Mega-Ships and Port-Cities: Heading for a Shake-Up?

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1 Mega-Ships and Port-Cities: Heading for a Shake-Up? Olaf Merk Keynote address AIVP Days 23 June 2016, Malaga, Spain

2 2

3 3 Disruptive shipping innovations 1820s 2010s 1960s

4 4 Shake up of the port-city system Who will be the Cardiff of the next decades? How could a shake-up be avoided? Source: Ducruet et al. 2016

5 5 The mega-ship era All slaves to some defunct economic idea Need to cut costs Lower freight rates Bigger ships Fleet overcapacity Source: ITF/OECD elaborations

6 6 The mega-ship system How to handle them? Mega-ship Mega-port How to finance them? How to fill them? Mega-carrier How to avoid being crushed? Source: ITF/OECD elaborations

7 7 The mega-ship problem Mega-ship More peaks Higher costs Mega-port Steeper risks Less port calls Iron grip Mega-carrier Source: ITF/OECD elaborations

8 8 The mega-ship problem Traffic congestion Mega-ship Less choice for shippers Emission peaks Labour flexibility Automation Port-city disintegration More peaks Higher costs Mega-port Lower return on investment Steeper risks Less port calls Iron grip More accident risks Mega-carrier The certain death of certain ports Source: ITF/OECD elaborations

9 9 More peaks Traffic congestion Hourly container arrivals/departures from/to hinterland 6 GT Hourly container arrivals/departures by rail GT hourly volume of container ships moored over GT GT hourly volume of container ships moored <= GT Source: ITF/OECD (2015), The Impact of Mega-Ships

10 10 More peaks Emission peaks Rather than emissions per box, focus on emission peaks, which are related to ship size Source: Kattner et al. 2015

11 11 More peaks Labour flexibility Automation Port-cities will be the cities that never sleep, unless everything gets automated Source: ITF/OECD (2015), The Impact of Mega-Ships

12 12 Port-city disintegration Need for more yard space Land-use conflicts Non-urban ports Quay lines, truck traffic Off shore ports Shanghai Rotterdam Singapore Venice? Spatial disintegration Economic disintegration

13 13 Higher costs Lower return on investment More infrastructure costs, at least partly covered by port-cities More volatility of market shares More pressure of carriers on tariffs

14 14 Higher costs Lower return on investment Source: ITF/OECD (2015), The Impact of Mega-Ships

15 15 Lower return on investment Higher costs Mega-ship ports are mostly local ports, so costs are also port-city costs North Europe Far East Zeebrugge Bremerhaven Antwerp Xiamen 0.6 Qingdao 1.2 Ningbo National port 0.9 Southampton Hamburg 0.6 Local port Private port Felixstowe Shanghai 0.5 Busan 0.9 Le Havre Rotterdam Shenzhen Tanjung Pelepas Singapore Hong Kong Total fleet capacity calling main ports on Far East-North Europe route (2015) Source: ITF/OECD based on Dynamar 2015

16 16 Higher costs Lower return on investment More volatile market shares, so higher risks for ports and lower return on investment Deviation from trend-line growth (million TEUs) Rotterdam Le Havre Hamburg Zeebrugge Antwerp Dunkirk Bremen/Bremerhaven Source: ITF/OECD elaborations

17 17 The iron grip of carriers The certain death of certain ports The top 4 carriers had 23% market share in 2000, almost 50% in Market share container lines (%) Top 4 Top 10 Source: ITF/OECD elaborations based on data from Alphaliner

18 18 The iron grip of carriers The certain death of certain ports Some ports are almost fully dependent on one alliance, so very vulnerable 100% 90% 80% 70% 60% 50% 2M O3 CKYHE G6 Rest 40% 30% 20% 10% 0% Container ship capacity on Far East-Med route (2015) Source: ITF/OECD elaborations based on data from Dynamar 2015

19 Mega-ship readiness tricks The iron grip of carriers We don t expect the canal to leverage the expansion to hike tariffs There is a massive incentive for the south of Africa route A 30% toll rebate has failed to attract carriers back in respect of new changes in the global shipping market 19

20 20 The iron grip of carriers The certain death of certain ports Container shipping alliances a blessing? Ask Zeebrugge Photo credit: Henk Claeys

21 21 The iron grip of carriers The certain death of certain ports Towards a graveyard of container ports? Yearly container port volume (million TEUs) Source: ITF/OECD elaborations

22 22 Steeper risks More accident risks

23 23 Steeper risks Less choice for shippers Service frequency going down, less direct port pairs Source: ITF/OECD elaborations based on SeaIntel data

24 24 Why is this a problem for port-cities? What mayors want What mega-ships give Jobs Labour flexibility Automation Quality of life Emission peaks Business climate Safety Value for money Port-city disintegration Traffic congestion Less choice for shippers More accident risks Lower return on investment The certain death of certain ports

25 25 Why is it going to get worse? More mega-ships are coming More overcapacity is coming so more pressure from carriers on ports More concentration is coming, so less port calls, less service frequency and Bigger call sizes (peaks) are coming

26 26 More mega container ships are coming 53 mega-ships in 2016, 108 in mln TEU extra ship capacity over , 50% of which >13,000 TEU ships Mega container ships (number) 40 New-built ship capacity (million TEUs) k 7-13k k 17-22k Source: ITF/OECD elaborations based on data from Clarksons Research Services

27 27 More container ship overcapacity is coming Source: ITF/OECD elaborations Growth world container fleet (TEU capacity) Growth containerised seaborne trade (tonnes)

28 28 More concentration is coming Alliances: From four to three Upcoming potential mergers: Hapag Lloyd UASC? Hanjin HMM? Japanese? Conditional to approval of competition authorities

29 29 Bigger call sizes Mega-ship has not brought mega-peak yet, but this is about to change T2 T3 T4 T5 T6 T7 Average number of moves Ship capacity (in 1000 TEUs) Average call size per container ship calls in seven selected terminals in 2014 Source: ITF/OECD elaborations based on data from global terminal operators

30 30 Mitigating the impact of mega-ships Port level City level Appointment systems Incentives off-peak hours Truck parking areas Congestion charge Emission peaks Incentives: green port tariffs Rules: fuel, speed, age Infrastructure: shore power Emission zones Truck bans Labour flexibility Automation Labour pools Labour relations Opening hours Training and schooling Social policies Port-city disintegration Port planning Communication Metropolitan networks Maritime waterfronts Communication Traffic congestion Source: ITF/OECD elaborations

31 31 Solving the mega-ship problem Regulation Incentives Mega-ship Ship size Big pays more Mega-carrier Competition State aid conditions Mega-port Port mandate Investments if carriers commit Planning Where are we going? What is needed? Where is it needed? Source: ITF/OECD elaborations

32 32 Port-cities in the mega-ship debate Assessing and acknowledging the impacts Mitigating impacts by smart policies Discussion on the future of container shipping Roundtable for Mayors of Port-Cities?

33 Thank you Olaf Merk