GLOBALISATION OF PORT LOGISTICS:

1. GLOBALISATION OF PORT LOGISTICS: opportunities and challenges for developing countries

2. Contents • Overview • Development in world trade • Recent port developments • Cargo Handling • Latest developments in container handling • Opportunities and Challenges

3. 1. Overview • Gross domestic product (GDP) increased on average by 4 per cent in 2006. [1] • Goods loaded at ports worldwide, were up an estimated 4.3 per cent in 2006. [2] • The number of full TEU shipped worldwide in 2006 is estimated at 129 million, up around 10 per cent. [3] • World container fleet capacity grew by 13.5 per cent in 2006, an increase of almost 1.4 million TEU. [4] • The number of TEU (full and empty) handled by ports increased by 13.4 per cent in 2006. [5] • [1] UNCTAD (2007) Review of Maritime Transport. • [2] Ibid. • [3] Drewry (2007) Global Container Terminal Operators, Annual Report. • [4] UNCTAD (2007) Review of Maritime Transport. • [5] Ibid.

4. While world trade is growing marginally faster than GDP, port throughput is growing more than three times trade. • Global production processes and transhipment operations create growth in port traffic. • Today 17.6 per cent of liner shipping port calls are direct, whereas 82.4 per cent require at least one transhipment port and 17.2% two or more.[1] • [1] UNCTAD (2007) Transport Newsletter, #36, Second Quarter.

5. Globalisation of production • Has enable the assemble of goods in more complex and geographically dispersed ways. Assemble often occurs en route from origin to destination and at transhipment nodes. • Typically these processes occur within ports or adjoining FTZ and include value added services such as: • repackaging, engineering and design, knowledge processing, light manufacturing and processing, warehousing and logistics. [1] [1] UNESCAP (2005) Free Trade Zone and Port Hinterland Development, ST/ESCAP/2377.

6. Import / export port Gioia Tauro Dalian HK S’pore Rotterdam logistics centre port transshipment port Source: UNESCAP (2005) Free Trade Zone and Port Hinterland Development, ST/ESCAP/2377.

7. Globalisation of Port logisitcs • Globalisation of production has lead to the globalisation of port logistics. • Container terminal operation has been refined, replicated and continuously improved so that there is a global sharing of knowledge and expertise in the areas of: • management and operational techniques • infrastructure planning • international finance • the adoption of tried and tested computer software systems • fine tuned port equipment tested in other locations and backwards linkages into host economies that stimulate local imports and exports volumes.

8. Global terminal operators' market percentage share of world container throughput(Percentages) Source: Adapted by the UNCTAD secretariat from information obtained by Dynamar B.V and Drewry Shipping Consultants. a DP World includes CSX World Terminals and P&O Ports for all three years. b In millions of TEU. c The “Herfindahl Hirschmann Index” (HHI)

9. Latest developments • In 2005 Babcock and Brown (Australia), a private equity firm, buys PD Ports (UK) • In 2005/6 Peel Holdings (UK) buys MDHC (UK) (now 49 per cent owned by Deutsche bank). • In 2006 DP World buys P&O Ports • In 2006 Admiral Acquisitions, a private equity firm buys ABP (UK). • In 2006 Ontario Teachers’ Pension Plan Board (OTPPB buys Orient Overseas Container Line (Hong Kong) entire terminal operations (excluding Long Beach and Kaohsiung). • 2006/2007 Macquarie Bank buy 40% stake in Hanjin (S. Korea) terminals

10. The trend… financial firms • In 2005 Babcock and Brown (Australia), a private equity firm, buys PD Ports (UK) • In 2005/6 Peel Holdings (UK) buys MDHC (UK) (now 49 per cent owned by Deutsche bank). • In 2006 DP World buys P&O Ports • In 2006 Admiral Acquisitions, a private equity firm buys ABP (UK). • In 2006 Ontario Teachers’ Pension Plan Board (OTPPB buys Orient Overseas Container Line (Hong Kong) entire terminal operations (excluding Long Beach and Kaohsiung). • 2006/2007 Macquarie Bank buy 40% stake in Hanjin (S. Korea) terminals

11. The cost of purchasing terminals(price/earnings ratio) P/E ratio x 14 - In 2005 DP World purchased CSX Terminals. P/E ratio x 15 - In 2006 Admiral Acquisitions bought Associated British Ports P/E ratio x 19 - In 2006 DP World’s purchase of P&O Ports P/E ratio x 16 - In 2007 Deutsche bank bought a share in Peel ports P/E ratio x 20 - Forth Ports P/E ratio x 25 - ICTSI P/E ratio x 36 - CMHI P/E ratio x 58 - SIPG Sold Current share price Source: Various – see background note

12. What of developing countries? • Terminal operating companies are in some cases owned by subsidiaries of larger companies such as liner shipping companies (e.g. AMPT) or conglomerates (e.g. HPH) which makes acquiring them through hostile takeovers very capital intensive. • Thus port companies wishing to expand are looking away from high profile mergers because of the cost. Instead global terminal operators are looking further down the port league table for partners. Ports in developing countries are thus likely to be seen by global terminal operators as a less capital intensive means of expansion.

13. 2. Cargo Handling • In 1993, 42 per cent of world container throughput passed through state owned terminals but by 2006 this figure was down to 19 per cent. • While the overall volumes for state owned terminals from 1996 to 2006 have remained constant the private sector has been growing rapidly. [1] • The share of state throughput varies by region • Northern Europe 6 per cent • Eastern Europe 24 per cent • South East Asia 42 per cent • Africa 68 per cent. [2] • [1] Drewry (2007) Global Container Terminal Operators, Annual Report. • [2] Ibid.

14. Africa • Limited involvement of International terminal operators in Africa. • AMPT has a presence in Angola, Cameroun, Côte d’Ivoire, Egypt and Nigeria • DP World has present in Djibouti, Egypt and Mozambique, • HPH has a presence in the Egypt and United Republic of Tanzania • Average crane productivity from 2002 to 2006 in • Djibouti and Douala (Cameroon) up from 15 to 35 moves per hour (MPH). • Apapa (Nigeria) up from 6 to 18 MPH • Abidjan (Côte d'Ivoire) up from 15 to 40 MPH.

15. Asia • Asian ports are now dominating the industry in terms of increased efficiency and highest productivity. • Malaysia’s Westport reported handling some 452 container MPH, a world record, whilst discharging 3,559 TEU for CMA-CGM’s MV Puccini in 2006. • Average moves >60 MPH

16. Jebel Ali Port (United Arab Emirates) • In June 2006 the port made 8,571 moves in 41 hours for the 9,000 TEU ship the MSC Rania. • Average moves per hour > 60 Twin FEU

17. Chiwan Container Terminal, Shenzhen, China

20. Port customers are getting bigger. In 2006 the largest containership ever built, Emma Maersk, was launched with a reported capacity of 12,508 TEU capacity she requires a depth of 16 metres

21. 3. Opportunities and Challenges • Ports need: • Longer container berths • Deeper alongside access • Specialised port equipment • Sophisticated workflows supported by software programs. • An enabling environment which is conducive to creating value added service within or adjoining to ports • Issues remain of how to retain the necessary safeguards to protect revenue, security, the environment and national land transport systems as well as how to finance projects.

22. Conclusion and the way forward • Offering a terminal concession to a global terminal operator, or even an established single port operator, is one possibility open to governments. • Alternatively, port or terminal operators may wish to consider vertical integration into a supply chain incorporating national transport systems. • Uniting transport operators such as truck or rail operators together with terminal operators to provide a dedicated service along specific inland routes between the seaport and a dry port. • A win-win situation can be negotiated so that port owners can meet future investment needs while customers can achieve fixed costs and guaranteed availability of services.