Smarter Port Infrastructure, Part 2

A key item on the list is geographic advantage. A regional trans-shipment port must be positioned for minimal deviation from the trade lane it serves. It must be in proximity to secondary ports along the route. For example, it should not require sailing upriver or up a lengthy coastline away from the main route. Added sailing time diminishes the efficiencies of carriers' large containerships, in terms of both operating cost to the carrier and schedule efficiency for the customer.

Access is another important consideration. Linehaul ships typically require either deep water or channel drafts of 46 feet or more, and a wide turning basin for berthing. A parallel concern involves whether local environmental or land use conflicts might arise. While such conflicts are not insurmountable, they can entail significant mitigation costs.

Proximity to a large local market is helpful, because the market for trans-shipment cargo is largely artificial and discretionary. Should geographic advantage shift because of changing economic or market conditions, local traffic provides a potential hedge.

A successful trans-shipment port must have substantial backland storage area for containers. A decade ago, a large container terminal would have been about 100 acres. Trans-shipment terminals under construction today range from 200 to 300 acres each. Ports wishing to be seriously considered as trans-shipment centers now typically target annual throughput of 1 million TEU or more.

Efficiency is the overriding objective. Keep in mind that these mega-terminals are intended to build critical masses of cargo which in turn produce service efficiencies and economies of scale despite an additional transfer of each container.

Trans-shipment ports must therefore be prepared to custom-design terminals that fit carriers' precise operational needs - with high-speed, long-reach cranes... on-dock rail connections... container and doublestack train staging areas... automated gate clearance... and so on. In short, the carrier must be the ultimate decision maker driving the development and ultimate configuration of such facilities.

Facilities and local infrastructure go hand in hand. Fast, flexible, door-to-door or store-door transit compels carriers to take into account the interface between the port and inland highway and rail networks.

For example, what is the capacity and configuration of rail and highway networks into and out of port terminals? Are gate facilities large enough and designed for fast entry and clearance of trucks? Will local urban traffic congestion delay truck pickups and deliveries in the harbor area? How close to the pier do trains run, and do they encounter numerous stops at grade crossings in the harbor area? Can inland highway networks easily absorb traffic between the port and major urban and manufacturing centers? Do adequate inland warehousing and cargo consolidation facilities exist? Can carriers access those facilities or, if necessary, establish their own?

On many levels, the role of government in trans-shipment port development is central to project viability. As mentioned, government must be willing to invest in infrastructure, yet permit design flexibility driven by carrier service parameters. And it must be willing to open service sectors such as trucking and warehousing to foreign carrier investment, either through wholly owned or joint venture enterprises.

One other, equally important point: Because a trans-shipment port relies primarily on discretionary cargo not originating in or destined for local markets, it is essential that government minimize intervention of the overall flow of cargo.

Obviously a certain level of oversight and documentation will always be necessary, in the economic and security interests of the country where the port is located. But it is essential that government agencies resist the temptation to apply overly burdensome customs rules... inspection procedures... local taxes or charges... duplicative documentation requirements... or other inhibiting policies that cause delays or add to costs.

A trans-shipment port's viability turns on two overriding factors - per-unit cost and operating efficiency. As regional and national government authorities monitor and evaluate their internal policies and procedures, those two objectives must be given top priority.

I can say that, overall, APL has had positive experiences with public and private partnerships to achieve efficiency objectives. Two examples come immediately to mind.

When faced with severe port congestion and traffic gridlock at Bangkok, we worked with the Thai government to develop container terminal facilities a short distance down the coast at Laem Chabang, with inland rail service that effectively bypassed Bangkok for cargo moving inland.

And at Nhava Sheva, near Bombay, we have developed an inland consolidation terminal where full container loads can be assembled or broken down close to their origin or destination. That has reduced the number of trucks carrying small shipments into and out of the Bombay harbor area, for less congestion and greater marine terminal productivity.

A final word about local ports versus transshipment ports. As carriers have entered larger vessels into service, formed alliances and begun soliciting port proposals for handling their linehaul traffic, the response from many port authorities appears to be, "If we do not participate in this business, we will not survive." That simply is not the case.

Only a handful of ports will emerge as container load centers in the future. Their emergence will be based largely on the factors I have outlined, and not on incentives. Second, some ports seem unduly focused on the prestige of record throughput volumes and the revenues they receive, without considering the attendant infrastructure costs and impacts involved - particularly if the port in question does not already enjoy the kinds of natural competitive advantages I have mentioned.

Smaller niche ports, on the other hand, are a far less costly and risky proposition if the natural advantages are not present. Smaller feeder terminals will always be needed to deliver container cargo to and from local markets. A local port can process and feed cargo to the linehaul port in a number of ways other than feeder vessels - by barge, rail or truck, for example, when other inland options are scarce. To a certain extent, built-in excess terminal capacity can prove useful during strong markets, when major ports are congested.

Ports can identify and serve particular trades where the linehaul ships are smaller, as Philadelphia did when it lost Europe business to other Atlantic coast ports and shifted its marketing emphasis to Latin America carriers. Or, a port can market to specific local industries, whether it's project cargoes like construction equipment... perishable fruits and vegetables requiring chill facilities... cotton or paper products requiring dry storage... automobiles requiring roll-on/roll-off piers and a staging area... or bulk cargoes such as coal or phosphates.

Just like the customers they serve, ports are undergoing a period of transition today. Market forces are reshaping customer demand... infrastructure funding from traditional sources has become less reliable... and local communities are demanding both a voice in directing port growth and a greater share in the public benefits of port activities.

Admittedly, port administrators see themselves under mounting pressure to "act quickly and decisively" in the face of these changes. Often, the notion that "bigger is better" drives infrastructure decision making.

In reality, smarter is better:

Instead of trying to build mega-ports, port authorities should appropriately scale the port to generate trade, employment and revenues for the specific localities or regions they serve. In some cases, the mega-port might make sense. In most cases, however, a smaller, niche port will be more successful, as well as less costly to develop.

Port authorities should leverage natural advantages rather than rely on the false economics of development incentives. Because of the economic and logistical reasons I've discussed, natural advantages will nearly always win.

Finally, the focus should be on the needs of customers - terminal and warehouse operators, carrier and tenants, as well as the importers and exporters who may dictate the routing of cargo through specific ports. In particular, port authorities must understand their customers' need to leverage high fixed costs. They must also understand the implications of the growing shift away from traditional, "point-A-point-B" transportation services, and toward supply chain management. When port authorities and other government entities are insightful, flexible and not overly burdensome, carriers and other customers are much easier to attract and keep.

With some thoughtful analysis, planning, and listening to customers, you'll find that the market will deliver the business.

Thank you.