Wednesday, December 28, 2016

The end of private car ownership?

These days every year is the time of predictions and I have never shied away from them. Here are therefore my predictions, not for 2017 but for 2027.

Autonomous (self-driving) cars are here to stay and the plans of manufacturers point at an exponential future growth. Consumers have already expressed their preferences for reading; working; meeting; or chatting on their cellphone in the car, rather than driving.

The internet of things (IoT) is already changing our mobility behavior and, with applications like Uber, as well as GPS navigators such as Waze and Sygic, our car is already connected to all others. This has the potential to alleviate much of our transport externalities, such as accidents, congestion and air pollution, and lead to a much better, and more efficient, use of road infrastructure.

We are using our car only for 10% of its time and that’s a terrible waste; car-pooling (in autonomous vehicles) will increase. Private transportation services will be demand-driven: I will have a car waiting outside my door only when I need it. I won’t need half an hour every evening to find a parking spot in the neighborhood, nor would I need to pay car ownership taxes for having a car gathering rust on my sidewalk. Once it has dropped me off, the car could go and park itself at a specially designated parking area, hopefully outside our congested cities. Residential areas will again become what the word says: "residential".

Considering the above, at some point in the near future, car manufacturing will start declining precipitously. The end of car ownership is here.

Happy New Year 2017 to all.


Tuesday, December 20, 2016

On public contracts in ports, natural monopolies and supernatural nonsenses

Ports are often referred to as the classic example of the so-called natural monopoly case, whereby possible market failure can justify government intervention. Under certain conditions (level of demand, cost structures and technology), a market with two or more firms can produce sub-optimal economic outcomes (for example a certain port may be too small to have two tug operators), whereas a single firm might produce the required output more efficiently. For this reason, governments often decide to move away from a multi-firm competitive environment (competition “in” the market), towards a monopolistic, albeit regulated, situation (competition “for” the market), achieved (sic) through competitive public tendering. 

I have always argued that such public intervention in commercial decisions is wrong. And it is wrong for two reasons. 

First, the sometimes widespread corruption in the public sector may result in ‘photographic’ tenders favoring the local incumbent, effectively shutting-off international or even national competition. Thus, it is not uncommon for public tenders to end up with only one interested bidder, while the correlation between ‘single-bid’ contracts and corruption in the public domain is not passing unnoticed either (Figure). Finally, the opening up of the market for public contracts is one area where WTO is dragging its feet for years now without any progress. 

Second, governments, and the public administration by and large, are by far the least competent actors to decide on ‘market size’, or on the financial ramifications for private firms who would like to take calculated risks and enter a market. This is because governments lack both the information required for such decisions (a typical case of asymmetry of information), and the legitimization to decide themselves on the fortunes of private risk-takers.[1] 

Instead, the role of the public administration is to set the rules of the game; determine the conditions and quality of service it requires (including any Public Service Obligations) and then leave it up to the private sector to decide for themselves if the market is big enough, if they see profit prospects, or if they would like to go bust; but this ought to be ‘their’ decision, because it is ‘their’ money, and ‘their’ neck on the block.

HE Haralambides

[1] A notorious case, immediately overruled by the State Council, was the communist (sic) Greek government’s decision, in 2016, to limit the number of national TV stations to 4, on arguments based on the ‘financial survivability’ of broadcasters, given the size of the advertising market...

Monday, December 12, 2016

Protectionism: choosing the wrong medicine to the right illness

Trade has undoubtedly created unimaginable wealth and welfare throughout the world, but at the same time it has also precipitated worrisome disparities in job creation and income distribution in many countries. 
Spellbound this afternoon, I listened to Yi Xiaozhun, Deputy Secretary General of WTO, to reaffirm my conviction that protectionism is the wrong medicine for the cure of this malady. 
Rather than questioning the merits of trade, affected partner countries of our multilateral trading community should find those tools and economic policies which ensure that (a) benefits from trade are distributed as fairly as possible among local communities and their peoples; and (b) local industry of high import content is not unreasonably exposed to (unfair) foreign competition.
A great lecture by all counts.

HE Haralambides

Friday, December 2, 2016

For whom the bell tolls?

Once the critical instrument for the reconstruction of a Europe dilapidated by war, infrastructure today is increasingly becoming a private- rather than a public good, where the user pays principle ought to apply. In this sense, Germany’s road toll plans are in the right direction.

Port competition, for a common European hinterland, is intensifying as a result of plentiful road infrastructure, much of it in Germany. Motorways are thus becoming just transit links, with the benefits of costless infrastructure accruing to the origin (e.g. China) and destination (e.g. Switzerland) of cargo, rather than to the German taxpayer who is called upon to finance infrastructure development and maintenance.

The Dutch government ought to study more carefully its objections to the German road toll plan. The elasticity of demand for Hamburg port services is three times higher than that of the port of Rotterdam, and a more expensive use of German motorways could have the effect of diverting cargo traffic from Hamburg to Rotterdam. And few would mind this in The Netherlands; or would they? 

HE Haralambides

Wednesday, November 2, 2016

One Belt One Road, Port Capacities, and Industry Relocation along OBOR

The complexity of the OBOR network -both its land and ocean part- is such that the map is changing by the day. A very unstable and unpredictable geopolitical landscape is of course playing its role in this too.

Groundbreaking research, appearing soon in Maritime Economics and Logistics expands actual (physical) transport networks in malleable ‘super-networks’, able to identify shifts in manufacturing activity along the OBOR, as a function of port investments and rising land and labor costs in China. User equilibrium traffic assignment models estimate production impediment functions, analyze the path choice behavior of products in the super-network, and determine industrial relocation (and regional development) which minimizes generalized costs (production-transport-distribution).

Sri Lanka and its Port of Colombo, pivotal in OBOR, is used as a case study. The research shows that were Colombo to invest in an additional 8 berths, and price Terminal Handling Charges at 111 USD/TEU, the port could achieve incremental annual profits of USD 0.73 billion, with a Return on Investment of 7.3%. Total impact on the country’s GDP is estimated at USD 30 billion, while wages of manufacturing workers could rise from their current level of USD 420/month to USD 625/month as a result of higher labor demand.

Research is continuing on other countries and ports along the OBOR network.

Friday, September 9, 2016

The Hanjin bankruptcy: No one is too big not to fail

The (anticipated) collapse of the world’s seventh biggest carrier has undoubtedly created tsunami-class waves that continue to ripple throughout the supply chain: from shippers and forwarders, to ports, terminals and creditors. Still, this is just a temporary inconvenience and the Government of Korea, together with the Korean Development Bank, are only to be complimented for their tough stance. Had the same thing happened with the bankruptcies of 2009, the liner shipping industry would be in a much better state today than it actually is.

The issue here has to do with the important aspect of moral hazard; i.e. exercising lesser due diligence, or assuming a higher investment risk than what would normally be warranted, just because you know that if things turn out badly, there will always be a helping hand stepping forward to your rescue.

If carriers know that this is no longer the case, and “out is out”, they would be much more prudent before ordering new tonnage. Supply would thus correspond more closely to demand, rates would as a result be more sustainable, and the financial performance of the industry would be less of a roller-coaster.

A “no one is too big not to fail” approach in shipping is therefore just as good for the taxpayer as it is for the carrier himself.  HH 

Tuesday, August 30, 2016

Public financing of private ports?

After years of debating, I must admit I am quite happy that the European Commission appears to converge to my views on the subject, repeatedly expressed for more than 20 years now.

As ports are increasingly adopting an ‘enterprise’ model through the award of concessions to private port operators, the public financing of port infrastructure and operations assumes a very different dimension, even for ports that are under full State of municipal control.

For instance, what happens if a public intervention, intended to promote the ‘general economic interest’, instead favors only one concessioner, or group of concessioners, against some others located in the same port, neighboring ports, or neighboring countries? What are, finally, those ‘infamous’ sovereign state responsibilities, often taking the form of Public Service Obligations, that allow governments to pour public money into clearly private port infrastructure?

Dredging is a good case in point I have often used with my students. Providing and maintaining access to a port could be rightfully considered as a public good serving the general economic interest. But when the access channel is dredged down to 16 meters, surely this public good is not meant for my little fishing boat, but for a containership of 20,000 TEU. Once identified, it should therefore be the user of the good who should pay for the costs of its production and not the general taxpayer. In other words, port access is no longer a public good and, among other things, the taxpayer should be informed on how his money is being spent by public port authorities.

Last mile investments is another good example. Connecting the port with the national motorway system is in principle a public good, serving the general economic interest (I would happily take my bike and go to the shore for some birdwatching!). But what happens if this ‘connection’ favors just one terminal operator against many others? Clearly, this ‘last mile’ investment is a private rather than a public good and the terminal operator should pay; participate in the development costs; or pay for the use of the road, once completed. Finally, the absence of such a connection should be clearly discussed in the concession agreement: More often than not, concessions are awarded, with the concessioner quickly reverting back to the awarding authority to ask for more infrastructure and connections because, allegedly,  he cannot do his job as efficiently as he would like to. The awarding authority is often ‘obliged’ to accommodate such requests and this cannot continue.

As said, I am quite content with the policy orientations of Competition Commissioner Vestager  in terms of focusing on the real issues facing our ports. HH

Monday, July 18, 2016

OBOR Networks & Maritime Geopolitics: The Century of Eurasia


OBOR is a US$ 1 trillion plan with an estimated economic multiplier of 2.5. Since the plan was announced three years ago, only 5% of this budget has been spent. There are as many plans as interested countries and China is talking to all of them. 10,000 articles have been written on the subject, but NDRC has retained only 100! Nothing is decided yet, and may analysts tend to see OBOR as a geopolitical “carrot and stick”, something similar to “Marshall Plan”.

China is not investing only in African infrastructure but it transfers manufacturing activity there. By the end of 2015: 128 industrial projects in Nigeria, 80 in Ethiopia, 77 in South Africa, 48 in Tanzania and 44 in Ghana. It seems developing Africa is much easier than developing China’s own northwestern territories.

With investments in Australia (Darwin) and a continuing interest in the Nicaraguan canal, China will soon be looking at the Pacific Ocean, expanding OBOR to a global, “around-the-world” network, in competition to TPP. What are the prospects of the Panama Canal, in view also of competition from the Suez Canal? To my view, not very promising.

Russia is squeezed from both sides: USA/NATO from the west / China-Eurasia-OBOR from the east. Russia’s response: its own ‘OBOR’: The North-South Transport Corridor.

Both Russia and China intend to develop their own currencies into reserve, clearing ones, away from the dollar and a crisis-prone, risky and overburdened western financial system. China in particular has created a currency clearing house in Qatar while Russia has an “oil for goods” deal with Iran. The latter country too has recently entered into a “rail for oil” barter deal with Turkey.


-The 21st century is the century of Eurasia.

-Eurasian Infrastructure investment plans amount to 8 trillion dollars.

-“Accessibility” (and not ports) is the bottleneck to trade.

-Investors (WB, EBRD, AIIB, etc.) abound, but attention and coordination are required.
(Lack of ‘discussion’ and coordination (e.g. within AIIB) are India’s objections to OBOR).

-Infrastructure investments have long gestation periods, while short-term debts accumulate dangerously.

-OECD forecasts show that the supply of infrastructure outstrips trade demand.

-Infrastructure investments should not be the outcome of geopolitical and security games.

-The debt of the developing world is a cause for concern.

-China’s NPLs correspond to 25% of the country’s GDP.

-Western banking is still precarious.

-A new economic ‘meltdown’ is not out of the question; this needs to be avoided at all costs.

Tuesday, June 28, 2016


The ramifications of BREXIT for global security could be much more important than its economic effects. After all, the UK economy represents less than 4% of the global economy. A weaker pound  -and a possible recession as a result- should not, in my view, have the grave effects many economic analysts predict.

But Britain is a protagonist in the defense theatre: the country is NATO’s staunchest ally, the "defense bridge" between US and EU, and the latter’s biggest contributor (both in money and means) in all EU-led operations. Would this stay the same after Brexit? Or would Britain move closer to NATO? And if this happens, what would be the impact on EU’s new defense policy orientation, and on the German-French idea of a true “defense union”? Would this be possible without Britain?

One shouldn’t forget that the Americans, for some time now, are becoming increasingly fed up of having to spend so much on Europe’s defense; their priorities are clearly elsewhere, including China’s incursions in the South China Sea.  In this regard, Americans see rather favorably Germany’s push for closer cooperation and coordination of defense budgets which, according to some, should be raised to 2% of GDP amongst all EU member states.

One thing is certain: the geopolitical chessboard has changed and exit negotiations aren’t going to be easy. Certainly, the process will take much longer than the envisaged two years, unless something else happens in the meantime. HH 

Wednesday, June 8, 2016

Panama and Suez canals on head-to-head price war

[Lloyd’s List, 8 June 2016: “Suez Canal offers up to 65% discount for Asia-North America east coast carriers”]
A few weeks ago I was commenting on the MoU Suez and Panama were signing, surprisingly with the blessing of the United States. I was saying that we should keep an eye on this development, for, although the MoU was described -as it is common in this type of agreements- as a “technical cooperation and information exchange agreement", its intentions could be quite different (i.e. collusion). Apparently "the plan" didn't quite work and the result, as was to be expected, is outright head-to-head price war.

Panama is again engaging  in new demand forecasting studies. In these, Panama should keep in mind that, in servicing the US East Coast, the role of Suez and of the Mediterranean hubs (Malta-Algeciras-but particularly Tangiers) is increasing. This is so, not so much in order to save on fuel costs, but mostly because carriers are able to feeder, from these hubs, the increasing trade of West Africa.

If to the above one would add: a) the new generation of containerships (too large for the Panama Canal); b) the interest of China in Port Said and in the Nicaragua canal; c) China’s grandiose, US$ 1 trillion “One Belt One Road” network and, in this context, China’s interest in the Mediterranean ports (Venice, Piraeus), East African ports (Mombasa, Djibouti), and Gulf ports (Oman, Qatar), the future prospects of the Panama Canal do not look, at least to me, as promising as one might like them to be. 

HE Haralambides

Monday, April 25, 2016

Chinese cruise ships? Thanks but no thanks

Shipbuilding is an economic activity that has in substance left Europe long ago. With one exception: Cruise ships. There is a reason for this. Cruise tourism, and carriers, are inextricably linked with the concept of quality; and quality is a ‘way of life’, a philosophy, difficult to copy. 

In spite of the global economic crisis of 2009, cruise tourism has been growing steadily. Carriers are working to near capacity and so do European yards in Germany, France and Finland. Orderbooks are full, without counting newbuilding options. Shipbuilding berths will be the bottleneck in the further growth of the sector going forward.

Aspiring volunteers, such as China, do of course exist, and European builders, such as Fincantieri of Italy, are already considering joint ventures. To my view, this would be the wrong thing to do. A JV entails transfer of technology and as such it is the surest way of offering the knife that will eventually stab you in the back. We have seen this happening in every other European industry and we should be learning from our mistakes.   

It will therefore be quite some time before China enters seriously into the cruise shipbuilding market. No doubt this will eventually happen. But in the meantime, a carrier should think twice before assigning an order to a yard which does not have the experience, suppliers and logistics to carry out the work as expected, and he would be fast to stealthily advertise, negatively, competitors’ decisions to do so. At a consumer level, personally I would think twice before boarding a cruise ship made in China…  

The result of all this will undoubtedly be an increase in the price of cruise tourism products which, we must admit, has dropped to ridiculously low levels due to competition among carriers. Time will tell. HH 

Wednesday, April 20, 2016

Container shipping: In short, you have a ghastly mess

Containerization has gradually led to the commoditization of the ocean liner service and thus to higher competition among carriers. In an effort to differentiate their service, as well as better control the supply chain, in the 1990s carriers started to invest in the other components of the supply chain, such as container terminals, distribution centers, road, rail and air transport, and in a miscellany of other logistics services, such as bar-coding, assembly, documentation, etc.  Investment in logistics services and related infrastructure, rather than in ships, -which, incidentally, could be chartered-in from private equity investors (e.g. KG funds in Germany)- allowed the carrier to become more asset light, thus more agile in coping with the vagaries of the business cycle.  In addition to service differentiation, vertical integration also serves in increasing both the complexity of operations and the sunk costs of aspiring new competitors (carriers) , particularly if shippers are convinced, through effective marketing, that an integrated service is the only way to better serve their requirements.

This situation has started to change. Carriers appear to be returning back to core business, shedding the idea of vertical integration in favor of better horizontal integration (alliances) and dominance in the sector (shipping) where they have the comparative advantage. Partly, this return to roots has been the result of the weakening or banning of liner conferences, and the low freight rates and service unreliability that have ensued. Presently, you can bring a container from Hong Kong to Rotterdam with $300; far below break-even point. Laid up container tonnage is 5% of the total fleet (over one million slots) and, interestingly, it is often the largest and newest ships, such as MSC Oscar, which are laid up. To no avail, consignees are desperately looking for someone to talk to on the phone. In complex ports like Los Angeles, the terminal of arrival is often unknown until the last minute. At the other end, in Asia, to be filled, a mega ship would call at far more ports than what its size would warrant; something creating a stowage nightmare at the receiving ports. In short, you have a ghastly mess,[1]  brought about by the shippers themselves. HH 

[1] Lyrics from “The life I Lead” (Mary Poppins) […] A British bank is run with precision. A British home requires nothing less. Tradition, discipline and rules must be the tools; without them: disorder, catastrophe, anarchy, in short you have a ghastly mess. 

Tuesday, April 12, 2016

Export logistics: the culprit of sluggish trade growth

Years back, a friend of mine at Stanford was making headlines for months by claiming that trade agreements were a bad thing for international trade. 

At the same time, I was claiming that it was the abysmal state of logistics in large countries such as India and China that was holding back container penetration and thus international trade growth. 

The World Bank seems to agree to this. In addition to the usual culprits of trade destruction, such as product standards in importing countries and other non-tariff barriers to trade, the WB now finds that, since the 2009 economic meltdown, the size of exporting firms in developing countries has gone down. 

Apparently, as I had been claiming, the smaller the size of producers, and the larger the size of the country, the more difficult it is to organize export logistics in a system based on containerization and hub-and-spoke consolidation and distribution.  HH 

Sunday, April 3, 2016

A business model for Amazon’s Containerships

Just a few posts below, we had predicted that, after entering aviation, it would be a matter of time before Jeff Bezos enters also into ocean transportation. And this time has been quite short.

Amazon has announced its intention to invest in containerships. Its business model is still being thought out, but here is how I foresee a possible scenario:

The company will not be running liner services, being itself both the carrier and the shipper. She will load in Asia with all sorts of container cargo, from all sorts of possible ports, until the ship is full. Assuming a sufficient number of ships is engaged to serve this model, time should not be of essence, for there wouldn’t be a specific consignee requiring the goods at the other end. Amazon would be just warehousing at sea. In this sense, economic slow-steaming would be the preferred option, rather than express services, as Bezos seems to be considering too.

Once the ship arrives, she could be conveniently anchored offshore, sufficiently close to dense consumption centers, such as Los Angeles or Hamburg (close shoring). Goods would be delivered directly to the consumer by drones, thus bypassing ports, tracking, and land-warehousing. A truly green supply chain! The same, hopefully, on the way back to Asia.

The choice of ship would be Amazon’s biggest challenge, and here your guess is as good as mine. Constraints in this regard are: stowage planning; required onboard gear; sufficient deck space for container stripping operations; and sufficient and suitable below-deck space for safe and weatherproof storage of unpackaged goods. With these in mind, and at such a preliminary state of affairs, a “box-shaped” multipurpose vessel (Figure) of about 2000 TEU jumps immediately to mind, and this might not be such a bad idea after all.

Futuristic? Yes. Could it be done? I believe so. When there is a will there is a way. Jeff Bezos is known not only for his innovations but also for his determination to see them through. Time will tell. HH 

Tuesday, March 29, 2016

Could capitalism work better? (also in shipping, transport and logistics?)

In general, it is not in the interest of big business to show large profits, as this may potentially attract competition from newcomers. In the last twenty years, however, American profits have soared but new entry, domestic or inward FDI, has been scarce. Company size (cf. M&As) and consolidation on the one hand, and transaction costs (cf. regulatory lobbying by potent incumbents) on the other, pose significant barriers to entry that could explain all this.

In addition, and contrary to what was the tendency 15 years ago, i.e. un-commoditization of service (ocean transportation) and investment in complimentary sectors (logistics), so as to differentiate and thus command a premium price from the willing shipper, companies are again today reverting to core business, shedding ‘peripheral activity’ and aiming at greater market share in core business (transportation), through mergers and the strengthening of strategic alliances.

The Economist’s figure above shows that, in the past 20 years, companies have become more focused (and industries less fragmented), while, at the same time, the market share of the top 4 companies (CR4), in the 900-odd US sectors examined, has increased from 26% in 1997, to 32% today. The lack of entry, noted above, refutes William Baumol’s theory of contestable markets and, apparently, in the absence of effective regulation, concentration does lead to market power. For example, concentration in railroad transport in the USA has led to a 40% increase in profits, and a doubling of return on capital (RoC), in the last 10 years.

In conclusion, two thirds of the Americans believe that their markets are rigged. Maybe they have a point there, and this point is central in Hilary Clinton’s electoral campaign. If she is serious about this, i.e. on taking on concerted business practices, she most definitely deserves half a chance; just for this, if nothing else. HH 

Wednesday, March 23, 2016

Shipper complaints is music to my ears

Ten years ago, shippers and the European Commission killed liner shipping conferences: a low cost, self-regulating price mechanism, offering shippers stable tariffs and service quality. 

In the “Erasmus Report” (freely downloadable from my ResearchGate profile), for one more time as a heretic amongst my colleagues, I had warned them that this would lead to greater carrier consolidation (4 alliances today control world container trades) and service unreliability. They didn’t listen, and came to Brussels dressed to kill.

The excellent McKinsey Report (where the invisible hand of my old friend Ron Widdows, at that time boss of APL, is present throughout the text) highlights the issues at hand to the fullest, particularly on the aspect of service quality: A quality carrier, at that time, had a global sales-force which, for some, was representing 25% of their running costs, if not more. He was texting his consignee 4 times a day with the whereabouts of his container. Today, in the carriers’ cost-cutting strife, this has dropped to zero. “There is no one to talk to”; complained one shipper. 

Well, you should have known better my friend. But there is never too late. You have saved more than enough from the industry’s rock bottom tariffs. And if you now want higher quality; predictability; traceability; lower inventory- and supply chain costs, like in the past, I am afraid you will have to put your hand deeper in your pocket…

H Haralambides 

Tuesday, March 22, 2016

The Position of Rotterdam on the European Port Chessboard

Permanent Commission on Infrastructure and Environment

Professor HE Haralambides
Econometric Institute
Erasmus University Rotterdam
The Hague, Thursday 17 March 2016

Dank u voorzitter, goede middag dames en heren.

In the little time I have at my disposal, I will try to sketch for you a scenario, placing the port of Rotterdam on the European port chessboard. As the word suggests, this is only a ‘scenario’, among many others, in a landscape that changes by the day.[1] I would start therefore from the basic premise that, by its mere location, the competitive position of Rotterdam is enviable. This is so, in spite of the fact that our main competitors, Antwerp and Hamburg, subsidize their port infrastructure, while we, instead, pay every year a substantial dividend to our shareholders, the City of Rotterdam and the Dutch Government. However, the risks are not few either, and we need to continuously stand on our toes, and be in a state of permanent alert, rather than sit back and rest on our laurels.

Port competition in Europe is not straight, but tilted, if you would allow me the chessboard witticism. The board is placed neither North-South nor East-West. Rather, the chessboard is placed from North-West to South-East. In the former region we have the ZARA ports of continental Europe, i.e. Zeebrugge, Antwerp, Rotterdam and Amsterdam, while in the latter region ports are aplenty in Egypt, Israel, Turkey and Greece. Amongst them, I must highlight the important future role of Piraeus, recently bought by COSCO Pacific of China, which intends to transform this port into the southern gateway to Europe, albeit amidst significant resistance by the communist Greek government.

The North-East (Baltic Sea, including Copenhagen) and South-West (Portugal, Spain, France, Italy) regions seem to be losing out in their ‘hub status’ aspirations, if they ever had any, while I foresee a declining market share of the port of Hamburg. The reason for the latter prediction is the competition posed against it now by Piraeus, for the hinterlands of Central and Eastern Europe, as well as Southern Germany, up to and including the Munich/Nuremburg region. This threat is not passing unnoticed by the North German port, and this is exactly why it now tries to develop, strengthen, and finance its links with the ZARA ports, intending to spend 350 million euros on road and rail infrastructure (including its part of the 3rd track of the BETUWE route).

The Mediterranean region is assuming an increasingly important role in the global East-West trades of containerized goods, and it is not at all certain that the continental ports of northwestern Europe, Rotterdam included, will continue to play as important a role as they used to. This observation is particularly relevant, in view of the overland rail transport plans of China and Russia, coupled to European distribution possibly from central Europe.

It should also be kept in mind that shipping networks are being reconfigured, so as to better serve the increasing African trades. The port of Tangiers in Morocco is a case in point, being developed as a key transshipment center, feedering West Africa with both Asian and North American cargo. The eastern part of the African continent, including its many landlocked countries, is principally feedered from Dubai, and somewhat less from S. Africa, while, in the future, this role is likely to be taken by the new port being constructed in Tanzania, south of Dar-el-Salaam.  It is highly likely that the new port is selected for the One Belt, one Road (OBOR) network of China: there, half-empty ships with European cargo would top up before returning to Asia.

In parallel with African trades, competition is also increasing for supplying the world’s biggest consumer market, i.e. the American market east of the Rockies (US East Coast). Two oceans compete for this market: the Atlantic and the Pacific; in other words, the Suez Canal and the Panama Canal. Suez has recently increased its capacity, while Panama, under its current locks configuration, is unable to host containerships of the latest generation (bigger than 15,000 TEUs). With the tacit blessings of the United States, this problem has prompted Panama to sign, recently, a Memorandum of Understanding with Egypt. Although the stated intentions of the MoU are of the usual kind, i.e. exchange of information and know-how, one should keep an attentive eye on ‘correlations’ between the canal dues of the two canals.

There are two main players at the European port landscape: Maersk-APM Terminals-Mediterranean Shipping Company (MSC) on the one hand, and COSCO-CSCL (and their current or future alliance, which might possibly include CMA CGM) on the other. As mentioned above, COSCO Pacific has already bought 67% of the port of Piraeus’ share stock, while I foresee that, soon, it will also win, amongst toughest competition, the complementary bid for the port’s 200-hectares distribution center at Thriasion. The two groups both compete and cooperate in many projects. For instance, APMT withdrew at the last minute from the Piraeus bid, although it had continuously proclaimed its strong interest in the project, as well as that “when APM bids for something it never loses”. This left COSCO as the sole contender, securing the port at the extremely attractive price of €365 million. I predict that APMT will instead win the bid for the port of Thessaloniki in the north, to complement its investments in Izmir (Turkey). Again, I foresee that these developments will eventually encroach on Hamburg’s south European market share.

Efforts to cement Rotterdam’s position on the Chinese OBOR network are imperative. “Antwerp” is already talking a lot to China on this, and Rotterdam should not lose its step. A lot of uncertainty prevails at this point on the “One Belt, One Road” project of China, both within that country and in the rest of the world. India, Russia and the United States see the project with a pinch of suspicion, as a move on the global geopolitical and security arena. India has described the project as a unilateral initiative, claiming that China should have brought it to the Asian Infrastructure Investment Bank (AIIB) to be discussed jointly with others. Also, India is neither happy with Chinese investments in Pakistan and Bangladesh (seeing them as encircling it from the north), nor with the massive Chinese investments in Sri Lanka. Russia does not welcome the Chinese encroachment into Central Asia, which it sees as its own backyard, while the United states has three concerns: China’s activities in the South China Sea; its increasing links with Pakistan and that country’s willingness to, perhaps, accommodate a Chinese naval presence at the port of Guadar. Finally, the USA sees OBOR as a competitor to the Trans Pacific Partnership (TPP), in view of China’s interests in the Pacific (investments in Australia and a possible construction of a new canal in Nicaragua). Finally, all three superpowers are equally concerned with China’s intentions to use the Yuan as the underlying currency for the development of OBOR.

The ‘stated’ objectives of this multi-billion dollar project are to secure China’s energy demands; develop the fairly underdeveloped northwestern part of the country and connect it, through central Asia, to Europe; better connect China with South-East Asia; and provide a circular sea-land transportation network, running westwards overland, and returning to Asia by sea, through the Mediterranean, starting, in all likelihood, from the port of Venice.

Enough anecdotal evidence indicates that China is showing serious interest in Venice’s offshore container terminal (VOOPS), designed by our own Royal Haskoning. In July 2016, the Mario Monti Foundation is organizing an international conference in Venice, with strong Chinese participation, to discuss VOOPS. The project concerns an innovative offshore-onshore port system, able to accommodate ships of the latest generation. Information also indicates that China might be interested to finance 70% of this 1 billion euro project, with the remainder financed by the Italian government. The Port of Rotterdam should try to find ways to connect to this project, including a possible expression of interest in taking a small part in its financing. It should be kept in mind that Venice, or better the port system of Venice-Trieste-Ravenna, is ‘the port’ of the very important Milan/Turin distribution system to which Rotterdam is connected by rail. To my view, it is the importance of this rail connection that, if played well, could anchor Rotterdam as a principal port in the OBOR system. Increasing both the capacity and the quality of this rail link presents us with an opportunity not to be missed, and resources shouldn’t be spared either.

In conclusion: Rotterdam’s future strategy should be more to its south (Venice-Trieste-Ravenna), where it could cooperate,  rather than to its east (Hamburg-Bremerhaven), where it competes. Entering the Piraeus landscape at this (late) point in time might be difficult, but a presence there would be advisable and hopefully welcome. On the basis of the above, the following steps are recommended as Rotterdam’s southern strategy:

  • Improve the capacity and quality of the Rotterdam-Milan rail link
  • Express a non-binding interest in taking a share in the financing of VOOPS
  • Under the auspices of the highly enterprising Dutch embassy in Athens, and possibly in cooperation with COSCO, establish the Netherlands Institute of Maritime and Port Studies (NIMPS), as a branch activity of the Netherlands Institute at Athens (NIA) where the maritime institute could be comfortably housed.
  • Stand firm on its expressed conviction for a “level playing field” and “full cost recovery” among European ports and reconsider its decision to allow dredging costs be excluded from the forthcoming European Commission’s State Aid Guidelines.-
H. Haralambides

[1] Disclaimer: This is a somewhat extended version of my intervention, having taken onboard views expressed by Allard Castelein (HbR), Tineke Netelenbos (KVNR), Aart Klompe (KNV), Steven Lak (Deltalinqs), as well as questions by Betty De Boer (VVD) and Remco Dijkstra (VVD). Expressions in what follows are at times exaggerated, perhaps limited in scope, or at variance with conventional wisdom. My intention is only to carry a certain point across as effectively as possible. No disrespect is meant, therefore, to other great European ports, carriers, terminal operators, or countries, if I have not made specific reference to their own well-respected aspirations.

Thursday, March 17, 2016

Reducing ship emissions through Dynamic Route Planning

As a result of the many countries that envelop it, the Baltic is one of the busiest seas in the world, and one of particular navigational characteristics, due to its shallow depths and winter ice. Because of this, and of current Vessel Traffic Separation policies, it is not uncommon that ships have to wait at anchor before berthing. This could be easily avoided with the help of Dynamic Route Planning. AIS data sharing could assist ships optimize speed and routing so as to arrive at anchor just in time. 

In new research appearing soon in Maritime Economics and Logistics it is shown that, through Dynamic Route Planning, a, say, 5% average sailing speed reduction -without affecting the integrity of shipping schedules-  could benefit regional societies up to 300 million euros a year, as a result of lower ship emissions costs. And this is not little money… To implement the new system, modest investments are required, ashore and on ships, while one should not neglect the considerable economic benefits to carriers, due to lower fuel consumption. HH

Tuesday, March 15, 2016

Is Amazon entering ocean transportation?

I have always claimed that NVOCCs and 3P Logistics operators will never venture seriously into ship ownership, particularly when there is so much idle shipping capacity around, and when freight rates have hit rock bottom. And here comes a gigantic e-commerce retailer, Amazon, aggressively bypassing them, investing heavily in its own transport infrastructure (road, rail, aviation, ships). Apparently for Amazon, (higher) transport costs and economies of scale (ensured by 3PLs) are secondary considerations, and what really matters is quality of service; i.e. distribution times which it could better guarantee and control by owning its own transport means.  

Amazon’s leasing of 20 B747 jumbo jets gives the jitters to UPS and Fedex, in spite of the gentle compliments and loyalty promises. And although the lease is intended principally for the vast internal US market, in my view it is only a matter of time before Amazon expands to global air transport operations. 

Moreover, Amazon’s acquisition of the French Colis Privé points clearly to the company's European ‘aspirations’, while its Chinese subsidiary has already received US authorizations to run ships to the US coasts! 

These are all game changers and let us all keep a good eye on them. HH

Wednesday, March 9, 2016

To add insult to injury: the industrial carriage of iron ore

There are frequent news these days of Chinese iron ore importers and trading houses ordering their own bulk carriers for the transportation of Brazilian ore. 

We have seen this movie before, in the post-war economy, when oil majors were owning their own tankers.

And there is nothing wrong with this: Both Chinese and Brazilians integrate vertically downstream and in doing so they add value to their imports (China) and exports (Brazil), in addition to giving work to their own shipyards. If this type of industrial carriage will cost them more in the end, remains to be seen. Who is to say, really, when Chinese shipyards are subsidized State activities? When the building cost (in China) of a Valemax bulk carrier costs half today of what it costed 8 years back? After all, if they themselves don't care much about transport costs, why should I? 

One thing is for sure though: Industrial carriage consists of tonnage outside the free dry bulk market and in the abysmal state of affairs the latter is found these days, the news are worrisome, to say the least, for independent dry bulk operators. HH

Monday, February 29, 2016

Port Planning at the Regional, National and Supranational Level: The Case of Italy

Master-planning and city-port relationships

Master-planning, and the revisions thereof, is a long process. From the time the decision to develop a new MP is taken, until the latter is in place, in Italy the process could well take 6 years! There would be no less that five ministries involved in an MP approval, let alone local and regional governments and other stakeholders. The MP of the port of Brindisi dates back to 1974, when the port, its traffic, and the type of ships calling, had nothing to do with the business realities of today.[1]
The MP is a useful planning instrument and in this regard it has to be flexible and able to accommodate the changing demands on port services. Often, the opposite is true and the MP is a statutory straight-jacket, constraining agile port management and development. Often, this is the result of inflexible berth designations; i.e. allocation of berths to a specific port traffic.[2] Two examples from Brindisi could illustrate this point.

1. The port of Brindisi is served by a single towage company, owning 5 tugs, berthed at the inner port, which, at the time of writing, was undergoing urban rehabilitation. As a result, the tugs needed to move to another spot at the middle or outer port but, in spite of the ample and underutilized infrastructure there, no other place was available, because this was not provided in a 40-year-old MP!
2. The middle, and most commercial, part of the port of Brindisi, for years now, is dedicated to Ro-Ro and passenger traffic. To serve this traffic, the Port Authority had decided to construct a new passenger terminal; one of the most modern in the Adriatic Sea. The terminal should have been ready by the summer of 2012 but works have been suspended as a result of an administrative appeal, claiming that, according to the 1974 MP, passengers cannot be handled at this part of the port. Interestingly, the person who has lodged the appear is the owner of the sole ‘private’ passenger terminal in that part of the port!

Port land (demanio marittimo) is usually well defined by law. The land is State property, albeit managed by the port authority. The same applies to  the land of urban areas. In cases where the port and the city interface, conflict may arise usually as a result of political power games, on the part of the City Administration. The latter usually sees port areas as areas of alternative use (coastal zones; residential; fisheries; recreational; etc.).  One should not forget that the port is often the favorable subject of discussion of mayors, many of whom don’t even know what a port really is, but who believe that by doing so they may score political points, or divert public attention from other pressing problems of their own Administration. In Brindisi, as in other Italian ports, the mayor is a member of the port council. During my term there, I don’t recall a single meeting where the mayor did not state that the reason he takes part in the Council is not just to control, supervise and vote, but to actually manage! Certain ‘left’ parties of the City Administration, in addition, still believe that ports should not be autonomous, but run by city councils as was the case 50 years ago!

Regional planning, and inter-port competition

In Italy, port planning, together with the planning of the rest of the infrastructure, is the prerogative of the Regions. This is stipulated by the country’s Constitution (Article 5). Of course, Italy is not unique in this policy of decentralization but, unfortunately, this has created considerable duplication, ‘cathedrals in desert’, and a waste of scarce financial resources. With the need for fiscal harmonization in the European Union, it is obvious that a reversal of trends needs to take place, transferring decision making power from the periphery to the center.

Regional transport plans are often at considerable variance from national transport and logistics planning, rather than being parts of it. Rarely, if ever, have I seen a serious scientific transport planning exercise, similar to those we are accustomed to in northern Europe. Instead, plans are influenced, and relevant funds allocated, according to the relative influence (at “Rome”) of local politicians. This is one of the reasons why infrastructure in southern Italy is so underdeveloped, compared to the north, where political power mostly resides.

Brindisi is another good example of neglected infrastructure, vis a vis its adjacent neighbor, Bari, just because the latter port-city is the Seat of the Regional government, with the large majority of regional politicians coming from that city. This, in spite of the fact that, in terms of traffic and available infrastructure and connections, Brindisi is far more important and more strategically located in the Adriatic and Mediterranean Sea. 

When the European TEN-T ‘core’ and ‘comprehensive’ ports were decided, I made a great effort to also include Brindisi as a ‘core’ port, together with the other two regional ports of Taranto and Bari, which were included, but on the basis of only “political” and not economic arguments. This would create a real ‘port system’ of the Apulian ports, something that, as it became obvious, the regional administration had paid only lip service. Unfortunately, my efforts met a brick wall, for the fate of the port of Brindisi had been already determined by influential Bari politicians (and nonexistent Brindisi ones). To add insult to injury, the same politicians who for years had been favoring Bari over Brindisi (often with the ‘convenient’ assistance of local Brindisi port interests) have consistently been arguing that the predicament of Brindisi was owed to its own bad management. Let it be noted that, currently, Grimaldi, the world’s largest Ro-Ro operator has already made Brindisi one of its most important Mediterranean hubs![3]

TEN-T and national transport and logistics planning

The Trans-European Transport Networks (TEN-T) is one of the European Union’s most ambitious and far- reaching projects, aiming to: a) advance economic and social cohesion; b) harmonize and rationalize public investments in infrastructure throughout Europe; and c) improve the competitiveness of European exports. The creation of a trans-European transport network includes ports, as crucial network nodes, and, through the equally important program of the Motorways of the Sea, extends this network to third countries outside the Union. TEN-T divides ports in two categories: ‘core’ ports, i.e. ports of European interest and ‘comprehensive’ ports, i.e. those of national or regional interest.

After many years of deliberations, in 2014 the Italian government decided to draw a National Port and Logistics Plan, PNPL, so as to: harmonize the country’s port system to that proposed by TEN-T; select as ports of national interest those included as ‘core’ ports in TEN-T; strengthen the link between ports and logistics service providers; improve the competitiveness of Italian exports; strengthen the competitiveness of Italian ports vis a vis those of northern Europe; and last but not least save–or so it thought- on the financial resources going into other public port administrations, i.e. those port authorities intended to be abolished and integrated under those of ‘core’ ports. 

In spite of its stated objectives, from the beginning I was against this idea, believing that a national ports plan cannot exist without a national transportation plan; otherwise it would look like we were putting the cart before the horse. Without a transportation plan, one could not possibly argue which port authorities should remain and which should be taken over; any such arguments would be bound to be political rather than economic. Moreover, the aggregation of ports has been motivated by competition among north Italian container ports, while a number of other ports, to be integrated, were handling important bulk cargo and passengers.

The drafting of PNPL was commissioned to an international consultant, under the supervision of a so-called Scientific Commission, appointed by the Minister, the composition and competences of which I never understood. The Report was nothing more that what it was expected to be at the outset: A ‘consultancy report’ full of tables and figures, as well as normative wish-lists and unsubstantiated views, without any scientific or methodological rigor or relevance. As a result, the proposed list and composition of ‘port clusters’ has been changing by the day, according to the ‘political influence’ of port presidents in the ruling Democratic Party (PD), and the intensive horse trading among themselves and the minister.  

It thus became clear to all something that, to me, was evident from the very beginning: The objective of ‘port aggregations’ was never to create stronger and internationally more competitive ‘port clusters’ but to centralize decision making in order to eliminate competition among ports. Such ideas however belong to the past and, at any rate, go against the orientations of the European Commission and European Parliament who would like to see ports as ‘enterprises’ with operational; administrative; and financial autonomy.[4]

Infrastructure financing through ‘project financing’ (PPP)

Thus, the Italian government has made the usual textbook mistake of most economic reforms: Instead of improving on efficiency; cutting down bureaucracy; and encouraging private sector participation, it opted for just reducing the mere number of port authorities, without any economic rationale.

 Public sector bureaucracy is Italy’s biggest challenge and if the problem is not addressed timely I fear the country could soon face the fate of Greece. A miscellany of international reports and statistics demonstrate Italy, together with Greece, as the worst European countries in terms of attracting Foreign Direct Investment (FDI). A few years back, my colleague, the president of the Port of Taranto, invited the Port of Rotterdam to have a look at the Apulian ports (Bari, Brindisi, Taranto) and assess whether opportunities existed for cooperation and joint ventures. The Rotterdam team, following intensive visits and interviews, produced its report, with a very clear bottom line: “the entrepreneurial climate in southern Italy is at great variance to north European business practices and this reality was not conducive to taking the issue further”.

In terms of financing, it should be noted that Italian ports do not cost anything, to say the least, to the country’s public burses. They are instead self-financed through VAT receipts from Italian imports passing through seaports. The system entails a degree of unfairness and considerable lack of transparency, particularly as regards the criteria of redistribution of these receipts amongst all ports by the Italian government. For instance, Brindisi is a major VAT contributor, being an importer of considerable quantities of coal, but what comes back to it as a result is very limited. Said differently, the city and the port face all the environmental problems connected to the handling of coal, while other, ‘luckier’ ports enjoy the benefits of Brindisi’s VAT receipts.

I have always argued that this type of public financing is wrong and it ought to change with emphasis on private investment and finance. This is also the orientation of the European Commission who would like to see more port autonomy in terms of investments, financing and the pricing of port services. To my view, public financing should be reserved only to major infrastructure works, such as motorways, railways, and basic port infrastructure of general interest such as breakwaters and access channels. Everything else should be the domain of the private sector who should also assume investment risk through concessions and PPPs. In this way, it would be ‘demand’ that would dictate infrastructure development and not supply, which tends to create excess capacity and ‘cathedrals in desert’.

HE Haralambides

[1] At the time of writing, one of the objectives of the Renzi Administration was to considerably shorten these times, as well as scrap Port Councils; and quite rightly so:  The latter, in the past 20 years, have done nothing else than hold back the growth and development of ports, by promoting personal or special interests, often in tacit agreement with the port management they were expected to control and supervise. 
[2] In Brindisi, I had ferociously resisted such a policy, promoted by various interest groups (ship agents) who wanted “their own” berths, at the cost of better port utilization.
[3] At the time of writing, Grimaldi had asked for a 20 year concession of one of our terminals, as it had done in many other parts of the world. The majority of port operators (ship agents and not only), many quite friendly disposed to Bari, and with businesses there, were against this project on the basis of irrelevant ‘monopoly’ arguments, when it was crystal clear, from their publications in the local press, that the real issue was that the concession would ‘disturb’ the regional, Bari-centric, planning. In other words, the concession would make Brindisi more important than it should be….
[4] I have colleagues, port presidents, who vehemently argue that “competition kills competitiveness”. Others, with strong “left” political inclinations, argue that ports should not compete at all. Instead, if, say, a global liner operator would like to call or invest in the country, he should not talk to individual ports but to the minister himself; the latter would himself tell them in which port they should go! 

Friday, January 22, 2016

Transshipment, and the financing and pricing of container terminals

30 years ago, forecasting port capacity was a fairly straightforward exercise, and a popular one at that, among young students: population, GDP and trade data, together with a simple regression model, would easily do the trick with some excellent results. It should be remembered that, in those days, demand for port services was more or less captive and a cargo destined for, say, Italy would in all likelihood land at an Italian port, as close as possible to the final consignee.

Two things changed this picture since: containerization and the ‘through transport’ concept on the one hand, and the development of extensive land transport infrastructure on the other. Europe, dilapidated by a ruinous war, was being rebuilt, and what better way of doing this than developing your roads and railroads before anything else. If one were to take a cursory look at Europe’s map today, what one would see wouldn’t differ much from a nice dish of Italian spaghetti. Roads and railroads, together with European economic integration, free trade, and the abolition of national borders, opened up the market for port services. Before we knew it, any Asian cargo could in principle reach any European destination, passing through any gateway port around Europe. Port demand was no longer captive and ports started to compete for survival.

To do so, ports had to modernize and develop new capacity; often much more than what was needed. In the 1990s, I remember well, the northern range European ports (from Le Havre to Hamburg) had a collective excess capacity of about 40%. Usually, port capacity is developed in big chunks, each time far ahead of existing demand. A combination of factors can explain this, ranging from the availability of easy and cheap public finance, to managerial egos and port managers’ heartburning desire to leave their footprint in history... One more reason, of course, is economies of scale in port construction: apparently, it’s much cheaper to build two kilometers of quay rather than one.

Excess port capacity, over and above national demand requirements, is created for three more reasons. First is the economies of scale mentioned above, as well as the infamous economic law of Jean-Baptiste Say according to which supply creates its own demand. In other words, once the port is there, the customer is bound to arrive. Unfortunately, this is not always so. The second reason is the footloose nature of the container and its carrier, which may switch ports at the whim of a moment, whenever capacity is scarce and, as a result, the ship may have to wait. Finally, excess capacity is developed in order to capture transshipment traffic; i.e. somebody else’s cargo! As a matter of fact, most of the competition taking place among ports today is for this type of cargo; to capture it, ports often underprice concession fees agreed with terminal operators, and terminal operators, in their turn, underprice terminal handling charges (THC) they charge to carriers (often through hidden or opaque discounts). [by underpricing I refer to port dues and concession fees below the opportunity cost of port land].

Moreover, especially in ports where the management is responsible for its bottom line, more often than not the management tends to cross-subsidize footloose transshipment traffic with captive domestic traffic. In other words, domestic (national) cargoes are penalized through relatively higher prices, compared to transshipment cargo,  in the management’s anxiety to capture more of the latter. In a number of cases, some of which already heard in front of a judge (cf. Sarlis vs. MSC at the port of Piraeus) , the preferential treatment of transshipment cargo goes beyond price and it involves other terms of service, such as berth allocations and time-windows. For a number of reasons this is not right and I have always advised affected local shippers to present their case at the national competition authorities or, in case of complacency, directly to the Competition Directorate General of the European Commission.

And here is why this type of cross-subsidization, or price discrimination, between domestic and transshipment cargo is not right:

If sufficient domestic demand for port services does not exist, developing port capacity for transshipment purposes is risky business just because of the footloose nature of the container. Before you know it, you could find yourself with a ghost port in your hands, as it happened recently, for instance, at the Italian port of Taranto, when Evergreen decided to move to Piraeus, in spite of a 60 year-long concession at the Italian port. Years back, I remember quite vividly the crisis that developed at the great port of Singapore, when Maersk decided to move just around the corner, to the Malaysian port of Tanjung Pelepas. The graph above shows that, in the northern range of European ports, transshipment represents, wisely, no more that 40% of their throughput, vis à vis transshipment ports like Malta, Singapore, Damietta or Kingston.

In comparison to the economic impacts of domestic traffic, transshipment creates relatively less (local) value added. To draw a parallel, a port handling domestic cargo resembles a city-center hotel, where the visitor will most likely spend money on a number of activities (museums, restaurants, etc.), thus creating considerable value added for the city, vis à vis a highway motel (transshipment), where the traveler would stop there just for a sleep. I often hear my friends in Antwerp telling me that the port of Antwerp, as a result of its multipurpose/labor-intensive character, creates four times more value added than Rotterdam, the latter port being a highly automated/labor-saving one. Thus, I am told, the Belgian taxpayer is much happier to pay taxes for port development than his Dutch counterpart, who has often questioned the social utility of developing more port capacity at Rotterdam. Exceptions to the above do of course exist, and Rotterdam is a good one: the port’s value added is not created simply by the port itself, but by its port cluster, encompassing 50% of Europe’s Asian and North American European Distribution Centers (EDC); a city 50% of whose inhabitants are holders of a foreign passport, just because of the port. But not all ports can realistically aspire to such an enviable situation, developed not today but over a period of 70 years of hard work.

Finally, publicly funded ports are developed exactly in order to have these domestic impacts on business and employment, rather than to steal (transshipment) traffic from their neighbor, particularly in economically interdependent geographical regions such as the European Union. The problem is aggravated when some countries spend public money on port development, while others finance ports privately (UK) and both compete in the same market.

Development of container terminal capacity, including its transshipment potential, will continue unabated; this is normal and, in the long-run, port capacity follows international trade growth.  But with one caveat: this infrastructure should be priced (through the appropriate concession fees) in such a way so that investment costs are eventually recovered, irrespective of whether the proceeds from the concession remain with the port, or are returned to its financiers, the latter including also the government. In this way, it does not really matter who finances the investment, i.e. the public or the private sector, as long as the private investor principle applies; i.e. the terms of the financing are not very different from similar private arrangements and, as said, this means that pricing should aim at cost recovery.

Competition on infrastructure is indeed wasteful and governments, like recently that of Italy, have often argued in favor of centralized port infrastructure planning: something we used to do half a century ago, through the various National Port Councils [I remember an advocate of this policy, Francesco Mariani, the President of the Port of Bari, telling me recently that if a global carrier would like to come to Italy, he should only talk to the Minister and it should be he to tell him at which port he should call !]. In today’s Europe, however, something like this wouldn’t only be wrong but, euphemistically, it would be unthinkable: To my mind, the best planners of all are the (well-regulated) markets themselves, together with transparency in the financial flows between port and government.

The role of the public sector in financing container terminals should therefore be limited, and where it exists, or is necessary, it should take place on more or less commercial terms. In this way, limited would also be the risk assumed by the public sector. Competition by neighboring ports, excess capacity and similar concerns should lie only on the shoulders of the concessioners (terminal operators) who should themselves assume such market risks. It doesn’t in this way matter if excess capacity is created. To put it bluntly, if things go well, we will all be raising a glass; if not, well, bad luck. But the national taxpayer should not be bearing the costs (and risk) of private investments, benefiting private users.

The above is easier said than done. If the terms imposed on a private terminal operator, carrier or other, are too onerous, in all likelihood he would be knocking on your competitor’s door. And this is where public policy intervention is necessary. This can take only one form: an understanding that, no matter how terminal investments are financed, container terminals are private goods and their costs should be recovered through user charges; otherwise underpricing is not much different than dumping, sanctioned in many other sectors, including shipbuilding.

But the story doesn’t end at the financing of the container terminal itself. The ship must be able to approach a berth at the terminal, and the container needs to eventually reach the motorway from the container yard. Who should pay for these investments? Is a 16-meter deep approach channel and turning basin a public or a private good? Is a road that connects the terminal with the motorway system a public or a private investment? My views on these aspects are quite clear: these are private investments benefitting identifiable users and, thus, cost recovery should apply here too through user charges.

It seems the European Commission, in its forthcoming State Aid Guidelines, may be thinking differently, under pressure from powerful EU member states and ports requiring considerable dredging (e.g. river ports). We will soon know the outcome. HH