Regulation and Port Productivity Overview of Global Port Benchmarking - A Focus on Hong Kong and South China Region

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2008/SOM3/EC/SEM/004 Agenda Item: 6 Regulation and Port Productivity Overview of Global Port Benchmarking - A Focus on Hong Kong and South China Region

1 2008/SOM3/EC/SEM/004 Agenda Item: 6 Regulation and Port Productivity Overview of Global Port Benchmarking - A Focus on Hong Kong and South China Region Submitted by: Hong Kong, China Seminar on Best Practices in Regulation and Promotion of Efficiency in Transport Infrastructure Facilities Lima, Peru August 2008

2 Regulation and Port Productivity Overview of Global Port Benchmarking (A Focus on Hong Kong and South China Region) John J. Liu and T. L. Yip Department of Logistics and Maritime Studies Faculty of Business The Hong Kong Polytechnic University Hong Kong, China Background Globalization and trade liberalization in the past decades have profound impacts on port industry. Governments are increasingly realizing that, ports have become the most dynamic link in international transport networks and, as a result, inefficient ports can easily wither gains from trade liberalization and export performance. Port authorities have been trying to improve port efficiency through adopting new technologies and deregulation. The disappearance of national boundaries of port hinterlands, the increasing containerization, and the trend of deregulation force container ports to face keen competition, because of the diminishing product differentiation and government power. Competition leads to an increasing pressure on ports to control their costs, offer competitive user charges, and improve quality of services to shipping liners and shippers. A port benchmarking project is conducted to study the port productivity for major container ports in the world. The project addresses one fundamental question: what are the best practices to improve port efficiency (productivity) for a port. By collecting data from ports around the world, empirical models have been developed to compare port performance under different (regulation) scenarios. The results from this benchmarking project will be the foundation for a port to design appropriate regulatory tools. Port Benchmarking of Technical Efficiency The production and cost theories in economics makes it possible to estimate production and cost functions empirically, and thus to investigate the productivity and technology change of a port. The port production function can be written as: Port production = function (Infrastructure, Superstructure, Port characteristics). The quantity to indicate port production may be port throughputs (TEU, tonnage), ship arrivals or other outputs. The superstructure denotes cargo handling equipment, storage facilities etc. The port characteristics covers water depth, port groups, continental region etc. The findings are summarised as follows (Yan, Sun and Liu, 2008): 1. Port facility operators with deeper water terminals and larger numbers of calling liners is more efficient. 2. More terminals in a port reduce the efficiency. 3. Port groups are more efficient. 4. Ports are more efficient in the Far East Asia in general. Several factors that may impact on the port efficiency are being addressed, e.g. Multiple outputs - the effect of port facility mix (container, bulk and tanker). We further discuss the implication of Port globalisation and Container flows Implication 1: Globalisation on ports From the port benchmarking study, ports groups are found more efficient. One of the main impacts of globalisation has been the integration of transport facilities provided by service organisations around the world. In the port sectors, there exist some of the prominent operators who provide services on a global scale. 2

3 The effect of this port globalisation can be seen when some statistics are studied. Figure 1 shows the top seven container terminal operators. Hutchison Port Holdings (HPH), PSA Corporation and APM Terminals (Maersk Sealand) occupy the top 3 places since All top terminal operators have not only increased throughputs but also market share. The market share of leading operators increased from 19.6% in 1991 to 46.7% in Figure 1: Throughputs of top seven container terminal operators (ranked in 2004) Operator Throughput (M TEU) DPA Durogate Cosco P&O Ports APM PSA HPH Year Source: Drewry Shipping Consultants Figure 2: Market share of top seven container terminal operators World Market Share (%) HPH PSA APM P&O Ports Cosco Durogate DPA Year Source: Drewry Shipping Consultants 3

4 The structure of the container terminal industry has changed. Global and regional players are becoming increasingly dominant. Shipping lines have extended investment in ports. Implication 2: Asian ports are more efficient From the port benchmarking study, Asian ports groups are found more efficient compared against ports in other continents. The estimates of container flows on the three major containerised routes are illustrated in Figure 3. For the port sector, this trade pattern has resulted in 3 major effects. Firstly, terminals in Asia have to cope with the severe imbalance of trades and large volumes of empty containers have created an inventory problem. Secondly, terminals have to handle more containers than their counterparties in Europe and USA. Thirdly, terminals in the Far East attract more port investments. Figure 3: Estimated container flows on major trade routes in 2006 (Source: UNCTAD (2007). Review of Maritime Transport) Asia Europe Unit: Million TEUs USA Implication 3: Ownership has little impacts on technical efficiency This is little evidence that port privatization has significantly enhanced growth. Investment in port infrastructure does not often lead to port traffic (e.g. Vancouver Fraser Port in Canada). Port privatisation is very often opposed by port labour, for examples, French Port (Lloyds List, 6 June 2008); Piraeus port of Greece (Seatrade, 2008). It is because privatisation implies restructuring, salary reduction and layoff. The government may face considerable political controversy soon after the plan of port privatization has been announced. Promoting Port Investments The port industry is by nature capitalistic, because it requires expensive infrastructure and huge capital to be completed. The government has to promote port investment so as to secure sources of funding for port projects and developments, e.g. Table 1. An appropriate financing scheme not only determine the approach for investments but also enhance a competitive advantage for port development. 4

5 One of port privatisation problems is that the port ownerships may be eventually transferred to foreign ownership that the government does not want, e.g. Dubai Ports World (DPW) intended to acquire P&O in Port privatisation may not create or improve port infrastructure and facilities to benefit the local economy (Baird and Valentine, 2007). In the past, port projects are funded or subsidised by the public sector. Today, the involvement of the private sector in the port industry has increased significantly in both developed and developing countries. However, port infrastructure projects have rarely financed by commercial banks but international lending institutions such as the World Bank, and Asian Development Bank. As the private sector involvement in port projects has increased, the World Bank (2007, p. 98) has enumerated seven elements which are shaping the nature of the private sector involvement in ports: 1. Expected yield 2. Debt / equity financing structure 3. Sponsorship 4. Legality of contracts 5. Transparency 6. Fair and open bidding procedures 7. Feasibility studies (technical, financial, economic and environmental) The World Bank (2007) further discussed a large variety of funding schemes. The most prominent of these schemes are the various forms of leasing and concession arrangements. 1. Leasing is a method by which an agreement is made for the right to use an asset (e.g. land, equipment) over an agreed period of time in return for payment. Payment can be a single one-off transaction or made in a series of instalments. The two dominant forms of leasing agreements are lease contract and leasehold agreement. The main methods of lease payment are flat rate, minimum/maximum rate and shared revenue. 2. Concession arrangement government maintains the ownership of the port land, but grants the concessionaire the right to fiancé, build and operate a facility or some equipment, for public use, for a stated period of time. The concessionaire not only covers the costs of investment but assumes all commercial risks. The major advantage of concession arrangement is to increase private financial participation in the development of the port without changing the structure of the port status. Other private participation schemes are: management contracts (e.g. dedicated terminals), joint ventures, and BOT (build, operate, transfer) agreements (IAPH 2001; Ernst & Young 1994). An alternative financing scheme is Initial Public Offer (IPO). The liquidity of the stock exchange offer a better debt position and raise equity for future expansions, especially the currency risk (interest rate) are high (e.g. Tianjin port, Dalian port, Santos Brazil). China approach to finance port projects There are several characterise of China port policy: 1. The government (national or province) does not manage the terminals directly. 2. Foreign Direct Investment (FDI) is conducted in the form of joint venture. Foreign companies were in effect restricted to holding less than 50% share of joint venture. 3. Foreign companies act as both investors and managers. Local authorities act as mainly landlord of the terminals. The joint venture offers easier access to new technologies (for the benefits of China) and to new markets (in favour of foreign companies). 5

6 References: ADB (2000). Developing Best Practices for Promoting Private Sector Investment in Infrastructure. Manila, Philippines: Asian Development Bank. Baird, A. J. and Valentine, V.F. (2007). Port privatisation in the United Kingdom. In Devolution, Port Governance and Port Performance, Research in Transportation Economics, 17, Ernst & Young (1998). Privatization Investing in State-owned Enterprises Around the World. John Wiley & Sons, Inc. EU Commission (2004). Proposal for a Directive of the European Parliament and of the Council on Market Access to Port Services. Brussels. IAPH (2001). Guidelines for Port Planning and Design. Tokyo, Japan: International Association of Ports and Harbours. Liu, John J., Yip T. L. (2005) Assessment and outlook of port competition in Greater China Region, Asian Ports and Shipping, August 2005, Shanghai. Liu, John J., Yan J., Yip, T. L. (2007) Competition and productivity of global container ports. Proceedings of International Conference on Economic Development and Industrial Efficiency of East Asia, Taipei, 17 July, 2007, Section C3, pp Lloyd s List (2008). Fresh wave of strikes hit French ports (6 June 2008). Seatrade (2008). Privatisation battle The Greek government s decision to privatise national ports is being fiercely opposed by determined dock workers. May/June WB (2007). Port Reform Toolkit, 2 nd edition. Washington, DC: The World Bank. Yan, J., Sun X. and John J. Liu (2008). Assessing container operator efficiency with heterogeneous and time-varying production frontiers. Transportation Research Part B. doi: /j.trb Yan, J., Sun X., Yip, T. L. (2006) Efficiency analysis of global container ports with time-variant individual production frontiers. INFORMS Annual Meeting, Pittsburgh. 6

7 Table 1: Examples of port privatization projects in Europe Date Year 01/02/ /04/ /01/ /01/ Company Name Associated British Ports Hldgs Associated British Ports Hldgs Verolme Dockyard Tees and Hartlepool Port Authority 11/03/ Port of Tilbury 30/06/ /11/ /03/ Medway Ports Authority Dundee Port Authority Mersey Docks & Harbour Co 01/01/ Belfast Port 01/08/ /07/ Thessaloniki Port Authority Piraeus Port Authority Country Area SIC Sector United Kingdom United Kingdom Ireland United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom Greece Greece Old Europe Old Europe Old Europe Old Europe Old Europe Old Europe Old Europe Old Europe Old Europe Old Europe Old Europe Key: PO = Public offer, PS = Private sale Source: Privatization Barometer Transportation Industry Transportation Industry Transportation Industry Transportation Industry Transportation Industry Transportation Industry Transportation Industry Transportation Industry Transportation Industry Transportation Industry Transportation Industry % for Sale Value of Transaction in US$ million Method of Sale Market Area PO Domestic PO Domestic PS PS PS PS PS PO Domestic NA 150 PO Domestic PO Domestic PO Domestic 7

8 APEC Seminar: Best Practices in Regulation of Ports Regulation and Port Productivity Overview of Global Port Benchmarking (A Focus on Hong Kong and South China Region) John J. Liu and T.L. Yip (Hong Kong PolyU) 16 August 2008 APEC Lima (Peru) 2008 Key Factors in Port Productivity Port technology: Output, Growth, and Innovation Input factors: Tangible (capital, labor), Intangible (usable knowledge, IT factors) Efficiency: Total factor productivity (TFP) heterogeneity (technical, political, and market) Regulation: Ownership, Legal system, Government quality, Governance system

The puzzling IT-revolution: lagging and stepwise Robert Solow (1987):``you see the computer revolution everywhere except in the productivity data'' Alan Greenspan (1996): Negative trends in measured

9 The puzzling IT-revolution: lagging and stepwise Robert Solow (1987):``you see the computer revolution everywhere except in the productivity data'' Alan Greenspan (1996): Negative trends in measured productivity observed in many services industries seemed inconsistent with the fact that they ranked among the top computer-using industries Practices in Port Regulation: Best, or Not? Privatization: Really the best for ports? Then something else must be missing in Hong Kong, as the records in recent years showed. Either public or private, but not joint (mixed): What about Shanghai? Container ports: Throughput = Efficiency? Income difference: Explainable by technology difference? Regulation/policy difference? Or system heterogeneity?

The pending issues in Port Efficiency: Two intrinsic characteristics of the port industry the individual heterogeneity in production technology and the timevarying nature of technical efficiency,

(Yan, Sun and Liu, TRB 2008): Natural conditions and business environment Drastic difference in income across countries is not due to technical differences and differences in endowments of natural

10 The pending issues in Port Efficiency: Two intrinsic characteristics of the port industry the individual heterogeneity in production technology and the timevarying nature of technical efficiency, have been generally ignored. (Yan, Sun and Liu, TRB 2008): Natural conditions and business environment Drastic difference in income across countries is not due to technical differences and differences in endowments of natural resources. (Prescott, 1997): Income HK = 10 x Shenzhen 大鏟灣 Da Chan Port Development of Total-Factor Port Efficiency Assessment Tools at C.Y. Tung ICMS (since 2005; HK PolyU) Initial grant (HK$1.26 million) on Regional Port Competition: December, st Port Forum on Port Benchmarking: April 27-29, 2006; PolyU HK 1 st Special IAME Session on Port Benchmarking: IAME-Melbourne, July 13 15, 2006 Initial meeting on collaboration on N.E.T.S at Institute for Water Resource of US-ACE: November 8 9, 2006; Alexandria, VA; by Keith Hofseth (IWR), Wesley Wilson (Oregon), Jia Yan (PolyU), and John Liu (PolyU) Further funding and donation to ICMS (over HK$10 million) from Tung Foundation 2 nd Port Forum, IFSPA-2007 (International Forum on Shipping, Port, and Airport): May 10 12, 2007; PolyU 2 nd Special Session on Port Benchmarking: IAME-Athens, July 4 6, /20/2008 LGT/Liu 6

11 Development of Total-Factor Port Efficiency Assessment Tools at C.Y. Tung ICMS (Continuing on ) PolyU Niche Area: Consortium of Shipping and Maritime Studies (CSMS) Services and Management; ($12 M five-year grant, approved 15 November, 2007) Keynote presentation: Conference on Global Maritime and Intermodal Logistics (Singapore), December 17 19, 2007 Special Session at IAME 2008-Dalian: 2-4 April, 2008 (Dalian, China) ============ 3 rd Port Forum, IFSPA-2008: May 25 28, 2008 ( at which 1st Report of Global Container Ports Performance Benchmarking is to be released. Website for Port Performance Benchmarking, and Port-adapted Logistics Index (PortAL Index): Under construction 8/20/2008 LGT/Liu 7 BACKGROUND AND OUTLOOK Asymmetric port competition: Port-focal logistics and supply chain management (as opposed to firmfocal logistics and SCM) Logistics and Port Index: TFP, Mutual risk system; Financial, Economic, Social, Security, and Environmental risks CSMS grant ($2.07m): Port-Adapted Logistics (PortAL) Index - An Interactive Dynamic Efficiency Assessment System (IDEAS) 8

12 Production Frontiers under Inputs Frontier: Maximum possible output by a certain production technology over a given period time, with minimized input cost over a given set of input possibilities (production possibility set) Deterministic Frontier Model frontier Deterministic inefficiency Expected Performance

13 Stochastic Frontier Model frontier Stochastic Inefficiency Actual output Analysis Technical Efficiency of Container Operators from 1997 to 2004 An Econometric Analysis to the World s Major Ports

14 Objectives To study the production efficiency of container port industry To develop corresponding econometric tools Features should be incorporated in an empirical model Controlling for individual heterogeneity: Clustering effects (by port, country, region, and port groups); Controlling for the technical change; Time varying efficiency and time persistence in efficiency change;

15 Output Variables 1. Container Throughput (TEUs) 2. Cargo Throughput (tones) 3. Vessel Arrivals/Departures 4. Ship Turn Around Time Input Variables 1. Cargo handling equipments: Quay crane, Yard crane, Mobile crane, Forklifts, etc; 2. Terminal infrastructure: number of container berths, Length of quay lines, Terminal area, etc; 3. Labor inputs: Working hours, number of full-time workers; 4. Storage facilities: storage area, reefer points

16 Port characteristics 1. Depth of Water 2. Number of ship calls 3. Ownership structure 4. Number of Operators 5. Corporate law system and many social economic variables The basic unit is operator. Overview of Data Time period is between 1997 and We focus on the top 100 container ports in the world (ranked in 2005) Data was collected from different sources: Containerization International Yearbooks, World Bank, and a subscribed data base : Containerization International Intelligence

17 Fig. 1 Container Throughput from 1999 to Singapore_port HIT_Terminal Dubai_Port Morden_Terminal Felixstowe Tanjung_Port Yantian_Port MedcenterContainerT BurchardkaiTerminal Keelung_Port KlangMultiTerminal_Sdn_B heurogatecontainertermin beurogatecontainertermin NorthSeaTerminal ShinsundaeContainerTermi JasungdaeContainerTermi Terminal3_Sea_land_Orie HanjinShipping_Co_Ltd Shekou_Port Chiwan_ChiwanContainerT GammanGlobalContainerT LongBeachContainerT GammanHyuandaiContain Vanterm KoreaExpressGammanCo NoordNatieTerminal Deltaport TollerortTerminal U_AM_ContainerTerminal Chiwan_ChiwanHarbourCo Kobe_PC14&15 7thStreet(BenENutter)Cont APLTerminal MaerskTerminal CenternT(CascoP&O_Port Berth5&6(NomcT) Estibador_de_Ponent CharlesPHowardT Matson&SSAT oakyusent TransBayT (Maersk)SealandT Fig. 2 Cargo handling equipments at quay side from 1999 to Singapore_port HIT_Terminal Felixstowe Keelung_Port beurogatecontainertermi BurchardkaiTerminal Morden_Terminal Tanjung_Port Dubai_Port Yantian_Port MedcenterContainerT JasungdaeContainerTerm ShinsundaeContainerTer NoordNatieTerminal heurogatecontainertermi KlangMultiTerminal_Sdn_ NorthSeaTerminal APLTerminal TollerortTerminal 7thStreet(BenENutter)Con Kobe_PC14&15 LongBeachContainerT Vanterm Chiwan_ChiwanContainer CenternT(CascoP&O_Por Shekou_Port (Maersk)SealandT CharlesPHowardT Deltaport Estibador_de_Ponent U_AM_ContainerTerminal Berth5&6(NomcT) GammanGlobalContainer GammanHyuandaiContain HanjinShipping_Co_Ltd KoreaExpressGammanC MaerskTerminal Matson&SSAT Terminal3_Sea_land_Orie oakyusent TransBayT Chiwan_ChiwanHarbourC

18 Fig. 3 Cargo handling equipments at yard from 1999 to Felixstowe Singapore_port ShinsundaeContainerTerm Morden_Terminal Yantian_Port HIT_Terminal KlangMultiTerminal_Sdn_ heurogatecontainertermi Dubai_Port BurchardkaiTerminal LongBeachContainerT JasungdaeContainerTermi 7thStreet(BenENutter)Cont MedcenterContainerT Kobe_PC14&15 Vanterm GammanHyuandaiContain beurogatecontainertermi NoordNatieTerminal HanjinShipping_Co_Ltd Terminal3_Sea_land_Orie Matson&SSAT CenternT(CascoP&O_Port KoreaExpressGammanCo GammanGlobalContainerT Deltaport Keelung_Port Tanjung_Port Shekou_Port U_AM_ContainerTerminal Chiwan_ChiwanContainer TollerortTerminal Berth5&6(NomcT) APLTerminal oakyusent NorthSeaTerminal TransBayT CharlesPHowardT Estibador_de_Ponent Chiwan_ChiwanHarbourC MaerskTerminal (Maersk)SealandT Fig. 4 Number of berths from 1999 to Singapore_port Felixstowe Keelung_Port Dubai_Port HIT_Terminal Yantian_Port Estibador_de_Ponent BurchardkaiTerminal heurogatecontainertermi beurogatecontainertermi CenternT(CascoP&O_Port Morden_Terminal Tanjung_Port JasungdaeContainerTermi KlangMultiTerminal_Sdn_ NoordNatieTerminal Vanterm APLTerminal ShinsundaeContainerTerm TollerortTerminal (Maersk)SealandT 7thStreet(BenENutter)Cont Chiwan_ChiwanContainer Kobe_PC14&15 LongBeachContainerT Matson&SSAT NorthSeaTerminal CharlesPHowardT Berth5&6(NomcT) Deltaport MedcenterContainerT Shekou_Port TransBayT U_AM_ContainerTerminal Chiwan_ChiwanHarbourC GammanGlobalContainerT GammanHyuandaiContain HanjinShipping_Co_Ltd KoreaExpressGammanCo MaerskTerminal oakyusent Terminal3_Sea_land_Orie

19 Fig. 5 Quay length (m) from 1999 to Singapore_port Felixstowe HIT_Terminal Dubai_Port Keelung_Port MedcenterContainerT BurchardkaiTerminal Yantian_Port Tanjung_Port heurogatecontainerterminal Morden_Terminal beurogatecontainerterminal KlangMultiTerminal_Sdn_Bhd CenternT(CascoP&O_PortCa JasungdaeContainerTerminal ShinsundaeContainerTerminal Estibador_de_Ponent Vanterm NoordNatieTerminal Kobe_PC14&15 7thStreet(BenENutter)Contain TollerortTerminal NorthSeaTerminal LongBeachContainerT Chiwan_ChiwanContainerTer APLTerminal (Maersk)SealandT Matson&SSAT Deltaport Shekou_Port CharlesPHowardT U_AM_ContainerTerminal Berth5&6(NomcT) TransBayT GammanGlobalContainerTerm GammanHyuandaiContainerT HanjinShipping_Co_Ltd KoreaExpressGammanContai MaerskTerminal Terminal3_Sea_land_Orient_ oakyusent Chiwan_ChiwanHarbourConta Fig. 6 Terminal area (sqm) from 1999 to Singapore_port Dubai_Port Felixstowe BurchardkaiTerminal beurogatecontainertermin Tanjung_Port Yantian_Port ShinsundaeContainerTerm MedcenterContainerT HIT_Terminal heurogatecontainertermin Chiwan_ChiwanContainer NoordNatieTerminal Morden_Terminal JasungdaeContainerTermi NorthSeaTerminal KlangMultiTerminal_Sdn_B LongBeachContainerT Deltaport Keelung_Port 7thStreet(BenENutter)Cont APLTerminal TollerortTerminal Vanterm Berth5&6(NomcT) MaerskTerminal Matson&SSAT (Maersk)SealandT Kobe_PC14&15 CenternT(CascoP&O_Port Shekou_Port CharlesPHowardT oakyusent U_AM_ContainerTerminal Terminal3_Sea_land_Orie Chiwan_ChiwanHarbourC KoreaExpressGammanCo GammanHyuandaiContain HanjinShipping_Co_Ltd GammanGlobalContainerT TransBayT Estibador_de_Ponent

20 Fig. 7 Storage Capacity (TEUs) from 1999 to Tanjung_Port Dubai_Port HIT_Terminal Felixstowe heurogatecontainerterminal Morden_Terminal Singapore_port Yantian_Port ShinsundaeContainerTerminal JasungdaeContainerTerminal NoordNatieTerminal MedcenterContainerT Chiwan_ChiwanContainerTerm NorthSeaTerminal LongBeachContainerT Chiwan_ChiwanHarbourContai Kobe_PC14&15 beurogatecontainerterminal BurchardkaiTerminal Shekou_Port Deltaport Vanterm TollerortTerminal KoreaExpressGammanContai Berth5&6(NomcT) GammanGlobalContainerTermi HanjinShipping_Co_Ltd Keelung_Port GammanHyuandaiContainerTe CenternT(CascoP&O_PortCan U_AM_ContainerTerminal Terminal3_Sea_land_Orient_T APLTerminal Matson&SSAT 7thStreet(BenENutter)Containe (Maersk)SealandT MaerskTerminal oakyusent CharlesPHowardT TransBayT KlangMultiTerminal_Sdn_Bhd Estibador_de_Ponent Fig. 8 Reefer points (electric) from 1999 to Morden_Terminal Singapore_port MedcenterContainerT HIT_Terminal Felixstowe Dubai_Port BurchardkaiTerminal Yantian_Port NorthSeaTerminal ShinsundaeContainerTermi beurogatecontainertermin JasungdaeContainerTermin heurogatecontainertermin Matson&SSAT Deltaport Kobe_PC14&15 U_AM_ContainerTerminal APLTerminal GammanHyuandaiContaine Terminal3_Sea_land_Orien HanjinShipping_Co_Ltd 7thStreet(BenENutter)Cont KoreaExpressGammanCon Vanterm TransBayT Tanjung_Port (Maersk)SealandT KlangMultiTerminal_Sdn_B LongBeachContainerT GammanGlobalContainerT oakyusent CharlesPHowardT MaerskTerminal CenternT(CascoP&O_Port TollerortTerminal Shekou_Port Chiwan_ChiwanContainerT NoordNatieTerminal Keelung_Port Chiwan_ChiwanHarbourCo Berth5&6(NomcT) Estibador_de_Ponent

21 Estimated Operator Inefficiency Model Bremen NoordNatieTerminal (Maersk)SealandT Kobe_PC14&15 TollerortTerminal APLTerminal Berth5&6(NomcT) Chiwan_ChiwanContainerTer Terminal_de_l_Atlantique JasungdaeContainerTerminal U_AM_ContainerTerminal Keelung_Port Morden_Terminal CharlesPHowardT ShinsundaeContainerTerminal KoreaExpressGammanContai Felixstowe Shekou_Port 7thStreet(BenENutter)Containe TransBayT Yantian_Port Matson&SSAT GammanHyuandaiContainerTe Hessenatie(Europe)Terminal Deltaport GammanGlobalContainerTerm Vanterm CenternT(CascoP&O_PortCan beurogatecontainerterminal BurchardkaiTerminal oakyusent GlobalMarineT Tanjung_Port HIT_Terminal NorthSeaTerminal Estibador_de_Ponent Chiwan_ChiwanHarbourContai Dubai_Port KlangMultiTerminal_Sdn_Bhd LongBeachContainerT heurogatecontainerterminal MedcenterContainerT HanjinShipping_Co_Ltd Singapore_port Por_NewarkContainerT MaerskTerminal Terminal3_Sea_land_Orient_T Findings Port facility operators with deeper water terminals and larger numbers of calling liners is more efficient. More terminals in a port reduce the efficiency. Port groups are more efficient. Ports are more efficient in the Far East Asia in general.

22 Top Terminal Operators Operator Throughput (M TEU) DPA Durogate Cosco P&O Ports APM PSA HPH Year More and more market share World Market Share (%) HPH PSA APM P&O Ports Cosco Durogate DPA Year

23 Container Flows Asia Europe Unit: Million TEUs USA Alternative financing IPO Initial Public Offers Real Options

T structure Yangtze River Millions 25 20 Hong Kong Shenzhen 15 10 5 0 1990 1991

24 T structure Yangtze River Millions Hong Kong Shenzhen TEU Year

25 Kwai Chung Terminal (Hong Kong) Source: Hong Kong Container Terminal Operators Association Kwai Chung Terminal Equipment Source: Hong Kong Container Terminal Operators Association

26 Out-Gate Operating Area Stacking Area Temperate Parking Space In-Gate Stacking Area Hutchison Logistic Center Stacking Area Stacking Area Operating Area Operating Area Stacking Area Gate Area

27 Parking Area Gate Area Stacking Area Logistic Center Operating Area Port Governance in China Definition of port governance Port as a corporation The port governance specifies the distribution of rights and responsibilities among the different participants in the corporation. Port Development in China Centralization (pre 1984) Decentralization ( ) Corporatization (2001-)

28 Port Governance (2) Centralization (pre-1980) Planned economy Provided the basic port service High level of centralization Ministry of Communications (= Transport Bureau) Port Governance (3) Centralization (pre-1980) Ministry of Communications Terminals

29 Port Governance (4) Decentralization ( ) 1978 Open door policy The limitation on the water transport price was removed in the late of 1990s gradually. The market became gradually free competition. Dual leadership (or ownership) Ministry of Communications (= Transport Bureau) Local authorities Port Governance (5) Decentralization ( ) Ministry of Communications Local Government Terminals

30 Port Governance (6) State-owned enterprises (SOE) Foreign participation 1990s, Hutchison Port Holdings (HPH) started operations in Shanghai, Yantian, Ningbo and Zhuhai. Port Governance (7) Corporatization (2001-) China s entry into WTO 2004 Port Law Central Government = Regulator Terminals = Market player

31 Port Governance (8) Corporatization (2001-) Local Government Corporation JV Terminals Port Law of China Dated 28th June, 2004 Definition of ports Fishing ports Commercial ports First generation port Traditional role of port (ship/shore interface)

32 Implications Port Law of China (2) The Chinese central government will no longer retain any ownership of ports The public ports will be transferred to local government. Ownership Hongkong International Terminals (HIT) Solely owned by Hutchison Port Holdings (HPH) Yantian Port Holding Stock No Joint venture of Hutchison Port Holdings (HPH) Shenzhen Yantian Port Group

33 China Approach The government (national or province) does not manage the terminals directly. Foreign Direct Investment (FDI) is conducted in the form of joint venture. Foreign companies were in effect restricted to holding less than 50% share of joint venture. China Approach (2) Foreign companies act as both investors and managers. Local authorities act as mainly landlord of the terminals. The joint venture offers easier access to new technologies (for the benefits of China) and to new markets (in favour of foreign companies).

34 Shenzhen Corporation Model Shenzhen Government Ministry of Communications Corporation Port Authority Overseas Firms regulation Terminal JV Port Privatisation Port privatization may not create or improve port infrastructure and facilities to benefit the local economy. Investment in port infrastructure does not often lead to port traffic.

35 Summary The Port Benchmark Study shows that: Global terminal operators are more efficient. Asian ports are more efficient. Ownership has little impacts on technical efficiency.

Port and Maritime Transport Issues and Views

Port and Maritime Transport Issues and Views C. Bert Kruk, Lead Port Specialist Bradley C. Julian, Port and Maritime Transport Specialist Port and Maritime Transport Office (PMTO) Transport Division Energy,