Dynamic Shipping and Port Development in the Globalized Economy

Volume 1: Applying Theory to Practice in Maritime Logistics

Paul Yae-Woo Lee, Kevin Cullinane, Paul Yae-Woo Lee, Kevin Cullinane

• Publisher: Palgrave Macmillan
• Year: 2016
• Print ISBN: 9781137514219
• eBook ISBN: 9781137514233
• Topic: Business
• Subtopic: Business General
• Index: Business

This two volume book presents an in-depth analysis of many of the most important issues facing today's shipping and port sectors. Volume 1 of Dynamic Shipping and Port Development in the Globalized Economy focuses on the application of theory to practice in Maritime Logistics.

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Introduction

Paul Tae-Woo Lee and Kevin Cullinane

The global maritime network underpinning the world economy is currently facing critical challenges. These include, inter alia, relatively stagnant economic and trade activity, China’s growing impact on international trade, changes in the structural pattern of international trade as a consequence of emerging free trade agreements, the need to further integrate maritime logistics systems, fierce port competition and the influence of mega carriers, terrorist attacks and other security issues, natural disasters and the need for enhanced resilience, and global warming and other environmental concerns. Within the context of a globalized world economy, the continued emergence of new developments which fundamentally affect it (such as China’s growing engagement in Africa and South America) and aspects such as the pursuit of an integrated logistics environment, the competitiveness of alternative production bases, the potential for the relocation of production lines, and the associated establishment of new supply chains have all attracted the attention of manufacturers, maritime logistics providers, academics, and policymakers. This is the context which has prompted the production of this book entitled Dynamic Shipping and Port Development in the Globalized Economy. Consisting of two volumes, the first concentrates on aspects of maritime economics and logistics which revolve around Applying Theory to Practice in Maritime Logistics. The second volume is entitled Emerging Trends in Ports. As the name suggests, it brings into sharp focus the impact on ports of the contemporary practices in maritime logistics that have been discussed and analyzed within Volume 1. The two volumes encompass a total of 15 contributions from 23 visionary scholars of international repute, which together provide a truly comprehensive scientific, practical, and contemporary perspective on the developments and challenges that have necessitated Dynamic Shipping and Port Development in the Globalized Economy.

As exhibited in Volume 1 of this book, maritime logistics plays a pivotal role in underpinning world trade. The connectivity of nations is also critical to the benefits derived from engaging in international trade. Lying at the heart of international transport and supply chain systems, ports play a significant role as an interface between the various available transport modes. They also constitute nodes embedded within value-driven chain systems (Robinson, 2002) or value constellations (Normann and Ramírez, 1993). Ultimately, it is the efficiency and effectiveness of ports that determines the degree of connectivity between port hinterlands and international markets. Enhancing this level of connectivity, therefore, often revolves around attempts by ports to optimize the interface between hinterlands and the maritime logistics network. Core aspects of these efforts include the coordination of transport operators; improving communication among key players so as to connect the transport chain or constellation; the sharing of best practices among stakeholders; improving physical linkages into the hinterland; continuous process improvement; and the development of innovative business models that enhance both shipping and port operations. The ongoing developments in relation to these issues, as well as other Emerging Trends in Ports are addressed within this Volume 2 of Dynamic Shipping and Port Development in the Globalized Economy.

Considering Latin America and the Caribbean (LAC) as an emerging region on the global map of container trades, Gordon Wilmsmeier and Jason Monios (Chapter 2) analyze the current challenges faced by container ports in the region from three perspectives: the implications of a changing geography of trade; the challenges arising from a port life-cycle perspective on infrastructure and technical efficiency; and the restrictions of the current institutional framework. In so doing, they analyze the intersection of clear trends in the evolution of port systems – the decentralization of port governance; a greater concentration of power; and the simultaneous deconcentration of port traffic. In so doing, their intention is to identify how the institutional setting governing the spatial diversification of container port activity has changed as a result of the intersection of these three trends and whether it is suited to dealing with new challenges as they arise. An additional question is whether the new institutional settings created by port reform in developing countries are suited to supporting the successful application of port devolution policies imported from developed countries with different political and institutional histories. The authors provide some interesting observations on the LAC context: an increase in Brazil’s share of container throughput from 60 to 74 per cent between 2000 and 2013 was ascribed to the nation’s economic development and a strategy to act as transshipment hub and gateway for Paraguayan, as well as southern Argentinian, cargoes; a spatio-temporal diversification process, driven in particular by the emergence and expansion of secondary ports, with Brazil, Chile, Mexico, and Panama providing good examples of these processes; and the emergence of different categories of ports in the region – namely, pure transshipment hubs (with a minimum of 70 per cent transshipment cargo), hybrid ports (between 30 and 70 per cent transshipment cargo), gateway ports (with less than 30 per cent transshipment cargo), and local and inter-island transshipment ports. The authors also point out that port development in LAC, as in other port systems, has been driven first by significant and continued growth of container traffic. The strategies of liner shipping companies have evolved toward a wide implementation of hub-and-spoke networks, leading to patterns of concentration which exhibit significant effects of path dependence. However, private investment, public policy, and planning practices have been found to play an important role in port development, supporting newly emergent port hierarchies. Globalization has contributed to the reconfiguration of the container shipping networks within the region, as has China’s growing engagement in LAC. This chapter illustrates the developments taking place, and the challenges faced, within the LAC port system since the turn of the millennium, and it graphically portrays the fact that port development is no longer a local or regional discussion, given the process of internationalization that has taken place over the last 20 years.

As far as the container port sector is concerned, South Africa (SA) can be considered to be an emerging country within the sub-Saharan region. In Chapter 3, Darren Fraser and Theo Notteboom identify the funding options available to SA’s container ports given their institutional position and need for port capacity. The authors comment on the merits of each funding option from the perspective of SA’s ports and the port authority, in particular Transnet. The timing of capacity expansion and a positive assessment of future demand are crucial not only to positioning SA’s ports in readiness for sustainable growth, but also to secure the appropriate sources of funding for the financing of capacity expansion. The authors elaborate generic sources of funding and financing for the port sector and build up a theoretical framework of funding and financing options as a function of the extent of public port ownership, referring basically to the World Bank port reform toolkit typology of ports. Based on the above framework, the authors propose that “pure public ports from developing countries have limited investment funding sources, compromising the execution of capital investment expansion programs” and test this hypothesis by utilizing a case study of SA’s container ports. As long as Transnet Soc Ltd (the group holding company, henceforth Transnet) maintains its 100 per cent shareholding, funding sources are in effect limited to shareholder investment capital, general reserves, and debt. The authors describe the choices available for each option and address both the theoretical financial benefits arising from the choice identified and the potential financial pitfalls for the company.

The authors’ investigation is particularly relevant given the proposed “Dig-Out Port” to be constructed on the site of the old Durban International Airport; Transnet are currently investigating the business rationale of alternative funding and financing arrangements. In 2013, Transnet concluded a series of stakeholder meetings with local organizations about the proposed Durban “Dig-Out Port” project, as part of the project’s concept phase that includes the development of the Sustainable Port Development Framework that will inform all future designs as well as operations. The authors highlight the port institutional framework of SA in order to present various funding alternatives available to the organization. These range from full or partial privatization of the port operators and partial privatization of the port authority, quite apart from retaining the current status quo. The authors conclude that Transnet is in a good position to review recent port reform programs within the region and to assess whether the investment track record of these public–private partnership ports (with their profit maximization imperative) have any similarity to the capital expansion ambitions of the Transnet group. Even though there are definite implications for the reform decision, the authors have eschewed other more qualitative and practical implications of the various options, such as potential labor opposition to privatization or the potential positive impact of outsider expertise.

In Chapter 4, Kevin Cullinane, Sharon Cullinane, and Tengfei Wang analyze the development of mainland China’s container ports over a period in which China has seen an explosion in its containerized trade. The authors adapt and apply a taxonomy, originally developed by Robinson (1998), which is based upon the position of a container port within a hierarchy of the type of liner shipping services that make most use of the port. This concept is utilized for explaining the phases in the development of the container port sector in mainland China and also for analyzing the three geographical centers (in southern, central, and northern China) where container port competition is most intense. The influence of other factors is also considered. In this respect, the combined impact of China’s port privatization policy, foreign direct investment in China’s transport and logistics industry, the globalization policies of the world’s major container terminal operators, planned transport infrastructure improvements, and China’s accession to the World Trade Organization (see Li et al., 2003) are all critical to the future development of the sector.

Observing that production has moved from being “firm-focal” to “port-focal”, and recognizing the consolidation of shipping routes, the globalization of shipping lines and increasing cooperation among port operators, port authorities have evolved from focusing only on port infrastructure to playing active roles in their hinterlands. In Chapter 5, Enrique Martin, Sergi Saurí, and Adolf K.Y. Ng review the changing roles of ports and the evolution of ports in a globalized world, with a focus on identifying the key drivers that have prompted this process. In this chapter, the term “ports” refers to a seaport as well as (parts of) any other nodal point with facilities and personnel which can facilitate the contemporary development of global supply chains (river port, inland port, airport, and other types of logistics terminal). The authors identify six key drivers at a dimension level: demography and social changes, energy and environment, technology, economy, finance, and policy (see Table 5.3). Each key driver has sub-drivers at a criterion level. Noting that the topology of the shipping network (from one-to-one to hub-and-spoke with several levels of complexity), shipping companies, terminal operators, port region, and port governance are the main elements of a four-phase model of shipping line development by Wilmsmeier and Notteboom (2011), the authors ask the question: How can these elements explain the dynamics involved in the four phases? Their answer is that the demands on both the shipping side and the land side of a port constitute a self-reinforcing loop. As a result of both self-reinforcing loops, a key conclusion is that “the rich get richer” in terms of port development. They conclude that the main drivers governing port devolution are the alliances and vertical integration of shipping companies, the expansion of international trade, the concentration of cargoes around the closest part of port hinterlands, and institutional aspects, most often such aspects as port development and port governance.

In Chapter 6, Mary R. Brooks questions whether a government’s objective that ports be commercially driven organizations that reimburse taxpayers for prior investment is compatible with a local port community’s objective of enhancing its own economic development. This chapter focuses on identifying the principles of good governance and how they can be translated into the organizational structure and processes of devolved entities. In seeking a solution to this problem, the first thorny issue to grapple with is to provide a definition of “governance” that yields a common understanding. Once this is achieved, the author moves on to focus specifically on the Canadian corporate governance code as providing a benchmark set of “best practice” principles in governance and to analyze how best these could be implemented within any form of organization. In addressing the specific literature on port devolution, the author berates the emphasis placed on full privatization and reminds us that this represents merely one end of a continuum of private sector participation in governance and only one of a whole range of possible characteristics that could be embodied within any given governance structure. Brooks concludes that because a wide variety of governance models exist and they are often very complex, governments are unlikely to agree on a globally harmonized approach to port governance. She also outlines some of the issues governments need to contemplate in their quest for both good governance practices and the alignment of the commercial objectives of the board of a port authority with community economic development objectives. This particular focus is missing from recent port governance research. Over the past decade since the publication of Brooks (2005), there have been further literature on port reform/restructuring efforts in several countries (e.g., Brooks and Cullinane, 2007; Brooks and Pallis, 2011, 2013; Debrie et al., 2013; Galvao et al., 2013). Brooks identifies future governance challenges in three critical areas: concessions as a governance mechanism for terminal operations; strategies to coordinate or capture hinterlands; and port community (i.e., IT) systems and other stakeholder engagement strategies. The author observes that there has been very little research on how well port devolution initiatives have worked and even less evaluation of whether port reform has been compatible with local community economic development initiatives. The majority of the research reported in academic outlets examines corporate governance as it relates to public or private entities from the American/Anglo-Saxon market-based perspective. Having reviewed the principles critical to good, community-responsive port governance and analyzed what has changed over the last decade, Brooks concludes that ports have not reached the goal of being successful engines of economic development.

Based on the work reported in Lee et al. (2012), Tsung-Chen Lee and Paul Tae-Woo Lee (Chapter 7) claim that even though there have been several studies of South African ports, they are mostly descriptive and do not provide a quantitative analysis of the economic impact of port development on the national economy. The authors argue that the stakeholders in South African ports not only need to understand how current and planned operations and capital investments in the port sector might affect economic activity, but also need to develop a robust economic impact model to quantify and determine the contribution of ports to the national economy. To fill this gap, the authors propose the application of the computable general equilibrium (CGE) model, namely the Global Trade Analysis Project (GTAP), in port impact studies (PIS). By taking both an investment perspective and an operational perspective, this approach explicitly and comprehensively elaborates the channels through which port development can affect the macro-economy of a nation. This quantitative analysis of port development in South Africa is conducted from two perspectives: one focuses on the one-off impact of port investment during the construction phase and the other focuses on the ensuing effect of a reduction in freight rates due to improved capacity. The key findings of the authors are that port development generates growth and employment and is beneficial to the South African economy as a whole; port investment brings significant benefit to the port-related sector (particularly to those activities related to water transport, transport equipment, and construction); and a reduction in freight rates as a result of a saving in waiting time for vessels will cause an asymmetric impact on shipping costs across the region, and, as a consequence, this will lead to a shift toward closer trading partners, particularly in sub-Saharan Africa and the Middle East. The results highlight the significance of the port sector for the South African economy and reveal that port development, as a means of promoting trade and employment, is an important dimension for promoting economic growth in South Africa. The authors point to the potential significance of the global CGE model, the GTAP, in port-related analysis. In particular, the international dimension of the global CGE model enables the exploration and identification of the impact of port development, not only in terms of the level of total trade, but also at a disaggregate level, by major export and import commodities and by major international trading routes.

Paul Tae-Woo Lee and Jasmine Siu Lee Lam (Chapter 8) attempt to elaborate the first revised version of the “fifth generation port” (5GP), focusing on container ports and maritime logistics, and to propose a second revised version of the 5GP. The United Nations Conference on Trade and Development (UNCTAD, 1999) coined the term “fourth generation port” (4GP) in relation to eight items: that is, service quality, information technology (IT), community environmental impact, port cluster, maritime cluster, logistics hub, inland, and waterside, as well as referring to vertical and horizontal integration port strategies. Flynn and Lee (2010) and Flynn et al. (2011) proposed the concept of the 5GP on the basis of 4GP. Lee and Lam argue that the description of the eight items in Flynn et al. (2011) is to some extent vague and does not provide a sharp demarcation line among some items which form the basis for the comparison and evaluation of a port’s generation. In a previous work, Lee and Lam (2013, 2015) modified the 5GP concept and tested it empirically by applying descriptive and quantitative methods to four major international ports, namely Shanghai, Singapore, Hong Kong, and Busan. In this chapter, the authors identify some shortcomings and omissions with their previously espoused concept for the first 5GP on the basis of their empirical test results and the feedback received in respect of their previous researc...

Table of contents

• Cover
• Title Page
• Copyright
• Contents
• List of Figures and Tables
• Acknowledgments
• Notes on Editors and Contributors
• 1. Introduction
• 2. Container Ports in Latin America: Challenges in a Changing Global Economy
• 3. Port Development in Sub-Saharan Africa: Competitive Forces, Port Reform, and Investment Challenges
• 4. A Hierarchical Taxonomy of Container Ports in China and the Implications for Their Development
• 5. Port-Focal Logistics and the Evolution of Port Regions in a Globalized World
• 6. Port Governance as a Tool of Economic Development: Revisiting the Question
• 7. Economic Impact Analysis of Port Development
• 8. Developing the Fifth Generation Ports Model
• Index