PIANC. World Association for Waterborne Transport Infrastructure LOGISTICS AND TRANSPORT FLOWS IN THE MEDITERRANEAN SEA: CONSEQUENCES FOR PORTS

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1 PIANC World Association for Waterborne Transport Infrastructure LOGISTICS AND TRANSPORT FLOWS IN THE MEDITERRANEAN SEA: CONSEQUENCES FOR PORTS Gerardo Landaluce Development & Commercial Director, Port Authority of Algeciras Bay 3rd Mediterranean Days of Coastal and Port Engineering Marseille, May 22 nd and 23 rd

2 Logistics and transport flows in the Mediterranean Sea: consequences for ports Abstract. As the crossroads of the European, Asian and African continents, the Mediterranean and its ports are destined to carry on a strategic role to channel the commercial flows between the main production and consumption hubs. However, several risks and challenges are considered among the main issues of concern when analyzing the present and future state of the Med: a continuous giantism process in ship size, the risk of overcapacity on the Asia-Europe trade routes, increasing port competitiveness and new alternative routes that may challenge the traditional ones, among others. In the future, competition in the Med will increase, particularly between hub ports in the West Med area, where key competitiveness factors such as 0º diversion, strategic location, maritime and inland connectivity, port capacity upgrade, reliability and operational costs, automation, come into play. Key words: maritime trade, commercial flows, giantism process, strategic role, ultra-large containerships (ULCS), supply and demand, overcapacity, competitiveness, transhipment, hubs, alternative routes, container terminal capacity, competition, port investment, maritime connectivity, 0º diversion, automation. 2

3 The world economy is projected to grow at an average rate of just over 3% per annum until 2050, doubling its size by 2032 and nearly doubling again by China, the USA and India are likely to become by far the three largest economies in the World. China, India, Brazil and other emerging markets are set to become not just low cost production locations but also increasingly large consumer markets, at a time when the annual growth trend is projected to be no more than around 2% for advanced economies. The maritime trade and container shipping industry is currently and will continue to be a central issue that can help meet these world economy growth projections. The past few years have proved highly challenging for all the companies involved in the container shipping business, and 2013 is not expected to be any easier. In October 2012 the IMF s latest World Economic Outlook report disclosed that 2013 GDP growth would be 3 6% down from the previous estimate of 3 9%. However, projections made by the Drewry 2 Maritime Research forecast global volumes to rise by 6% annually over the next five years until 2017, in spite of significant regional differences. If so, this would prove to be better than most other sectors of the global shipping business and may result in global box volumes of about 174 million TEUs in 2015 and 228 million TEUs in 2020 respectively. The Mediterranean remains one of the main world trade routes, involving around onethird of the World s commercial exchanges: incoming from the Suez Canal and the Straits of Gibraltar and Bosphorus, and outgoing to the Atlantic and the Black Sea. Dating back to 3,500 B.C., the Mediterranean has played a major role throughout the maritime trade and port development history. It evolved from an inland sea, where exchanges were held between coastal Countries, to a major intercontinental centre, i.e. a key element in logistics and world trade. Proof of this is the fact that Spain, France 1 Source: World in 2050 The BRICs and beyond: prospects, challenges and opportunities PricewaterhouseCoopers, January Source: Global Container Terminal Operators, annual review & forecast Drewry Maritime Research, August

4 and Italy hold the 11 th, 12 th and 14 th positions in the UNCTAD index of the top 20 world economies according to their maritime connectivity 3. Strategic factors of location and zero diversion on the main East/West and North/South axes back up the logistics and port investments made in the Strait of Gibraltar, Malacca, and the Panama and Suez canals. As the crossroads of European, Asian and African continents, the Med and its ports are destined to carry on a strategic role to channel the commercial flows between the main production and consumption hubs. The fact is that we are facing new risks and challenges and, by the same token, also great opportunities, at least for a few. The continuous giantism process in ship size puts high pressure on ports and poses an enormous challenge to terminals, which have to adapt their infrastructure and facilities. Accordingly, this implies making considerable investments. Proof of this is the recent announcement by APM Terminals Algeciras of investing 42 million to adapt and purchase new Super Over Post Panamax cranes to serve the new 18,000 TEU megaships. The Triple-E class is synonymous with Economy of scale, Energy Efficiency and Environmental improvement. Their dimensions are 400 m length, 59 m beam and more than 70 m height. Access, mooring and operation of these mega-ships pose a new challenge for ports and terminals, demanding quays with 17 m draught and capacity to 3 Source: Review of Maritime Transport UNCTAD,

5 accommodate 1,800 MT. cranes, with a maximum reach of more than 72 m, capable of handling ships with a beam of 25 containers. The Emma Maersk, CMA-CGM Marco Polo and Triple-E Class of Maersk Line are milestones within a process of giantism that seems unlimited. In fact, marine engineering has already dreamt up bigger ships: the Malacca-Max-type (MalMax class) whose dimensions could be similar to those of Triple-E, except for a bigger draught. For the time being, the fact is that container ships of 13,000 TEUs or bigger will bear half of the trade between Asia and Europe in But how many Mediterranean ports can handle ultra-large containerships (ULCS) of over 10,000 TEU capacity? And which of them will be able to serve even larger ships in the near future? The risk of overcapacity on the Asia-Europe routes is another issue of great concern. An increase of 10% to 11% in capacity is expected due to the commissioning of ships about to be delivered, while shipping lines forecasts will not exceed a 5% increase in demand. Should these projections be confirmed, the balance between transport capacity and goods to be transported will worsen in the next few months. As a consequence, the rate increase that shipping lines have tried to apply at the end of 2012 will not result as expected. That is the reason why shipping lines will have to monitor the evolution of supply and demand closely. In the meantime, some consequences have arisen as a reaction from the shipping lines. Thus, the Green Alliance (CKYH) decided to cancel the NE1 Asia-Europe service, Maersk Line cancelled its AE-9 service after having resumed it, and the G6 Alliance (Grand Alliance & New World Alliance) also decided not to restart its own Loop 3. Competitiveness is another big risk. It intensifies even more with volatile transhipment flows in third party countries (non EU-members) located on the Southern Mediterranean coastline. Current and future competitors are trying to follow in the wake of Tanger Med. As a result, they may challenge the traditional southern European transhipment ports stability and permanence. In turn, the development of powerful hubs on the African West coast may represent alternative routes towards the Mediterranean via the Cape of Good Hope. The recently 5

6 announced mega-port of Badagry (Nigeria), promoted by a consortium headed by APM Terminals, is proof of this. Measures such as the Suez Canal Authority s new announcement to increase tolls between 2% and 5% next May do not allow traffic loyalty, especially considering delay costs from troubles in the Suez Canal area and pirate attacks around the Horn of Africa. The Panama Canal receives 5% of the World trade and is another fundamental link in the global logistic chain. The extension of this interoceanic seaway, finally scheduled for mid-2015, will allow the transit of New Panamax ships (12,500 TEUs, 360 length, 49 beam, draught). The Panama Canal Authority (PCA) expects to recover container traffic lost to the Suez Canal. From the point of view of alternative routes, there are some new choices in competition: The Arctic Sea Bridge could be a viable option with climate ongoing change; Major investments in the Europe s North Range ports; Intermodal alternatives such as an international freight-train network linking China to Europe (still one of the largest markets for Chinese goods). It represents the new overland Silk Route that connected western China to the Eastern Mediterranean for more than a millennium 4. If we analyse the container industry trends and market development regards the Med, several issues arise: - What will be the container activity forecast? - What are the approximately 60 ports and 90 terminals doing to meet all these risks and challenges? - Is there a risk of overcapacity? - Who are the Chosen Ones going to be for the ULCS (Ultra Large Container Ships)? 4 Source: The silk railroad of China-Europe - Bloomberg Businessweek,

7 Container handling is forecast to grow from 45 1 million TEUs in 2011 to 50 1 million TEUs in 2012 and to 82 7 million TEUs by 2021, an overall growth of 83% 5. At the same time container terminal capacity in the Mediterranean is expected to increase by 40`6 million TEUs from 73`4 Million TEUs (2012) to nearly 114 million TEUs in 2021 (+ 59%) and further to 124 million TEUs by Capacity growth will be different area by area. All analysts coincide with the fact that Turkey, currently the strongest growing Mediterranean economy, will have the largest share of new capacity to be developed. The Mediterranean-Far East and the Mediterranean-North America trade routes are the two major deep-sea East-West routes connecting the Mediterranean and responsible for around 20 million TEUs of total container handling in the Med. The present average capacity of all container ships sailing between the Mediterranean and North America is 4,100 TEUs but for the Med/Far East is 8,400 TEUs. However, from the second semester/2012, 100 Ultra Large Container Ships of over 10,000 TEUs 5 Source: Container throughput & terminal capacity in the Mediterranean Dynamar, September

8 were deployed in 10 of the 32 shipping services connecting Mediterranean ports with the Far East. Some of them were deployed in the Gibraltar Straits and Suez Canal hubs, some at the major West Europe Med gateway ports. Direct calls and multiple port calls still dominate the Asia-Europe route, the most important at a global level. Maybe it is time to rationalize this service pattern, as is it sustainable for 18,000 TEUs and higher capacities? Pioneering projects in Southern Europe, such as Total Terminal International Algeciras (TTI-A) or Barcelona Europe South Terminal (BEST), optimize the storage area through automated yard operations, which means a reduction in labor costs and a rise in productivity. Competition will increase, particularly in the West Med port area, where key competitiveness factors such as 0º diversion, strategic location, maritime and inland connectivity, port capacity upgrade, reliability and operational costs and automation, come into play as requirements for success. Gerardo Landaluce March/2013 8