Splash Extra

Not in tandem

The growth plans of ports and carriers are rarely in sync, creating supply chain kinks. Can the situation be resolved?

Port development and newbuild orders are rarely in sync. A comment made last month by the incoming president of the International Association of Ports and Harbors (IAPH), Captain Subramaniam Karuppiah, sparked much debate by supply chain experts contacted by Splash Extra.

Captain Subra, general manager of the Port Klang Port Authority, which owns and regulates Malaysia’s largest port, said: “We cannot overlook the fact that the lead time for building new port infrastructure is much more complex and costly – and therefore takes much longer – than that of building a new ship.”

Subra, who has had a career both at sea and onshore, believes that shipowners do not always realise these challenges when they are making their next ship orders. He added that infrastructure development is marked by complex planning procedures, including environmental impact assessments, extensive stakeholder dialogue, and complex government approval policies.

Since it has become clear that large-scale vessels are here to stay and with the volume of newbuild orders reaching new highs, ports have been looking for ways to adapt to the new norm.

With mega ships growing on the Asia-Europe route, many ports are faced with a challenge to create flexibility in landside infrastructure and hinterland transport systems to be able to adequately accommodate the carrying capacity of these giants. The number of ports unequipped to handle these mega ships significantly outnumbers those that currently can, and most countries have to deal with reduced direct port calls.

In many cases it is no longer in the interest of ports to accommodate ever larger ships

The main driver for ordering bigger vessels was to reduce the energy needed to transport each individual container. More energy efficiency lowers costs and helps to minimise CO2 emissions, which improves profitability and reduces the environmental impact of global supply chains.

However, the arrival of more ships in ports, and especially those with larger carrying capacity, generates more concentrated flows of containers in ports and their hinterland. If hinterland connection facilities cannot adapt, it gives rise to port congestion problems.

Port development takes place as a result of the activities in the hinterland and the estimated volume of cargo that will be captured by the seafreight segment of the transport market.

“Ports don’t plan for the increase in size of the ships or the number of ships that will be calling on the port. If there is no demand for this transport from the land, no ship will ever come to a port,” says Kris Kosmala, strategic advisor at BunkerMetric and a partner at management consultancy Click & Connect.

While it takes approximately three years between the order and delivery of a ship, the time for adaptations to port-related infrastructure usually takes longer. Dredging might take several years, extension and strengthening of quay walls one to two years, port hinterland connections easily more than five years, and new port terminals at least five but frequently more than 10 years if the land needs to be reclaimed.

The UN view

A report from the United Nations Conference on Trade and Development (UNCTAD) earlier this year highlighted that if ship sizes go up without bringing additional cargo, ports may be confronted with a trade-off, where they need to invest in more dredging, bigger cranes and expanded intermodal connections to accommodate higher peak demand, while at the same time being left with a smaller number of bigger carriers. In this scenario, the carriers gain bargaining power vis-à-vis both the ports and the shippers.

“Frankly, I believe that in many cases it is no longer in the interest of ports to accommodate ever larger ships. The additional logistics costs due to higher peak demand without really any additional total cargo often do not compensate for the extra costs of dredging, cranes and intermodal connections,” says Jan Hoffmann, head of the trade logistics branch at UNCTAD.

According to the International Transport Forum (ITF), unplanned port development as a reactionary measure to accommodate new large ships can be environmentally and socio-economically unsustainable. The updating of port infrastructure requires extensive planning cycles, technology investments, and environmental impact studies that can stretch into several years.

“Large ships are insufficiently synchronised with ports, intermodal yards, trucks, railroads, highways and distribution centres – all of which are in danger of being paralysed by the huge wave of containers that are offloaded from a single vessel,” ITF claims.

A constructive discussion would need to take place with the relevant transport stakeholders, including governments, regulators, port authorities and all interested constituents. The objective could be to facilitate an exchange of views, an understanding of objectives and plans, and ultimately better coordination to ensure optimum supply chain configurations, including optimised use of ships.

In reality, this is a question where there is no perfect solution. “Aligning all these parties is in practice not possible at all. Partly because there are many competitors involved, and partly because these companies do not necessarily agree on the 10+ year forecasting horizons driving the investment decisions,” says Lars Jensen, founder of container consultancy Vespucci Maritime.

Newbuild orders for greener ships might become another problem for ports. During IAPH’s recent annual conference several port CEOs commented that developing the infrastructure for new fuels, such as LNG, methanol and ammonia will require much closer cooperation between shipping companies and ports.

More cooperation of shipping lines on land operations could take various forms, possibly also in the form of equity stakes in port terminals and ports. In this respect, the three alliances and their members have already been quite active, with large terminal portfolios in the hands of some shipping lines, in many cases in strategically located transhipment hubs. Shipping lines have also been active in developing hinterland transport operations, in the future they might do this more jointly with their alliance partners.

Power balance shift

The power balance between shipping lines and ports has shifted towards shipping lines. This is partly related to the consolidation of liners, which has taken place at a much faster pace than the consolidation of ports.

The average size of newbuilds has increased significantly, while the average number of companies has decreased. Containership orders in the year to date are at the highest levels seen since 2014 despite prices rising sharply and the ongoing uncertainty of future fuels and propulsion. For ports, the concern will remain to reach higher levels of efficiency while also capturing possibilities to reduce costs and emissions. The UNCTAD report from earlier this year warned that for many ports, investing in infrastructure to cater to carriers may come at the price of less choice for the other group of clients, the shippers.

Andy Lane from Singapore container advisory CTI Consultancy believes the newbuild orderbook is alarming, and the demand bubble will eventually burst. “We will return to laid up tonnage and ports will get back to providing mediocre service whilst remaining the most profitable link in the overall supply chain,” he says.

Almost by definition, newbuild ship orders and port expansion are not in sync. Many ports are unable to accommodate today’s 23,000 teu class of megamaxes. Larger vessels have naturally driven developments in port infrastructure and handling facilities.

Perhaps, once liners and port operators find a way to agree on more efficient solutions and proven technology arrives for greener vessels, not-so-large newbuilds could start making several port calls instead of one and avoid congestion across the global supply chain.

Sustainability has taken its place alongside digital in the shipping industry and will no doubt become the driver of innovation for vessels and ports for the next decade or two. Initiatives required to enable ships and ports to become more environmentally sustainable could finally sync the two, but also add to the investment costs for improving ports for future generations of ships.

Back to top button