Outline & way forward

1. THE ECONOMIC VALUE OF A PORT CITYPresentation to Maritime SummitDurban26 October 2011Trevor JonesUniversity of KwaZulu-Natal

2. Outline & way forward • Context of the discussion • The “economic value” of a port • The Port of Durban in a regional context • The Port of Durban and the Ethekweni economy • Employment impacts • Expenditure impacts • Port users and the trading community • Port costs and productivity/competitiveness • Port capacity and congestion • The future size & shape of the Port of Durban • Capacity expansion & the DIA “dig out” option • Who will pay and how much? • Who will manage/operate and how well?

3. The economic value of a portValue to whom? • Value to the host city/region (eThekweni), in terms of jobs, investment opportunities, spending etc • Value to the community of port users, in terms of user costs, time etc.. “The economic function of a port is to lower the generalised cost of through transport” (Goss)

4. Durban as a regional port • Colossal by African standards (i.t.o infrastructure and traffic base) • Very large by Indian Ocean Rim standards • Very large by southern hemisphere standard • Modest by global standards

6. Durban as the leading southern hemisphere port? • No, i.t.o. aggregate cargo volumes • Not quite, i.t.o. container volumes (teus): #3 behind Jakarta and Santos • Very likely, yes i.t.o. depth & diversity its related port community (cluster) • Emphatically no, i.t.o. productivity & competitive cost to port users

7. Value of Durban port to Ethekwini? • What does handling 70+ million tons of cargo annually do economically for the metropole? • …or handling 2.6 million teus annually? … not a simple relationship, because.. 1 ton crude oil  1 ton anthracite  1 ton fruit in pallets  1 ton containerised computer components  1 ton bagged rice

9. Port Activities generate employment and spending in Plus INDUCED or MULTIPLIER Effects on EMPLOYMENT & EXPENDITURE Direct Port Ancillary establishments Service providers to port ancillary firms (indirect relationship) Port-using cargo Owners (importers and exporters) linked to the port in varying degrees of intensity

10. Port-related employment 1995/96 and 2006 estimates, suggesting: • ~35,000 local jobs in DIRECT port-ancillary activities • ~10-12,000 in INDIRECTLY port-related activities • plus not quantified but very substantial in family of local port-using cargo owners All FIRST-ROUND activity without MULTIPLIER effects

11. Main “suspects” would include: • Transnet (TNPA, TPT & TFR) • Private Terminal operators • Clearing & Forwarding • Warehousing, depots, logistics (key area – Durban as a distribution “platform”) • Road haulage • Ships Agency • Stevedores (shrinking) • Ship repair (& shipbuilding?) • Security (growing) • Ship chandlers, suppliers • Bunker industry

12. Port-related expenditure Main estimated first-round elements are: • ~R2.2 billion wages & salaries in port-ancillary cluster (2010 prices) • ~R1.4 billion in local non-wage spending (indirectly port-related), or ~R3.6 billion in aggregate first-round port-related spending in the local economy

13. INDUCED spending? • Local economy multiplier values of 1.7 to 1.9 plausible (Brisbane, Oakland, Durban, etc..) • Aggregate annual port-related local expenditure of ~ R6.0 to R6.9 billion All on a NARROW view of the port without considering cargo owners

14. Expenditure impact of gains or losses in port traffic? • Consider the spending per call of: • 32,000 grt container vessel • Working 1550 boxes* at the DCT, • Port time 2 days • 500 tons bunker fuel purchased • 2010/11 harbour tariffs * 650 full imported boxes, 400 full exports, 250 empties, 250 transhipped

15. Profile of container vessel spending, excluding cargo dues, 2010 traffic and tariff levels 1 Container carrying lines pay an all-in terminal charge that include stevedoring, with the latter in turn offering their services to TPT. For the purposes of this exercise, these charges have been unbundled to separate out the (small) stevedoring component. 2 Based on a 80%/20% road/rail split of cargo distribution and 35%/65% split of container volumes across Durban/non-Durban cargo owners. Local cartage activities and 20% of Durban-inland transport is assumed to be controlled by service providers in the eThekwini metropole.

17. IMPLICATIONS • Substantial local spending gains from increased port activity; and obviously • Significant potential expenditure losses from failure to attract additional traffic or loss of traffic; • Broad spread of benefits across public and private players Importance of maintaining genuine TERMINAL port status

18. Port value from users’ perspective Overwhelming evidence of: • High user-costs across a broad range of activities (Moving South Africa, Ports Regulator data, etc.) • Low productivity indicators (container moves per gantry hour, cargo clearance rates etc.) • Inability to cope with sea trade demand (vessel waiting time, congestion etc.)

19. Comparative port authority costs – Durban, Rotterdam, Sydney, Melbourne Vessel: MSC Charleston Type: Cellular container vessel (gearless) Tonnage: 89,954 gross registered tons (GT) Draught: 12 metres on arrival and departure Time in port: 96 hours (4 days) Cargo activity: 2,000 teus discharged (imported cargo) 1,600 teus loaded (exported cargo) 400 empties loaded

24. In terms of PORT AUTHORITY charges, Durban a massively high cost port, but not in all respects… • Charges for MARINE INFRASTRUCTURE (Port dues) and MARINE SERVICES not the main problem • Port dues generally below those of competitor ports in EU, Oz • Pilotage costs modest by international standards • Some good things happening in terms of marine services delivery, but…. • Charges for CARGO-HANDLING INFRASTRUCTURE outrageously high • Cargo dues still the real tariff bugbear • Still price/costs distortions (Ad Valorem Wharfage ghosts not laid) • A disastrous situation in terms of attracting additional, marginal cargoes • Militates against attainment of strategic “hub” port status

25. Costs worsened by chronic congestion, vessel queuing Small exercise • 115 container vessels • 43 days (daily Sapref reports) • August-September 2011 • Daily timecharter rates imputed Average delay of 3.28 days Time cost of ~R40 million (~R1 million/day)

26. Whither Durban port? DIA “dig-out” port site the front runner • Right choice • Less saturated immediate port area • Good intermodal links (rail focus to inland clearing house – Cato Ridge?) • Real capacity enhancement and “hub” port basis

28. Future challenges: who will pay for new capacity and how much and who will manage and how effectively? • A pairing of a municipal and a national port site? (fanciful) • A more powerful partnership with private investors? MUCH STRONGER TRANSNET/CITY/ PORT USERS RELATIONSHIPS THE WAY TO UNLOCK PORT VALUE