The demand for global container terminal throughput capacity, has been dictat ed through growth in the world gross domestic product. The global shipping and container terminal industry analysts through their studies have established a link between world GDP and terminal capacity demand. This has been done by setting a benchmark multiplying factor which varies between the number 2.5 and 3.5. Hence the results derived from this relationship though varied, has always been positive. This is to be expected, given the multitude of variables that go into the equation that comes about with the globalisation of world trade.
Impact of Globalisation
It has been proven that 75% of global trade moves by sea, contrary to the previously established figure of 90%. Whatever this figure may be, the volatility in the shipping industry is as good an indicator of the state of worldwide commerce. In fact it is stated that shipping is the barometer of globalisation.
The globalisation of trade has had a major impact on the container shipping and terminal industry, specifically by way of physically increasing the number of marine freight containers that move around the globe. The impact of this being, procurement, production, and the final market of the end product constituting many different geographic locations. To make matters even more complex, these locations too keeping shifting at sporadic intervals, based on the consumer demand and many other factors that impact production costs, and not excluding availability of shipping capacity. This movement of production location, brings about changes to the type of shipments and the way these shipments are moved across various continents. When considering the Asian region alone, a classic example would be the assembly of consumer electronic goods and motor vehicles. In this case the final assembly line would be in one country, but the necessary critical components will come from another continent and vice-versa. This creates the necessity for the shipping lines, cargo service providers, and the global container terminal operators to adapt to this changing environment.
The increase in the number of containers being moved globally, creates capacity demand both on the shipping line and most importantly on the container terminals or the ports that these shipping lines call. This provides the necessary impetus for the terminals to not only enhance existing capacity but to build up new capacities in such regions/locations where large industrial manufacturing bases have been established. However, what is important to recognise is the fact that the decision of the “cargo route” will be as always the call of the cargo owner.
With freight forwarders and third party logistics providers entering the scene and also some of the shippers themselves taking on the downstream logistic services under their helm – all these players play a role in the new dynamics that are at play. Whilst this situation of third party players keep evolving, clearly the shipping lines together with the container terminal operators will continue to play a dominant role in the supply chain.
Role of container terminal operator
The shipping line and the terminal operator can easily be identified as the two most capital intensive links in the whole of this transport chain that has been created with the globalisation of trade. Looking at this development from a port and or container terminal operator perspective, the trend of total government or State managed container terminals appear to be on a downward trend. This is to be expected given the many constraints under which these State managed enterprises operate. Looking at many of the South Asian countries, in addition to the availability of limited funds for such investments, the local politics, trade unions and labour regulations also play a major role in not enabling the State entities to function at full potential.
Analysing a selection of three identified trends in building and managing new container terminal facilities, clearly the full privatisation takes the lead subject to a proven and proper regulatory framework being in place. This is to ensure among other matters, the safeguard of national interest, fair play to the end user, as well as a level playing field between terminal operators in the same port. A fully privatised container terminal will bring about an overall increase in service levels combining higher productivity and more efficiency. A global analysis of some of the major ports and the new ports that are coming on stream, show that the increasing trend of privatisation is a continuous process and that there is a significant decrease in the number of ports that are run and operated solely by the public sector. The global terminal operators have made an indelible mark and basically made their presence felt through their superior performance as common user service providers leaving the shipping lines little choice when selecting between state run entities. This is more so, especially in the developing world.
Dedicated container terminals
Some of the top global shipping lines have all invested in many major ports and have established their own terminals with a view to service their own vessels. This gives the shipping lines the benefit of drawing on the synergies between their own line controlled vessel schedules and that of optimising on shore based terminal costs and resources. The cost effectiveness of this structure is not very clear as most such container terminals also provide services to competing shipping lines although with certain pre-conditions. However, it is still an on-going trend to see some of the major shipping lines continuing to show interest and invest in terminals which will carry their own name tag.
A third and a more successful trend that has developed over time is a collaboration between the global terminal operator, the global shipping line and the State entity together with local enterprise. This trend appears to be the preferred option as far as port development is concerned in the Asian region. It is proven to be the best structure from an end user perspective, be it shipping line or importer/exporter.
Furthermore, there are many additional benefits that could be derived for all parties when participating in a structure of this nature. Especially when shipping lines form consortia and go in for joint venture services, it enables the terminal operator to establish their base cargo volumes, which then provides the opportunity for them to aggressively hunt for additional volumes.
The Port of Colombo by virtue of the very nature of the cargo handled – majority over 80% of volume being transshipment – in hindsight, appears to have taken the correct approach in establishing differently structured container terminals.
Firstly, the Jaya Container Terminal, which is a 100% state owned venture ensures the security and provides the necessary comfort for the local import/ export industry, and other national requirements vis-a-vis the provision of adequate infra-structure and service levels at competitive prices. The other privately managed terminal and the newly planned terminal in the south harbour both fall into the category of joint ventures. Thus the shipping lines whilst having a choice of two privately managed terminals, will also have the option of pitching their volumes for better rates etc. with the State managed terminal.
Most transshipment hub ports, especially in the Asian/ middle eastern region have single terminal operators running their facilities. This could be a good position to be in, from a terminal operator perspective, but not so from the shipping line and importer/exporter point of view. Bucking this trend, Colombo has a unique advantage of offering the shipping line a choice of selecting a terminal of their choice. This is unlike any other hub port which is vying for the same transshipment volumes as Colombo, where the choice is down to one single terminal operator. In addition Colombo has established a reputation for “operational cooperation” vis-à-vis in providing connectivity between terminals at zero cost etc., to the shipping lines. These are all plusses which the port needs to further strengthen and capitalise on, in order to sustain the growth of transshipment volumes in this highly competitive and volatile transshipment business. For any port to succeed, it must have access to critical mass in terms of consumers and population. As far as Colombo is concerned, this requirement has been met by the fact that almost 90% of the total transshipment volumes are origin/destination out of India where the consumer market is the focus of all global commerce. With the long term outlook for the container terminal industry being positive, Colombo is in a strong competitive position to fit in with the dynamics of the terminal industry. But, they need to strategise and further strengthen the differently structured terminals, with the introduction of a proven regulatory framework, which is a very critical missing link!
(The writer is a Fellow of the Institute of Marine Engineering Science and Technology – FIMarEST, UK and a Fellow of the Chartered Institute of Logistics & Transport – FCILT, UK.)