The use of Hub and Spoke container terminals: Making transport more affordable and reliable Jens O. Floe Director, Projects & Business Development Africa & Middle East APM Terminals, The Hague World Bank Transport Forum Week Washington, DC March 30, 2006
Overview Our company Strategy: Evaluating port development opportunities Affordability: Making transportation affordable, creating jobs Reliability: Hub terminals vs. Import/Export terminals Conclusion
APM Terminals Strategy Independent Global Operator Strategic link to Maersk Line Develop a profitable, independent Terminals business that maintains a strong strategic link with Maersk Line.
45 terminals, 13 expansions, 20 projects Terminals Terminals under expansion New Implementations
Focus on developing world Tangier Aqaba Port Qasim Port Said Pipavav Bahrain Mumbai Abidjan Tema Onne Salalah Cai Mep Laem Chabang (2) Apapa Colombo Douala Luanda T. Pelepas Terminals Terminals under expansion New Implementations Itajai Buenos Aires
Strategy: Evaluating port opportunities
How do we evaluate port development opportunities? Individual basis Reality check Commercial justification - Compelling Financial profitability model IRR, NPV Environmental review - Safe Political status - Stable Contractual risks Long term Future growth Demographics Legal framework - Strong Strategic/tactical decision
Efficient ports: Making transportation affordable
Efficient Ports Generate productivity Public versus Private operation in an existing two-berth facility in a developing economy (2005) Productivity 120 Ratio 115 110 105 100 Public Private 95 90 TEU/Meter quay TEU/Crane Source: Containerisation International
Efficient Ports Generate Competitiveness Today, manufacturing and markets can be located far apart. Finished goods may be assembled from parts produced in various locations around the world, based on competitive pricing, supply and production reliability and skills availability. Inefficient ports mean African shippers carry transportation costs, triple those of their European competitors. Transportation cost Helps explain why Africa has 18% of world population, but only 2% of world trade. Ratio 400 300 200 100 0 Africa Europe Source: Drewry Shipping Consultants
Generating new business and jobs Port development can create multiple small and micro size businesses, including - Cleaning and building maintenance - Lashing/stevedoring etc. - Security - Ship supply services - Training and education - Marketing and media - IT - Catering, hotel and amenities - Landscaping - Logistic services
Downstream Benefits for local business Several new businesses are created and existing businesses expanded when APMT set up new port facilities Sub-suppliers to APMT facilities 800 New companies created 700 600 500 400 300 200 100 0 710 400 350 Bremerhaven Pelepas Salalah Source: APM Terminals
New Terminals = New Jobs Job creation in terminals 1800 1600 Number of employees 1400 1200 1000 800 600 400 200 0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Algeciras SalalahTime Tanjung Pelepas Bremerhaven Gioia Tauro
Why are some terminals expensive? Negative development is further amplified by costs, which have not developed with revenues Current infrastructure limits industry s ability to take unnecessary costs out of the systems This again limits the industry s ability to make the very expensive investments required to alleviate inefficient infrastructure High concession and royalty payments make cost reduction difficult 19% 16% 3% 29% 21% Finance cost Concession cost Staff cost 9% Other cost 62% Developed world 41% Developing world Source: APM Terminals
Container Terminals: Hub vs. Import/Export
HUBS: Hub versus Import/Export terminals Characteristics Insignificant local cargo base IMPORT/EXPORT: Captive local cargo base Focus on water connections and quay Located close to main shipping routes Hub & Spoke or Relay Focus on land connections and gate Located close to manufacturing bases Import/Export
Hub versus Import/Export terminals Investment drivers are different HUBS: Location, location IMPORT/EXPORT: Promising local economy Unstable return based on volatile market High return, but dependent on local market Long to very long term view Medium to long term view High entry/exit barriers and risk High entry/exit barriers but lower risk
Import/Export terminals Efficient terminals create value for the end user Makes local trade competitive and directly supports trade growth Enables direct shipping services with larger vessels, adding to transportation capacity Direct services provide faster main market coverage Promotes local manufacturing and provides a positive long term economic impact
Hub terminals Hub terminals optimize transportation Creates access to new markets, not serviceable by direct services Enables shipping lines to provide timely efficient market coverage, normally not viable through direct services to terminals in the developing world Allows shipping lines to deploy large ships creating economies of scale Promotes development of free trade zones, and other value adding industries
Import/Export terminals South India needs efficient import/export terminals Historically, container terminals in South India are limited in capacity and offer low draft. Consequently, most import/export containers have to be transshipped at Colombo, Salalah or Singapore. Larger, efficient and cost effective import/export terminals in South India will attract direct services. Local trade will then have access to cheaper and faster transportation to main markets, increasing their competitiveness.
Hub terminals West Africa potentially needs a hub terminal Historically, container terminals in West Africa are slow, inefficient and expensive. Containers have to be feedered in, mainly from Europe, increasing shipping cost and transit time. A potential hub terminal in West Africa could support direct services from around the world. This will enable services to hub much closer to the market, increasing coverage and reducing transit time
Conclusions Best Solution for regional markets: A mix of hub and import/export terminals. An example - 1. Hub terminal in West Africa will transform the regional market: An efficient port that carriers can rely on Attractive for large deep draft vessels Hub and spoke system expands shipping frequency for continent Reduced costs for market 2. Import/Export terminal expansion and new terminals will promote individual country economies and competitiveness 3. World Bank s Role: Promote government efforts to: Build port and inland infrastructure to aid humanity, create jobs. Create legal framework. Push transparent process and fight corruption. Add long term structure to changing situations, environments.
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