Joint Response by Forfás/IDA Ireland/ Enterprise Ireland on the Ports Policy Review Consultation October 2010

Transcription

1 Joint Response by Forfás/IDA Ireland/ Enterprise Ireland on the Ports Policy Review Consultation October 2010 The development agencies, Forfás, IDA Ireland and Enterprise Ireland, represent the interests of the internationally trading business sector in Ireland. The reported exports of all agency assisted firms accounted for 86 per cent of total Irish exports in Total employment in agency assisted companies operating in the manufacturing or internationally traded services sectors amounted to 272,053 in

2 The enterprise development agencies (Forfás, IDA Ireland and Enterprise Ireland) welcome the opportunity to input to the Department of Transport s ports policy review consultation. National and international connectivity is critically important for the Irish enterprise base in getting product to market. In light of Ireland s geographic location and our dependence on export markets, it is essential that port infrastructure and services provision facilitate the effective and efficient movement of goods in and out of the country. Efficient access to markets is one of the key factors for foreign investors in deciding where to locate. Our submission deals with the specific issues raised in the consultation paper that are relevant to enterprise development. The development of the Irish ports sector Port services are critically important for enterprise in getting product to market and sourcing imports. Therefore it is vital that the current and future needs of enterprise are reflected in Irelands ports policy and the development of the sector. In 2009, Forfás published its Assessment of Port Services Issues for Enterprise 1. The report concluded that by and large, the needs of enterprise are well served along the supply chain from the ports to the shipping lines to the logistics providers. Costs are relatively competitive and the range and frequency of routes served is good. However, internal road and rail access remained an issue for enterprise in getting their goods to overseas markets. In the medium to longer term, deeper water facilities will be required at Irish ports to accommodate the international trend toward larger shipping vessels and ensure that Irish importers and exporters continue to have access to a wide range and frequency of port services at competitive prices. Q1. Are Irish ports in a position to address the challenges created by the rapidly changing environment in which they operate? While Ireland is moving towards a services economy, manufacturing remains hugely important to the economy in 2009, manufacturing exports accounted for 55 per cent of total exports. The composition of Irish merchandise exports has changed, particularly in key growth sectors like pharmaceuticals and ICT, where there has been a move from high volume, low value goods to low volume, high value goods. This has resulted in a change in the type of freight services demanded by these sectors, with an increasing demand for air freight services 2. However, exports from these high value sectors are small as a proportion of the overall volume of traffic in and out of Ireland. As a result, changes in the requirements of these high value export sectors will have very little impact on the overall demand for sea freight services, which is driven by volume. What is likely to continue to change in terms of the needs of enterprise is that both importers and exporters will require increasingly sophisticated, high quality and cost competitive sea freight services to get their products to market efficiently. It is imperative that Ireland creates the policy certainty and market environment required to attract private investment in deep water facilities. The international trend toward larger shipping vessels will reduce the ability of Irish ports to continue to offer the current range and frequency of services unless adequate deeper water facilities are provided. It will also lead to increases in costs because of reduced capacity. Currently, only limited deeper water facilities are available at ports on the 1 Forfás, Assessment of Port Services Issues for Enterprise, January While only one percent of the State s international merchandise trade in volume terms is moved by air, air freight accounts for 25 per cent in value terms. 2

3 island of Ireland. A number of ports, including Dublin and Shannon Foynes, do have the potential to provide deeper water services. In addition, any future consideration of new port locations must take into account the deeper water potential available. Q2. Is the current port governance model and legislative and regulatory framework within which ports operate appropriate or does it require further development in some areas? The current port policy statement has made substantial progress in setting out a clear framework for the port companies particularly that they are commercial and autonomous companies. Q.3 Should increased private ownership and investment in ports, either in terms of service delivery, partnerships or outright ownership be encouraged and if so, how should this be done? The development agencies are of the view that the privatisation of ports need careful consideration. As set out in Forfás recent report on the role of State owned enterprises, Ireland needs to develop a clearer rationale to guide the potential disposal of state assets in future 3. Key questions to consider include: Would the sale of the state owned companies enhance or reduce competition in the sector? In part, this may depend on who might buy the state owned company. As part of any sale process, the State needs to examine whether it is appropriate to hold a stake in strategic companies to ensure that it has some influence over the future direction of the company; Will the State retain a key role as a centralised planner of infrastructure networks and be able to ensure adequate investment in critical infrastructure? While there may be potential to privatise the delivery of specific services, it is paramount that the State retains control over assets which are critical to infrastructure provision; Does the State have adequate regulatory capabilities to deliver on public policy objectives if the state owned company is sold? Putting a new regulatory framework in place before privatisation is one of the most important prerequisites for the successful privatisation in infrastructure industries. From an enterprise development perspective it is essential that privatisation policy protects and promotes competition in the market (i.e. by not selling monopoly assets or assets to dominant competitors), ensures that investment and regional development is promoted and that regulatory capabilities are sufficiently advanced to achieve public policy goals in the absence of ownership rights. The role of ports in trade facilitation, particularly facilitating government inspections, should be considered with regard to improving service delivery and should be explicitly considered in the context of private ownership and investment. Q4. Is there scope for further enhancing North/South cooperation in the ports sector? Given our island economy, it makes good sense to review port infrastructure on an all island basis. Competition between ports across the island have produced benefits for exporters, importers and passengers. Further efforts to enhance competition would be welcome. In particular, further development of the interurban motorways and road and rail links to ports would be welcome as it expands the natural hinterland of ports (see also Q6). 3 Forfás, The Role of State Owned Enterprises: Providing infrastructure and supporting economic recovery, July

4 Planning seaport capacity Ease of access to ports is essential to enable the effective and efficient movement of goods in and out of the country. 6. How can integrated transport policy between maritime transport and other transport modes be further improved? For exporters and importers, the entire chain from their premises to the customer is important for the effective movement of goods in and out of the country. In this regard, ensuring that quality road and rail infrastructure is available to link ports to the national road and rail network is critical. It would also help expand the natural hinterland of ports and enhance competition between ports. The development agencies supports the work carried out by the Department of Transport to identify priority transport projects to improve connectivity to the ports hinterlands. As highlighted in the consultation paper, the significant investment in the road network in the past decade, particularly the completion of the interurban motor ways by the end of 2010, is a very positive development in enhancing the connectivity to the ports from regional locations. However bottlenecks remain, namely: the N28 from Ringaskiddy to Cork which is critical for the pharmaceuticals sector s access to market; the N4 (west of Mullingar) and the N5 (west of Longford) which is vital for the future development of the medical technologies sector; the southern section of the Atlantic road corridor to improve access to a choice of ports; the remainder of the N25 from Waterford to Rosslare to improve access to a choice of ports; the remaining sections of the N11 from Dublin to Rosslare to improve access to a choice of ports; and improving the road infrastructure from Shannon Foynes port to the national motorway network given the importance of developing deep water port facilities in the medium to longer term. Ireland s strong export performance in spite of the very difficult global trading environment in the last two years has been driven by the pharmaceutical and medical technologies sectors. While there has been a move from high volume, low value goods to low volume, high value goods in these sectors, sea freight services remain important for getting their product to market. It is essential that the policy actions required to support the growth of these sectors now and in the future are prioritised. In light of the severe constraints on capital expenditure on new road projects, the development agencies recommend that the Department of Transport continues to use its assessment of the ports hinterland access priorities to ensure that key bottlenecks to our ports are addressed. The development agencies further recommend that transport projects which can have the greatest impact in terms of attracting overseas investment and supporting firms in Ireland to trade internationally should be prioritised and frontloaded. In particular the road projects highlighted above need to be prioritised to support economic recovery and job creation. 7. Is the current policy of encouraging port companies to develop capacity projects independently appropriate to ensure future demand is met? By and large, the port companies are best placed to decide on the appropriate level of investment required in their ports to meet increased capacity demands and to facilitate changes in shipping 4

5 trends such as the previously mentioned need for deeper water facilities. It is vital that Ireland creates the policy certainty and market environment required to attract private investment to ensure the changing needs of enterprise are met. Periodic updates on the medium term outlook for ports capacity demand such as that previously undertaken by Fisher Associates on behalf of the Department of Transport would be useful 4. Consideration should also be given to creating the right regulatory environment to develop Ireland s potential as an entrepot port (i.e. a large international commercial port dealing in commodities which are imported and then re exported without customs duties). Q.8 Is further action required to plan for specialist niche requirements, such as offshore wind? If so, what actions are envisaged? As highlighted in the consultation document, action will be required to exploit the enterprise opportunities in ocean energy. The development agencies agree with the Department of Transport that the work of the IMDO and the SEAI will be an important input in defining the precise nature of the constraints to realising the market opportunities and identifying the policy options to address them. It will be important that the findings and recommendations of this work can be reflected in future ports policy as other countries are already putting in place the infrastructure to realise clean technology opportunities. 10. Are regular capacity requirement studies at an all island level useful to the industry? As stated above under Q7, periodic updates on the medium term outlook for ports capacity demand would be useful to ensure that the ports continue to meet the needs of enterprise. Ports and smarter travel Ireland s transport policy should support national competitiveness as well as environmental sustainability objectives. Q.13 How can greater use of rail freight to and from our seaports be encouraged? What measures to encourage such usage could be introduced? Rail access plays a limited role in the movement of freight within the State although the number of services has increased recently, albeit from a low base. The decline of rail freight in recent years has been attributed to the comparative advantage of road transportation. In addition, most ports have a limited geographical hinterland 5. A recent study of the European rail freight market found that rail freight transportation is only a viable alternative to road over distances longer than 150km. However, growing environmental concerns over carbon emissions and congestion and increasing demand from enterprise are leading to a renewed focus on rail freight across the EU, including Ireland. Increasing the frequency of services on particular routes is critical to make rail freight a more attractive option for business. One of the key issues for enterprise is the time it takes to get a product to market and the implications for how responsive they can be to customer demands. 4 In 2005, the Department of Transport commissioned Fisher Associates to assess if the forecast capacity requirements for unitised cargo (ro ro and lo lo traffic) to 2014 could be adequately met by the implementation of a combination of the projects proposed by the port companies. 5 For example, most of the Port of Dublin s business lies within an 80km radius of the port and most of the Port of Cork s is in the Munster area. 5

6 Greater clarity on the role of rail freight within an integrated transport policy across all modes (road, rail, seaports and airports) is essential to encourage increased provision of rail freight services and greater take up by importers and exporters. The development agencies support the recommendation of the Oireachtas Committee on Transport to open the rail market to independent operators (section 4.9 of their report). There is also a need to create greater awareness of the recent expansion of rail freight services and to promote its use as far as possible. Q.14 Should rail freight facilities be planned and developed at strategic ports i.e. ports handling very large volumes of bulk and container traffic? If so how should such facilities be realised? Care is required in this regard. Investment must be driven by market demand, both existing and potential. Given Ireland s small size and industrial profile, demand for such services may be relatively limited, particularly where there have been significant improvements in access and journey times due to the major investment in the road network in recent years. Funding seaport capacity Q.19 Is further action required at national level to ensure the port sector is capable of attracting sufficient funding, in particular private sector investment? The development agencies believe that it is important that the State clearly sets out what it expects from the ports as a shareholder. While it is important that the State receives a clear return from the ports companies, it is essential that they have the autonomy to act in the best interests of developing the port. Competition and cooperation Q.20 Does available evidence indicate that the current market is sufficiently competitive and if not, what measures could be taken to help rectify this? Our research suggests that there is a good level of competition between the ports, although Dublin port s share of the lo lo market is increasing since As stated above in response to Q6, the quality of the road and rail connectivity to the ports is critical to expand the natural hinterland of ports and enhance competition between ports. Q.21 Should formal benchmarking of ports performance be introduced and, if so, what would this entail? How would commercial sensitivity be safeguarded? The development agencies would be highly supportive of benchmarking the comparative performance of the main Irish ports in meeting the needs of exporters and importers. When Forfás undertook its research for the 2009 ports study, we found it difficult to benchmark the quality and price of services relative to competitor countries. While the size and diversity of function complicate benchmarking, it is important to note that enterprise needs are relatively clear. Ireland and by extension our ports must be able to compete with the best in the world. 6 In 2009, Dublin accounted for 67 per cent of lo lo traffic in the Republic of Ireland, compared to 63 per cent in 2007 and 65 per cent in Its share of island of Ireland traffic has increased marginally from 50.5 per cent in 2007 to 52.3 per cent in

7 Q.22 What scope is there for further cooperation or shared services between port companies? Cooperation at the expense of competition would be detrimental to the needs of port users. Further work is required to set out the potential economies of scale or scope that further cooperation could achieve and to set out how competitive forces can be protected. If genuine economies of scale exist, potential may exist for greater cooperation between and/or amalgamation of Irish ports or for Irish ports to partner with entities in other countries. Q.23 Is there a case for amalgamation of some ports in light of issues such as the economic climate and recent enhancement of the road network? Q.24 Is there a case for closure of some ports? As the ports are run on a commercial basis, these questions need to be answered on that basis. It is not clear what the amalgamation of a port means in practice. If a State owned port is facing unsustainable losses, potential may exist to sell the infrastructure to a third party. Port company corporate governance The answers to the questions below draws on Forfás recently published report on the role of state owned enterprises 7. The report assesses the factors required to ensure that state owned enterprises are providing high quality, competitively priced infrastructure and services to Irish enterprise and are maximising their broader contribution to supporting economic recovery and opportunities for enterprise and innovation. 25. What proposals to reduce the administrative burden on smaller ports could be considered (i.e. use of shared services)? The development agencies believe that there is significant potential to reduce the administrative burden at all ports through greater use of ICT. Potential exists to enhance service quality through greater use of electronic information systems to manage the physical, administrative, commercial and customs follow up of goods and provide reliable import and export procedures while reducing the transit time of goods through the port. Ports on the island of Ireland need to embrace technological advances to ensure that the services offered to Irish traders continue to be on a par with those in other countries. 26. How might corporate governance arrangements be enhanced to further support the management and development of the port companies? 27. Are current corporate governance controls appropriate or are improvements needed? State owned companies are often required to implement multiple and sometimes conflicting objectives, i.e. to achieve loss making public policy goals while operating commercially. Internationally, the evidence suggests there is potential to implement clearer governance structures by: 7 For further detail see: 7

8 establishing a single, competently resourced centralised agency (or unit) which is a model increasingly being adopted across the OECD. This unit, drawn largely from pooling existing resources and expertise, would be dedicated to the supervision of state owned companies which could improve the State s ability to exercise ownership efficiently and monitor companies under its ownership; and separating clearly the policy, regulatory and shareholder functions to ensure greater transparency and more conscious decision making where conflicts between goals exist. The potential to implement stronger corporate governance frameworks in Irish port companies needs to be considered. Many of the governance challenges faced by large state owned companies and large private sector companies are often very similar. Ownership does necessarily equate with control. International experience suggests that there is potential to implement stronger corporate governance frameworks, including: developing clearer mandates and improving monitoring by shareholders. This requires the development of specific and transparent mandates to ensure that state owned companies have clear objectives and targets which can be monitored and reported on over time. From an enterprise development perspective, additional non financial indicators that measure the quality and costs of services provided to enterprise relative to trading partners and competitors are important; and putting in place transparent mechanisms to ensure that Boards comprise relevant expertise for example, competency databases as are used in Nordic countries. 28. Is the level of interaction between port companies and the Minister/Department appropriate and are port companies clear in their objectives? The Irish and global economy has changed significantly since the establishment of many of our state owned enterprises. In the absence of regular reviews, there are risks that state owned companies can drift from their founding goals or that individual state owned company goals may not reflect current national economic development needs. It is important that we review the role of state owned enterprises in terms of their original developmental roles. It is also critical that we review their roles in terms of supporting wider economic growth through the provision of high quality and cost competitive infrastructure and maximising opportunities for enterprise and innovation. In some cases, it is likely that the State holds legacy investment in state owned companies that it would be unlikely to take if these enterprises were being established today due to the internationalisation of the economy, deeper capital markets and technological developments. Some countries have procedures in place to review these issues periodically. Ireland could consider a similar approach. Conclusions In spite of the change in the composition of Irish exports (the shift to services and low volume, high value goods), the ports infrastructure and services remain critically important to enterprise and the economy generally. For exporters and importers, the entire chain from their premises to the customer is important for the effective movement of goods in and out of the country. In this regard, ensuring that quality road and rail infrastructure is available to link ports to the national road and rail network is critical. Planning now for medium long term expansion is very important notwithstanding the recent decreases in ports traffic. In particular, the development of deep water ports facilities is essential to ensure that Irish importers and exporters continue to have access to a wide range and frequency of port services at competitive prices. 8