by mode of transport, respectively. Figure 19.4 shows that Hong Kong has had less and less of its own goods to export by all modes of transport, while Figure 19.5 indicates an opposite trend – growth in all modes of transport in the past few years. The most interesting finding is the trend found in Figure 19.6, where we see a significant and steady growth in both land and air transport for re-export since the mid 1990s while the ocean and coastal transport has had ups and downs. As a result, three major modes of transport, land, air and sea, now have almost equal share in handling the re-exports. This important fact leads to a series of critical questions regarding Hong Kong: is Hong Kong in a transition towards a different kind of logistics hub? If so, who, in the logistics sector, will stay and expand, and who will leave? What are the major reasons for them to stay and expand their business, or for them to leave? Looking for the answers to these questions, we sent out 3405 questionnaires to Hong Kong home-based logistics service providers (LSPs) and shippers in November 2006. We received 171 valid responses, including 99 LSPs, and 72

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Figure 19.6 Hong Kong re-exports by mode of transport shippers. The Hong Kong LSPs and shippers indicate similar situations and prospects about the future. To make the case simple, here we summarize a few major findings from the responses of the LSPs: 1. Most LSPs planned to use non-Hong Kong gateways more often, such as Yantian port, Shekou port in Shenzhen, and Baiyun International Airport in Guangzhou (see Figure 19.7 for details). 2. The major services provided by Hong Kong LSPs are currently traditional areas of logistics (80 percent), but they tend to move fast towards more sophisticated logistics services in the future. 3. Regarding the decision making on the choice of gateway, the Hong Kong LSPs (as well as shippers) believe that they do have some influence, but their customers (buyers) are most influential. 4. To both LSPs and shippers, the top three most important gateway factors are reliability, cost, and speed. The value-added services at gateway are not considered as important as the top five factors. Good international networks and the proximity to shipper/customer are more important. Our survey results revealed a few important points. First, considering the cost, reliability, and speed of services, those gateways are becoming more preferable than Hong Kong, and more ocean-going shipments will leave Hong Kong for other gateways. Second, the choice of gateway may not be a decision made by shippers or LSPs. Third, more value-added logistics (VAL) services will be provided by

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both LSPs and shippers in future, which may not have direct relationship with the choice of gateway, since having or not having VAL at gateway is less important than many other gateway factors. Put these three points together, we may understand that neither shippers nor LSPs in Hong Kong have much ‘loyalty’ towards Hong Kong gateways when nearby gateways become competitive. We do see, however, a significant increase in re-exports of goods in Hong Kong by both land and air transport, and a significant increase of value added from freight forwarding and other logistics services. Such a seemingly contradictory phenomenon deserves a serious answer as it concerns the possible role shift of Hong Kong in the global supply chains, in general.

Discussion: Towards a Global Value-added Logistics Space (GVALS) Model Among the major existing theoretical frameworks, the GVC (global value chain) model by Geriffe et al. (Geriffe 1994, Geriffe et al. 2005) classifies, from a firmbased approach, the GVCs organizational structures along the chains based on the transactional cost theory. The model suggests that some firms internalize the entire value chain from production to market while others externalize, wholly or

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partly, the value chains, due to the transactional cost consideration. The model is powerful in explaining why GVCs in certain industries are more integrated than in other industries. However, it does not provide answers to the questions with spatial dimension, for example, whether such structural differences in GVCs will affect the routing choices from production/sourcing place to market place, and where the value-added logistics, if needed, should take place in places rather than the origin or destination. To overcome these ‘placeless’ shortcomings, the global production networks (GPNs) suggested by the Manchester School (Dicken et al. 2001; Henderson et al. 2002) attempts to conceptualize a methodology that focuses on multiple and inter-scaled relations among firms, sectors, and institutions. They believe that the processes of individual firms as actors being embedded into their own actornetworks are at the same time a process for global production systems becoming embedded as a whole. The position within networks is of a spatial dimension, since it is associated with two forms of ‘embeddedness’: the first form, territorial, deals with the various GPN firms’ ‘anchoring’ in different places (from the nation state to the local level), which affects the prospects for the development of these locations. The second form, network embeddedness, refers to the network structure, the degree of connectivity within a GPN, the stability of its agents’ relations and the importance of the network for the participants (Henderson et al. 2002: 452–453).

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We believe such a network approach with the two forms of embeddedness is a good candidate for us to convert it into an operational model to deal with the development of global logistics networks (GLNs) in Hong Kong, and to explain the seemingly contradictory phenomenon discussed earlier in this chapter. We suggest a new conceptual model – Global Value-added Logistics Space (GVALS) Model. The model assumes that in global trade, the regulations on importing products from other countries exist and may vary from country to country and from time to time, or in GPN terminology, they are territorially embedded. Global value-added logistics (GVAL) are defined as those services that facilitate global/multi-country sourcing or marketing by locating and conducting certain value-added logistics activities at the right place, in order to minimize the negative impacts caused by restrictive measures on border-crossing of the goods. Such a ‘right place’ for GVAL should hold at least one of the following features: 1. It is on the route from the sourcing countries to the market. 2. It must have the proper means and modes of transport to warrant the required delivery time and transport cost of the goods. 3. It is of a favourable trade environment that provides ‘logistical friendliness’. Assuming that the value-added logistics tend to be located at intermodal transit places such as ports and airports, the first two features can then be combined into a gateway factor, on which some GVALs are dependent. The third feature can be treated as ‘(international) trade environment’, and we believe that some GVALs are trade-environment dependent. We thus suggest a two-dimensional Global Value-added Logistics Space model as shown in Figure 19.8. The model assumes that when the differences in domestic and international transportation costs are not significant enough, GVAL tends to cluster at ports or airports, and becomes gateway-dependent. However, the trade environment may differentiate GVAL since conditions in trade regulations and customs procedures etc. may vary not only from country to country, but also from gateway to gateway within one economy for local reasons. Consequently, some GVAL service providers select only among certain places where the required environment and gateway are available. Such a place must be a specially regulated space that is preferable for international logistics and trading. According to the World Bank (2007), developing countries, in general, are unlikely to have a favourable environment for global logistics in terms of border crossing procedures etc., in comparison with developed economies. One way to facilitate global supply chains in these countries is to set up logistics depots or free port zones close to gateways with single or dual modes of transport. These logistics depots, parks, or zones, are physically closed and under supervision of the local customs office as quasi-free trade zones. Goods in these zones are considered as inside the country but outside of Customs. Such an environment is freer than any domestic space for GVAL. For example, different office accessories made in

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China by different venders can be ‘exported’ first to such free port zone in China, and then packed and sent by some other consignee to a destination country, to which none of those venders have license to do so. However, the trading could be more complicated when not all of these accessories are made in one country. Take China as an example: it would double the procedural complexity as those parts from other countries need to be imported into China and re-exported as a single consignment together with other parts made in China. The situation could be more complicated if we consider the export quota of each country origin, and could be more difficult to handle the uncertainty of production, say reduce or increase total supply. To this kind of GVAL, it is preferable to have some free trade enclave or annex, which is of more global logistics friendly environment, to a developing country such as China or India. Due largely to historical reasons, Hong Kong is one among such annexes: it is on the one hand physically adjacent to the Chinese Mainland and part of the People’s Republic; more importantly, on the other hand, it has a totally independent legal status as a free-trade economy worldwide. This gives Hong Kong a competitive advantage as a better place for global value-added logistics, particularly for those related to multinational sourcing activities in several Asian countries including China. This GVALS model suggests two forms of dependency – gateway dependency and trade environment dependency. The former, in fact, is a combination of en route dependency of GSC with a gateway clustering of VAL. This dependency reflects the hardware network embeddedness of VAL. The latter is a search for right place to handle things that cannot be done in any other spaces nearby. In other words, GVAL service providers tend to make best use of the ‘soft’ or policy/regulatory environment when organizing the GSC. This is about ‘territorial embeddedness’. In essence, the rationale of this model is that in the reality of globalization today, both soft and hard environment for GSCs vary globally, regionally, nationally, and locally. To those GSCs that have simple sourcing and market patterns, say, only involving bilateral trade, this GVALS model does not offer much explanation. But when sourcing or production process is associated with multiple countries, easy multilateral trade environment, such as good e-platform and effective customs procedures, together with good connections by gateways, may create the embeddedness in a place for GVAL.

Concluding Remarks and Directions for Future Research The transition of Hong Kong as a container load centre into a multiple gateway logistics hub is already on the way. It is noteworthy that the major conditions for Hong Kong to have achieved its container hub port in South China in the 1980–90s were (1) being one step ahead of Chinese Mainland in economic and port development, and (2) being adjacent but outside the Chinese Mainland. When China is being globalized and the port system becomes regionalized in the PRD,

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the second major condition has remained unchanged – this spatial discontinuity is confined by the Basic Law of Hong Kong for 50 years since 1997. The unique administrative status gives Hong Kong a city-state with its own external trade identity, which makes the entire city a huge free trade zone. In the trend of globalization involving more Pacific-Asian economies, this free-trade city has been neutering trade-based logistics firms. Different from transport-based logistics firms, which may follow the en-route gateways of their cargo physically, trade-based logistics firms tend to be trade environment dependent, as explained by our GVALS model, focusing on multi-country outsourcing and other activities that are complicated in trade and customs procedures, and need to be accommodated in special trade space. To this end, the first class port and airport infrastructure and network connections become secondary to the free-trade status and simple customs procedures. Ironically however, the success of Hong Kong as a global supply chain management centre, is also dependent on the protectionism in global trade, since the varying trade barriers among countries is a key precondition to the cluster of trade-environment dependent GVAL in limited places. These limited places may include New York City, London, and Amsterdam. They are all major logistics or global supply chain management centres today and were once the leading hub port for their own region. It would be interesting to investigate their similar trajectories of development from being a hub port into a multi-layer gateway city of which airport and other gateway functions become more critical. It would be equally interesting to investigate how their neighbouring ports took over their role, as the comparison might help to reveal and comprehend an intangible process as a law in transport geography – how and why some GVAL networks are built with major hub port first and then gradually detached from it.

Acknowledgement The research for this chapter was sponsored by the RGC Public Policy Research Grant (No. HKU 7013-PPR-2) from Hong Kong Research Grant Council. Thanks go also to Mr. Michael Cheng for the questionnaire design and data analysis.

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Index

ABP (Associated British Ports) 165, 230–31 accessibility 12, 20, 64–5, 72, 156, 200 Advanced Producer Services 26 agglomeration 12–13, 14–17, 22–5 Algeciras 39, 59 Antwerp 35, 36, 65, 68–9, 183, 186–8 APM Terminals 69–70, 186–7 archipelago economy 88–90 Asia–Pacific Gateway 119–21, 123–8, 157–8 Atlantic Gateway 121–8 Boulogne 81–3, 186 Busan 48, 58, 247, 251, 252–3, 256, 259–60 Caen 82 Calais 81–3, 183, 186 Canada Asia–Pacific Gateway 119–21, 123–8, 157–8 Atlantic Gateway 121–8 divestiture 77–8, 82–3 gateway-corridor concept 118–23 Greater Vancouver Gateway Council (GVGC) 119–20 population distribution 127–8 port governance 78–9, 85 Roundtable on Transportation 119 Western Transportation Advisory Council 119, 126 cargo handling workers 244 Charleston 136, 139, 142 Cherbourg 82 Chicago 142, 145–6, 148–9 China 22, 239, 241, 247, 250–53, 257, 271 Civitavecchia 194, 198 CMA-CGM 67, 187 CMP (Copenhagen Malmö Port) 166–72

cognitive proximity 30–31, 34–5 commodity chains 26–7 competition see port competition congestion 154, 177–8, 204, 228, 247 container cargo 239–40 container haulage costs 219–22 container terminals 21, 53 container traffic 48–51, 213–16 containerization 131, 133–4 contingency 62, 72 convergence see port convergence cooperation between ports 165, 176, 180–82, 246 coordination 191–4, 195–8, 206–7 Copenhagen 165–8 Copenhagen Malmö Port 166–72 core-periphery model 12, 13, 14, 20, 26 corridors 20, 59, 102, 115 see also gateway-corridor concept critical assets 34 decentralization 197–8, 205–6 dedicated terminals 199, 204 dispersion 12–13 divergence see port divergence divestiture 76–9 dominant positions 109 DP World 34, 35, 186–7, 230 dry inland ports 180 Dubai 22, 34, 35 Dunkirk 182–8 Eastern Seaboard of North America all water services 140–46 cargo routes 140–42 convergence 138–40 divergence 138–40 freight distribution 131 hinterlands 147–9 port hierarchy 135–8

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Ports in Proximity

port regionalization 147 ranges 134–5 reliability 145–6 service routes 142–5 transit times 142–6 economic agglomeration 22–5 economic development 44–5 economic geography 12 economic growth 25 efficiency 15–16 embedding 63, 65, 67, 72 EPP (European Ports Policy) 102–11 EU see European Union Europe see also European Union integration 101 port diversity 100–101 transport network 104–7 European Ports Policy 102–11 European Sea Ports Organisation (ESPO) 110–11 European Union see also Europe competition rules 109 port policy 99–112 port services directive 103, 108, 109, 110 regional development policy 106 state aid guidelines 109 Federation of European Private Port Operators (FEPORT ) 110 feedering costs 218–19 Felixstowe 20, 58, 213, 215, 216, 217–18, 227 Fiumicino 194, 198 Florida 48, 135 France divestiture 77–8, 80–82 port governance 78–9, 83–4 Gaeta 194, 198 gateway-corridor concept 116–23 gateways accessibility 156 capacity expansion 156–7 coastal 15 congestion 154 definition 55 economic weight 48

efficiency 155–6 emerging practices 157 environment 151–9 multi-port 58–9 sustainability 152–8 Genoa 48, 58, 202, 203–4 see also Ligurian ports geographic proximity 31, 37–8, 176–82 Gibraltar 39, 59 Gibrat law 91–2, 94, 97 Gioia Tauro 58, 94 global logistics networks 270 global production networks 269–70 global supply chains 261, 271 global terminal operators 67–8 global value-added logistics 265, 270–72 global value chains 268–9 globalization 4, 22, 26, 41–54 governance see port governance GPN (global production networks) 269–70 Greater Vancouver Gateway Council (GVGC) 119–20, 123–5 GRP (gross regional product) 48 GSC (global supply chains) 261, 271 GVAL (global value-added logistics) 265, 270–72 GVC (global value chains) 268–9 GVGC (Greater Vancouver Gateway Council) 119–20, 123–5 Gwangyang 58, 247, 259–60 Hakata 245 Halifax, Nova Scotia 48, 118–19, 121–2, 125, 126–7, 128, 135, 139–40 Halifax Gateway Council 122–3 Hamburg 61, 65 Hampton Roads 136, 142 Hanshin 244–5 Heartland Corridor 148–9 HGC (Halifax Gateway Council) 122–3 hinterlands 17–20, 21–2, 26, 43, 132, 147–9, 200, 228 Hong Kong 22, 71, 261–72 horizontal coordination 192–4, 197, 206–7 hub cities 14 hub ports 45–6, 55 offshore 61, 135 hub regions 72

Index multi-port 55, 58–9 hubs, multilayered 152–4 Hull 216, 217–18, 219 see also Humber Estuary Humber Estuary hinterlands 228 logisitics 231–2 port-centric logistics 231–3 ports 227–8 Incheon 253–4, 260 institutional proximity 31, 36 Istanbul 48 Italy see also Ligurian ports coordination 195–8, 206–7 decentralization 197–8, 205–6 dedicated terminals 199 foreign investors 200 hinterlands 200 horizontal coordination 197, 206–7 port authorities 195–202, 205–7 port committees 195 port governance 199–200 revenues 206 subsidiarity 191, 195, 197, 205–6 sustainability 200 vertical coordination 195–7, 206 Japan cargo handling workers 244 containerized cargo 239–42, 250 cooperation between ports 246 port clusters 237–8, 244–5 port competition 245–6 port development 241 port policy 241–5, 246 Super Hub Ports 242–4 Kaizen 246 Kaoshiung 251 Kobe 241, 244–5 Korea see also North Korea containerized cargo 250 industrial structure 253 metropolitan area 253–4 two-hub port strategy 247, 248–50, 255–60

303

La Spezia 48, 58, 202 see also Ligurian ports landbridges 131, 137, 140–43, 145, 156 Le Havre 20, 48, 58, 187 leadership 171 Ligurian ports concessioning 204 congestion 204 coordination 207 dedicated terminals 204 employment 202 land availability 202 management 203–4 outputs 202–3 port authorities 204–5, 207 priorities 204–5 logistic chain actors 32–4 logistic distribution centres 191 logistics parks 147 logistics service providers 265–8 London 53, 216, 219 London Gateway 58, 215, 217, 219, 221–2 Long Beach 22, 36, 38, 117–18, 125 Los Angeles 22, 32, 36, 38, 117–18, 125 LSP (logistics service providers) 265–8 macro areas 53 Maersk Line 20, 38, 69–70 Malmö 165–8 maritime range 87–98 Montreal 118–19, 121, 127, 135, 136, 139–40 Motorways of the Sea 105 MSC (Mediterranean Shipping Company) 67, 187 multi-port gateway regions 58–9 multi-port hub regions 58–9 multilayered hubs 152–4 Nagoya 244 New Economic Geography 11–17, 22, 25, 27 New York 136, 139, 142–3, 147, 194 Ningbo 55, 71 Nord-Pas-de-Calais region 184 see also Dunkirk Norfolk, Virginia 139, 142

304

Ports in Proximity

North American Eastern Seaboard see Eastern Seaboard North American Free-Trade Agreement (NAFTA) 97 North American Western Seaboard see Western Seaboard North Korea 22, 245 Oakland 117–18, 125 OECD Territorial Database 46–8 offshore hub ports 61, 135 Öresund region 165–6 organizational proximity 30, 35–6 Osaka 237–8, 244–5 Panama Canal 143–4, 146, 150 path dependency 62, 64–71 path disruption 64–5, 67–8, 70–71 Pearl River Delta 55, 71, 143, 262 pollution 117, 154, 177–8, 200 port-centric logistics 231–3 port clusters 237–8 port competition 20, 22, 31–2, 109, 176–7, 178–80, 216–19, 237, 240–41, 245–6 port convergence 138–40 port divergence 131–3, 138–40 port governance 75–86, 109, 199–200 port hinterlands see hinterlands Port La Nouvelle 82 port ownership 228–31 port performance 20, 53 port policies 15, 20, 25, 101, 132, 181, 191, 241, 243–6 port proximity see proximity port-region interdependence 45–6 port-region linkages 51–3 port regionalization 43, 61, 66, 147 port regions comparison 46–53 definition 41–6, 175 port systems 43–4 transcalar analysis 52–3 Port Services Directive 103, 108, 109, 110 port systems accessibility 64–5 contingency 62 creation of 192

development models 59–61 newcomers 65 path dependency 62, 64–71 path disruption 64–5, 67–8 port regions 43–4 reputation 65–6 retention 63 selection 62–3 stakeholder relations management 66 strategy 67–8 variation 63–4 preferential attachment 63, 65, 67, 72 Prince Rupert 118–19, 157 privately owned ports 165 proximity multiple dimensions of 30–38, 40, 175 organisational connectedness 75 path disruption 70–71 port governance 75–86 topology 75 typology 38–9 PSA International 67, 186 PSD see Port Services Directive Qingdao 251, 252–3, 256 rail distribution 140–42, 145–6, 148–9 RCI (relative concentration index) 52 regional development 25, 44–6 regional integration 20, 87–98 regional specialization 51–2 relative concentration index 52 reputation 65–6 Rotterdam 21, 36, 37, 69, 186, 215, 227 Roundtable on Transportation 119 Saint John (New Brunswick) 121, 127 Savannah 136, 139, 142, 143 Savona 58, 202 see also Ligurian ports Seaport Terminals 68–9 Seattle 59, 125 Sète 82 Shanghai 55, 252–3 shipping networks 132 Singapore 20, 55, 58, 227 Skåne 165–6 social proximity 31, 36–7 South Africa 35

Index South Korea see Korea Southampton 58, 215, 216, 217–18, 227 stakeholder relations management 66 state aid guidelines 109 state-owned port authorities 165 stevedores 244 Stockholm 48 subsidiarity 76–7, 191, 195, 197, 205–6 Suez Canal 144–5, 146, 150 Super Hub Ports 242–4 supply chain management 133, 145 sustainability 107, 152–8, 200 Tacoma 59, 125 Taiwan 251–2 Tangiers 39, 59 Tanjung Pelepas 20, 58 TDB (Territorial Database) 46–8 TEN-T (Trans-European Transport Networks) 103, 105 Territorial Database 46–8 Tianjin 251, 256 Tilbury 35, 58 Tobler’s First Law 12 Tokyo 48, 244 topology 75 traffic concentration 17–22 traffic growth 51–2, 91–2 Trans-European Transport Networks 103, 105 transport corridors see corridors

305

transport costs 12–13, 15–16 transport nodes 14–16 transshipment hubs 26, 110 unemployment 53 United Kingdom congestion 228 container haulage costs 219–22 container traffic 213–16, 227–8 feedering costs 218–19 port competition 216–19 port ownership 228–31 port traffic 211–16 ports 225–8 Ports Policy Review 231 trade patterns 222–3 Vancouver 59, 118–19, 120, 124–5, 125–6, 128, 157, 194 vertical coordination 191–4, 195–7, 206 Western Coast of north America 142 Western Transportation Advisory Council (WESTAC) 119, 126 Yangtze Delta 55, 58 Yokkaichi 244 Yokohama 48, 244 Zeebrugge 20, 42, 183, 186–8