Tuesday, February 25, 2020

Port-Hinterland Transport and Logistics

[…]In spite of the sustained growth of port throughput worldwide, as well as of the substantial infrastructure investments of ports and their efforts to reform and modernize, hinterland transport—representing 60% of the costs of the global maritime supply chain—has not kept pace; productivity in the maritime leg of the supply chain has not been followed by productivity in its hinterland part, apart from the introduction of double-stack trains in the US in the 1980s, or the adoption of the dry port concept in the 2000s.

Moreover, the gigantism in container shipping is straining port infrastructure and cargohandling capacity, causing significant diseconomies of scale, which propagate throughout the supply chain. For many seaports, the weakest link in their transportation chains is hinterland access, due to congested roads and inadequate or non-existent rail connections, causing delays and increases in transport costs.

[…]A reversal of trends can recently be seen however. From the earlier days when ports were obliged to move downstream to find space, ports now look back to their hinterlands to find the additional space they require. Inland intermodal terminals (or dry ports) are thus mushrooming, connected to seaports by rail, road or inland waterways. As such, inland intermodal terminals are usually developed close to railway and motorway junctions to facilitate the transfer of containers between modes of transport, favouring, to the extent possible, the more environmentally friendly transport modes, such as rail and inland waterways[…]

HE Haralambides

Friday, February 7, 2020

Georgia's Anaklia mega-container facility on the “Belt and Road” backpack?

The 2.5 billion deep-water mega container facility at Anaklia has been shelved. The ‘official’ explanation is that the Anaklia Development Consortium (ADC) has been unsuccessful in securing finance. The true reasons, however, may be quite different, having more to do with regional geopolitics rather than anything else.

In a surprise move, the Georgian government has issued an authorization for the development of Anaklia’s southern rival, the port of Poti. The bid has been won by APMT (Maersk group). Looking at the latter’s plans, I cannot say I am very impressed however. These are about an initially general cargo facility, eventually developing a 300m container berth of limited drafts (11m).

The Poti authorization is a strategic move of high complexity, given that, at the same time, the Georgian government is talking to various international institutional investors (including China), in an effort to secure the financing of Anaklia. I am certain the government will succeed, and a new bid will be launched soon. Anaklia is a very strategic node on what I have earlier called  “a missing link of BRI”, i.e. that of connecting the Caspian and the Black seas, continuing to central Europe through the Romanian port of Constanza on its western part, and connecting to the Bandar Abbas (Persian Gulf)-Tehran-Baku (Azerbaijan)-Moscow North-South Corridor  on its eastern part (also strongly eyed by India). I launched this idea 4 years ago in Kuwait, and we were happy to see, last year, an implementation agreement signed between the governments of Turkmenistan, Azerbaijan, Georgia and Romania.

I expect that the Anaklia project will be re-launched very soon. One of the requirements would be the upgrading of the Baku-Tbilisi-Anaklia railway. If this happens, the Poti project will have to be scaled down, limiting itself to general cargo throughput only. The distance between the two ports is too short and, to my view, there is not enough room for container facilities in both ports.
This would be a waste of good money.


Tuesday, January 14, 2020

Decision-making in container shipping: reactive or proactive?

The best monopoly profit is a quite life” used to tell me Sir John Hicks many years ago when, as a student, I was writing my thesis -The Dynamic Stability of Competitive Equilibrium- based on his book Value and Capital.[1]

In our present research, Mike and I have tried to say something similar, albeit with different words: In imperfect markets (collusion, concentration, etc.), mistakes do not cost that much, and they can be easily corrected. Here, carrier short-run capacity deployment decisions could be described as ‘reactive’, or as ‘steady as she goes’. In other words, carriers’ approach is fairly mechanistic:  ‘let’s see what we did in the previous years, or what our competitors our doing, and do the same’. Expectations regarding future developments in their markets do not matter so much and, in a way, decisions are made reactively, like someone who tries to drive a car forward by looking in their rear view mirror. This is the essence of adaptive expectations.[2]

On the contrary, competition obliges you to stand on your toes; to sit on the edge of your chair; to bite your nails; to look around and ahead and try to fathom every scrap of information coming your way which could impact your bottom line. Here, mistakes cost; sometimes they cost a lot, as the bankruptcy of Hanjin Shipping has taught us. Such a decision-making approach reflects  the fundamentals of rational expectations.[3]

Mike and I therefore thought that if, through the use of shipping capacity deployment data, we could discover how shipowners form their expectations on future developments in their markets, i.e. adaptively or rationally, we should also be able to say something about the structure of their industry (imperfect or competitive). Such information, particularly today when the European Commission is considering extending for another five years its antitrust concessions to international shipping, might be of a certain value.

Admittedly, our results are not as strong as we would like them to be, but this is a good thing and a good starting point for other researchers who would like to follow us. We  however have been able to show that, in the more competitive Pacific market, carriers may tend to decide rationally; in the Atlantic market, instead, this could not be established and carriers there seem to be reactive rather than proactive, forming their expectations adaptively.

If true, the latter finding (Atlantic) comes only to validate, for one more time, what we said 15 years ago in our Erasmus Report:[4] “the disbanding of liner conferences from European trades has done little to increase competition in liner shipping”.

Hercules Haralambides
January 2020

PS. The complete paper is freely downloadable here: doi.org/10.1186/s41072-019-0057-2

[1] J.R. Hicks (1939) Value and Capital: An inquiry into some fundamental principles of economic theory. Oxford: Clarendon Press, 1939.
[2] See Milton Friedman (1968). The Role of Monetary Policy. American Economic Review, 58 (1): 1–17.
[3] See John A. Muth (1961). Rational Expectations and the Theory of Price Movements. Econometrica 29 (6): 315–335, and Thomas Sargent (1986) Rational Expectations and Inflation. New York: Harper and Row, 1986.
[4] The Erasmus Report: Global Logistics and the Future of Liner Shipping Conferences. DOI: 10.13140/RG.2.1.3225.3200 (Report prepared for the European Commission’s Competition Directorate General “for assistance in processing public submissions to be received in response to the “consultation paper” on the review of Council regulation 4056/86)”.