SEAPORT DEVELOPMENT

SHIFT OF FOCUS FROM TRADE TO CARRIER

(Discussion Paper)

Author: sabiomundo - Date: January 25 2011

TRADE TO EMPIRE

• IN THE BEGINNING, SHIPS CAME WITH MERCHANDISE TO TRADE

• THEN CAME THE CONQUERORS TO ANNEX LAND TO EXPAND INTO EMPIRE

• THIS IN SHORT, IS REPETITIVE HISTORY OF COLONIASATION OF BYGONE ERA IN EVERY CONTINENT OF THE WORLD

BY TRADITION SHIPS ARE VIEWED AS INTRUDERS

• SHIPS WAIT AT OUTER FOR ENTRY INTO PORT• A SHIP IS TO HOISTS FLAG OF COUNTRY ON

ARRIVAL AS SYMBOLIC GESTURE OF ACCEPTANCE OF SOVEREIGNTY

• SHIP HAND OVER CONTROL OF SHIP TO PORT’S PILOT FOR NAVIGATION INTO PORT

• SHIPS MAKE NO DEMAND ON PORTS

LONGSTANDING TRADITIONS

• PORTS BY TRADITION WERE FOCUSSED TO SERVE DOMESTIC EXPORTERS AND IMPORTERS

• SHIPS WERE RELEGATED TO REACH OUT TO PORTS

• SHIPS WERE REQUIRED TO CARRY ITS OWN LIFTING MACHINERY

MORE OF TRADITION

• SHIPS WERE TO EMPLOY PORT LABOUR FOR CARGO HANDLING ON BOARD WHILE AT A PORT

• PAY ALL LEVIES AND DUES TO PORT AUTHORITY

• ACCEPT LIABILITY FOR DAMAGE TO PORT

TRADITIONAL SHIP DESIGN

• LIMIT SIZE OF SHIP TO SUIT PORT • DEPEND ON SHIP’S OWN LIFTING MACHINERY

FOR LOADING AND UNLOADING CARGO

FINANCIAL IMPLICATION

• SHIPS HAD NO CONTROL OVER COST• NO ECONOMY OF SCALE WAS POSSIBLE AS

SHIPS’ SIZE HAS TO BE CUT TO PORT’S SIZE• EXCESSIVE LABOUR COST AT PORT FOR

CARGO HANDLING• EXCESSIVE CREW COST • AVOIDABLE BUNKER COST

COME 1980’S - SHIPS CALL THE TUNE

• SHIP EARN WHILE SAILING AND INCUR EXPENSES WHILE AT PORTS

• SHIPS DRASTICALLY REDUCE TURN ROUND TIME IN A PORT FROM SEVERAL DAYS TO FEW HOURS

• PROGRESSIVELY INCREASED UNIT LOAD PER EACH HOIST OF CARGO

• UNIT LOAD WENT UP FROM RANGE of 1 - 3 TONNES TO RANGE OF 20 - 35 TONNES PER HOIST

COST CUTTING

• AVERAGE CREW SIZE PER SHIP CUT FROM 50 PER SHIP TO ABOUT13

• SHIP SIZE INCREASED SIX FOLD FROM AVERAGE AROUND15,000 DWT TO 90,000 DWT

• BUNKERING COST CUT BY RESORTING TO SLOW STEAMING

• DRASTIC CUT IN COST ALL ROUND! AT PORTS, CREW MANNING AND BUNKERING!

HOW THIS WAS ACHIEVED

• INITIALLY SHIPS MADE NO DEMANDS ON PORTS WHEN NEW METHODS WERE INTRODUCED

• TO BEGIN WITH SHIPS THEMSELVES CARRIED HUGE CRANES TO LIFT HEAVY UNIT LOAD

• SHIPS BROUGHT SPECIALISED HANDLING EQUIPMENTS FOR USE AT SHORE

• SHIPS ALLOWED PORTS TO LEVY CHARGE FOR USE OF SUCH EQUIPMENTS

ASTUTE WAYS TO WOO PORTS

• SHIPS INITIALLY OFFERED TO EMPLOY DOCK LABOUR WITH NO REDUCTION IN MANNING SCALE

• TO BEGIN WITH, SHIPPING COMPANIES AGREED TO EMPLOY LABOUR ON REDUNDANT JOBS

• SHIPPING COMPANIES OFFERED TO PARTNER WITH PORTS FOR TURNING PORTS TO ACCOMMODATE HUGE SHIPS

SEMINARS GALORE

• SEMINARS AND WORKSHOPS TO PROMOTE CONTAINERISATION BECAME WIDESPREAD

• SHIPPING COMPANIES JOINED HANDS WITH LOCAL INTEREST GROUPS FOR PROPAGATING CONTAINERISATION

• SEMINARS CONCLUDED PORT DEVELOPMENT FOR CONTAINERS AS PANACEA TO CUT COSTS AND PROMOTE EXPORTS

SHIFT IN CHANGE OF DOMESTIC POLICY

• CARRIERS BEGAN TO DECIDE ROUTING OF CARGO THROUGH TRANSHIPMENT AT SEVERAL PORTS UNTIL DELIVERED AT DESTINATION

• AUGUST GLOBAL ORGANISATIONS OF REPUTE PUBLISHED STATISTICS DEMONSTRATING DRASTIC REDUCTION IN TRANSPORT COST AS PERCENTAGE OF UNIT VALUE OF IMPORTS

• HUGE PUBLIC COST OF DEEP DRAFT PORT AND COST OF ROAD / RAIL CONNECTIVITY TO PORT WERE IGNORED IN STATISTICAL COMPUTATIONS

SOCIAL COST – TOO IS IGNORED

• THOUSANDS OF CARGO HANDLING LABOUR EMPLOYED IN AND AROUND PORTS LOST JOB DUE TO CONTAINERISATION

• SHIPS ABANDONED INITIAL PROMISE TO ABSORB REDUNDANT LABOUR

• ILO CONVENTION 137 OF 1973 TO ADDRESS SOCIAL REPERCUSSIONS ON DOCK WORKERS CONSEQUENT TO NEW METHODS OF CARGO HANDLING TURNED OUT TO BE INEFFECTIVE

SOCIAL COST - SEAFARERS

• MANNING SCALE OF CREW OF SHIP DRASTICALLY REDUCED

• WORKLOAD OF CREW INCREASED• FAST TURN ROUND OF SHIPS AT PORTS LED

TO DENIAL OF REST AND RECREATION TRADITIONALLY ENJOYED BY SEAFARERS AT PORTS

• LIFE BECAME HARSH FOR SEAFARERS

SHIPPING – A FEW LESS KNOWN FACTS

• SHIPPING FREIGHT IS MARKET DRIVEN AND NOT COST DRIVEN

• SHIPPING CONGLOMERATES COLLUDE OR JOINTLY FIX FREIGHT RATE

• SHIPPING FREIGHT FROM EUROPE AND USA TO ASIA IS ONE-HALF OF FREIGHT IN REVERSE DIRECTION

• THERE IS FREIGHT DISADVANTAGE FOR EXPORT FROM ASIA TO EUROPE AND USA

TRANSHIPMENT – A FEW LESS KNOWN FACTS

• DOES TRANSHIPMENT REDUCE FREIGHT COST OF SHIPMENT?

• NO, BECAUSE FREIGHT RATES ARE FIXED SECTOR-WISE. IT IS IMMATERIAL WHETHER CARGO IS DELIVERED DIRECT TO DESTINATION OR ROUTED THROUGH TRANSHIPMENT PORTS.

TRANSHIPMENT - MORE FACTS

• WHO BEARS THE COST OF FEEDER AND TRANSHIPMENT COST?

• THE MAIN-LINE SHIPPING COMPANY THAT TRANSPORT CARGO LONG HAUL

• WHY SHOULD MAIN LINE SHIP BEAR THE FEEDER AND TRANSHIPMENT COST?

• BECAUSE OPERATING MARGIN FROM ECONOMIES OF SCALE OF LARGE SHIP IS VERY HIGH

COMPARISON OF OPERATING COST AND PROFIT PER TEU

Description Transhipment Direct sailing

a Freight India - Europe US$ 1,250 US$ 1,250

b Long haul 12 days @ $ 10 per day (large ship) 120

c Feeder - Europe 2 days @ $ 50 per day (small ship)

100

d Transhipment port - Europe 100

e Feeder – Asia 2 days @ $ 50 per day (small ship)

100

f Transhipment port - Asia 100

g Long haul – direct 20 days @ $ 50 per day (Small / medium size ship)

1000

Operating profit per TEU =a – (b+c+d+e+f) US$ 730 (a – g) US$ 250

TRADE PREFER DIRECT SAILINGS

• No delay at transhipment ports• No waiting for feeder service• No inventory cost • Scheduled access to input from supply source• Timely delivery of output to market• Overall cost reduction

SHIPPING CONGLOMERATES PREFER TRANSHIPMENT

• TRANSHIPMENT MINIMISES OPERATING COST OF SHIP

• GIVES HIGHEST PROFIT MARGIN • VIABILITY TO OPERATE CONTAINER

TERMINALS• HALF OF THE TOP 10 PORT OPERATING

COMPANIES ARE LINKED TO SHIPPING LINES

EUROPE - TRANSHIPMENT HUB

• EUROPEAN UNION IS COMMERCIALLY INTEGRATED

• Top ranking Maersk-Sealand group accounts for 12.2% of operated slots

• Maersk-Sealand belongs to the Danish AP Moller group

• Second in rank, MSC has headquarters in Geneva in landlocked Switzerland

EUROPE – IDEAL FOR TRANSHIPMENT

• ALL COUNTRIES ARE SMALL WITH MOST HAVING EITHER LIMITED OR NO ACCESS TO SEA

• WELL DEVELOPED MULTIMODAL ROAD, RAIL AND INLAND WATERWAYS

ASIA – VIE FOR TRANSHIPMENT

• Ten of the top 15 liner companies are based in Asia.

• Few small countries fully commercialise geographic location – Sri Lanka, Dubai, Singapore and Hong Kong

• Export oriented China has limited seashore at east and south, where deep draft container port terminals are ideally positioned

INDIA AND USA- IDENTICALLY POISED FOR FOR DIRECT SAILING• ACCESS TO SEA AT EAST, WEST AND SOUTH• DOMESTIC INDIAN MAJOR SHIPPING LINE -

SCI- OPERATES DIRECT SAILINGS• USA AND INDIA STRIVING TO BECOME

GLOBAL MANUFACTURING HUB • LOGISTICAL ADVANTAGE OF DIRECT SAILING• LARGE COUNTRY WITH SEVERAL WELL

DEVELOPED MEDIUM SIZE PORTS

TOP 10 CONTAINER SHIPPING OPERATORS

Rank Operator TEU Share

1 APM-Maersk 2,150,088 14.4%

2 Mediterranean Shipping Co 1,915,754 12.9%

3 CMA CGM Group 1,229,893 8.3%

4 Hapag-Lloyd 605,192 4.1%

5 Evergreen Line 604,406 4.1%

6 APL 585,614 3.9%

7 CSAV Group 585,058 3.9%

8 COSCO Container L. 544,185 3.7%

9 Hanjin Shipping 496,719 3.3%

10 CSCL 467,711 3.1%

OBJECTIVE OF SEAPORT

• FACILITATING TRADE?; OR• HELPING SHIPPING CONGLOMERATES TO

MAXIMISE PROFIT? GROWTH OF GLOBAL SHIPPING LED TO

POLICY SHIFT IN ORGANISATION AND OPERATION OF PORTS. BASED ON GLOBAL EXPERIENCE, NEXT THREE SLIDES ATTEMPT TO FIND ANSWERS TO THESE QUESTIONS.

EUROPEAN UNION

Top ranking shipping conglomerates are based in Europe. European Union has political and legal framework to promote competition. Measures are in place to detect and proceed against anti-competitive practices. There is therefore fine blend of balance between trade, shipping and other supporting transport infrastructure.

UNITED STATES OF AMERICA

The U.S. Government ensured that shipping service is not included under WTO regime. Thus, global shipping have no free access to U.S. market. Cabotage law is stringently enforced to protect and promote domestic shipping. US shipping companies receive subsidy and fiscal incentives subject to certain conditions. Trade and shipping interests are evenly balanced in the U.S.

SOUTH ASIA Shipping conglomerates are well entrenched in South

Asian region. Small countries in and around South Asia vie for transhipment business, thus creating buyers’ market for shipping companies. In India, enforcement of competition law is lax. On Cabotage law, which reserve coastal shipping to domestic shipping, India has flexible approach. Do trade and workers, who are backbone of all industrial and commercial activities deserve better deal? This aspect is open for discussion. This exactly is the objective of this paper.

COMMENTS AND SUGGESTIONS INVITED

• Comments and opinion are invited. • The author is a trade unionist functioning in a

national level organisation representing port / dock workers and seafarers in India

THANK YOU FOR ATTENTION