Container Shipping and Ports: An Overview: Theo E. Notteboom
Container Shipping and Ports: An Overview: Theo E. Notteboom
Container Shipping and Ports: An Overview: Theo E. Notteboom
THEO E. NOTTEBOOM*
Abstract
Globalisation, deregulation, logistics integration and containerisation have reshaped the port and
shipping industry. Port and maritime companies are challenged to redefine their functional role in
the value chain for the sake of creating customer value and of ensuring the survival and growth of
the company. Companies are busily trying to disrupt the status quo rather than preserve it. Based on
empirical evidence, this paper demonstrates that because of the rapidly changing environment the
port and liner shipping markets are not stable any longer. Individual terminal operators and shipping
lines tend to walk different paths on a quest for higher margins and increased customer satisfaction.
And more than once they (have to) change paths.
1 Introduction
The market environment in which container ports and shipping lines are operating is
substantially changing. One of the main driving forces to change emerges from the
globalisation process and the large-scale adoption of the container since the late 1960s.
Worldwide container port throughput increased from 36 million TEU1 in 1980 to 266
million TEU in 2002. Forecasts point to between 432 and 468 million TEU in 2010 (OSC,
1997 and OSC, 2003). While the Atlantic Rim is the cradle of containerisation,
economically dynamic East Asia has become the worlds main container region. The share
of Asia in worldwide container port throughput rose from 25 per cent in 1980 to about 46
per cent now, while Europe saw its share drop from 32 per cent to 23 per cent.
The rise of world containerisation is the result of the interplay of macroeconomic,
microeconomic and policy-oriented factors. World trade is facilitated through the
elimination of trade barriers and the liberalisation and deregulation of markets. Practical
evidence shows that the public sector has redefined its role in the port and shipping
industries through privatisation and corporatisation schemes. Contemporary government
intervention in an efficiency-oriented industry typically focuses on the issue of market
liberalisation and the creation of a level playing field for fair competition, the monopoly
issue and the public goods issue (see Goss, 1990; Baird, 2000; De Monie, 1995;
Notteboom and Winkelmans, 2001 and Everett, 1996). With the reassessment of the role of
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the government much attention is now paid to governance issues in ports and shipping (see
Brooks, 2001 and Wang, 2003).
Market liberalisation revealed to enhance the development of logistics throughout the
world. International supply chains have become complex and logistics models evolve
continuously as a result of influences and factors such as the globalisation and expansion
into new markets, mass customisation in response to product and market segmentation,
lean manufacturing practices and associated shifts in costs. Customers need for a wider
array of global services and for truly integrated services and capabilities (design, build and
operate) triggered integrated logistics strategies (Christopher, 1992 and McKinnon, 2001)
and a shift from transportation-based 3PLs (Third Party Logistics) to warehousing and
distribution providers and at the same time opened the market to innovative forms of non-
asset related logistics service provision, that is 4PL (Fourth Party Logistics)2.
Intensified competition at the supply side creates pressures on cost management and on
margins. The evolutions in supply chains and logistics models urge container ports and
shipping lines to re-think their function in the logistics process. Recent literature has
addressed the impact of changes in logistics on the functional role of ports and shipping in
value chains. Robinson (2002) places the role of seaports within a new paradigm of ports
as elements in value-driven chain systems. Notteboom and Winkelmans (2001b) and
Heaver et al (2000) primarily discussed the changing role of port authorities in the new
logistic-restructured environment, while Martin and Thomas (2001) addressed structural
changes in the container terminal community. Slack et al (2002) demonstrates how the
organisational restructuring of the container shipping industry is taking place against the
backdrop of logistics.
This paper aims to provide an overview of the challenges facing port and maritime
companies in an ever-changing competitive environment. Based on empirical evidence, the
paper analyses the paths shipping lines and terminal operating companies are walking in
the hope to face the ongoing dynamics in the highly competitive container and logistics
markets in a sustainable manner.
2
Whereas a 3PL service provider typically invests in warehouses and transport material, a 4PL service
provider restricts its scope to IT-based supply chain design. Consultants and IT shops help 3PLs and 4PLs to
expand into new markets and to become full-service logistics providers.
3
A liner conference is defined by Unctads Convention on a Code of Conduct for Liner Conferences
(Chapter 1) as a group of two or more vessel-operating carriers which provides international liner services
for the carriage of cargo on a particular route or routes within specified geographical limits and which has
an agreement or arrangement, what-ever its nature, within the framework of which they operate under
uniform or common freight rates and any other agreed conditions with respect to the provision of liner
services.
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based on conference tariffs. These structures endured until the middle of the 1980s when
non-conference operator Evergreen began to challenge the existing situation.
Over the last decade container carriers have significantly under performed financially
compared to other industries. The weaker performance can be related to the combination of
the capital-intensive operation and the high risks associated with the revenues. Shipping
remains a very capital-intensive industry where some assets are owned and other are leased
and there exists a wide variability in cost bases. These explain the short-term instability in
the industry (Brooks, 2000).
Economic forces tend to push freight rates down. Economies of scale lead to surplus
space onboard of the vessels that lines are eager to fill. Existing slot overcapacity in some
trades made freight rates tumble down, neutralizing the achieved cost reductions. A lot of
carriers ended up with smaller margins and lower return on investment. The carrier will
reach a reasonable profitability when trade volume is close to or exceeds the capacity
provided. Controlling capacity to match demand seems logical, but hard to accomplish.
Lines vie for market share and capacity tends to be added as additional loops, that is in
large chunks. Capacity management remains very challenging until this fragmented
industry looks more like an oligopoly. The boom in the Asia trades in 1999-2000 followed
by a decline in 2001-2002 provides a good illustration. Capacity in the boom was very
highly utilised. Soaring demand made shipping lines to implement large rate increases in
these trades against only token resistance by shippers. When trade growth began to turn
down, an event that unfortunately coincided with the introduction of new tonnage, the
position went swiftly into reverse.
Lines operate regular, reliable and frequent services and incur high fixed costs. Once
the large and expensive networks are set up, the pressure is on to fill them with freight. The
simple observation that unused capacity cannot be stored and used later further increases
the pressure to go for volume. In order to secure cargo, shipping lines have negotiated
long-term contracts with shippers, however the risk balance in these contracts resides at the
carrier side. In an environment of overcapacity, high fixed costs and product perishability,
lines will chase short run contribution filling containers at a marginal cost only approach,
often leading to direct operational losses on the trades considered.
Rate erosion would not be that bad if changes in freight prices had a major impact on
demand. Unfortunately, for most shipments freight revenue only accounts for a very small
portion of the shipments total value, but as carriers cannot influence the size of the final
market, they will try to increase their short run market share by reducing prices. As such,
shipping lines may reduce freight rates without substantially affecting the underlying
demand for container freight.
Rather inelastic demand curves are the core problem for liner profitability and are at
the heart of liner strategy. Lines have come to accept that they have to take whatever price
is offered in the market. This acceptance has, in turn, led to intense concentration on costs.
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Similar calculations made by Drewry for the trans-Pacific route point to potential cost
differences of around 50 per cent between a panamax unit of 4000 TEU and a mega post-
panamax unit of 10000 TEU (Drewry, 2001). Cullinane et al (1999) have demonstrated
that economies of scale for the trans-Pacific and Europe Far East routes are enjoyed at
ship sizes beyond 8000 TEU, even if one considers different scenarios as regards port
productivity. The optimal size for the trans-Atlantic liner route would range between 5000
and 6000 TEU.
Jan 1991 Shares Jan 1996 Shares Jan 2001 Shares Jan 2006 Shares
>5000 TEU 0 0.0% 30648 1.0% 621855 12.7% 2355033 30.0%
4000/4999 TEU 140032 7.5% 428429 14.4% 766048 15.6% 1339978 17.1%
3000/3999 TEU 325906 17.6% 612377 20.6% 814713 16.6% 892463 11.4%
2000/2999 TEU 538766 29.0% 673074 22.6% 1006006 20.5% 1391216 17.7%
1500/1999 TEU 238495 12.8% 367853 12.3% 604713 12.3% 719631 9.2%
1000/1499 TEU 329578 17.7% 480270 16.1% 567952 11.6% 596047 7.6%
500/999 TEU 191733 10.3% 269339 9.0% 393744 8.0% 438249 5.6%
100/499 TEU 92417 5.0% 117187 3.9% 132472 2.7% 114976 1.5%
TOTAL 1856927 100.0% 2979177 100.0% 4907503 100.0% 7847593 100.0%
Table 1: Scale increases in vessel size: evolution of the world cellular fleet 1991-2006
Note: Projection at January 2006 as compiled with existing fleet and order book as at 15 June 2003
However, there are several reasons why a unilateral focus of carriers on vessel sizes
does not lead to a more stable market environment.
First of all, the economies of scale did not necessarily translate into reductions in cost
per TEU carried. Hence, overall vessel and voyage costs have been increased dramatically
in order to establish competitive networks satisfying the global requirements of the
shippers. Carriers need a lot of vessels of similar size to ensure a weekly departure at each
port of call (that is 12 vessels for a pendulum service Europe Far East US West Coast, 8
vessels for a Europe Far East service and 4 to 5 vessels for a trans-Atlantic service).
Upgrading the vessel size on a specific route takes several years and demands huge
investments.
Secondly, given that there seem to be no technical reasons preventing containerships
from getting larger, it will be economic and operational considerations that will act as the
ultimate barrier on post-panamax vessel sizes and designs of the future. Although some
shipping lines are now looking into the possibility of deploying vessels of more than 9,000
TEU, it is expected that this vessel size will not become the general rule in the next 10
years. There are strong indications that the range of 5,500 to 6,500 TEU will reveal to be
the most competitive vessel size for the time being as these ships offer more flexibility in
terms of the number of potential ports of call and consequently the direct access to specific
regional markets.
Thirdly, the recent scale enlargement in vessel size has reduced the slot costs in
container trades, but carriers have not reaped the full benefits of economies of scale at sea
(Lim, 1998). Poorer slot utilization and the need to go out and buy more cargo at lower
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rates can have a profound impact on carriers revenues and lead to lower profitability. The
ultra-large container ships can be deployed efficiently on the major trade lanes, provided
they are full. However, many carriers have not been able to realize a continuous high
utilization of available slot capacity on their bigger vessels. Unpredictable business cycles
on the major trade lanes result in unstable cargo guarantees to shipping lines (even if
service contracts are quite common).
Fierce price competition leaves the entire liner shipping industry worse off in terms of
profitability. Graham (1998) rightly stated that cost cutting practices through consecutive
rounds of post-panamax newbuildings is not helping to reach stability in liner shipping.
The danger of enhancing a vicious cycle towards further scale increases, overbuilding and
falling margins is eminently clear. Adding post-panamax capacity can give a short-term
competitive edge to the early mover, putting pressure on the followers in the market to
upgrade their container fleet and to avert a serious unit cost disadvantage. A boomerang
effect eventually also hurts the carrier who started the price war.
4
A post-panamax vessel is a vessel too large to pass through the Panama Canal. The critical maximum vessel
dimensions on the Panama Canal are 32.31 m wide, 294.13 m length overall (LOA) and a draft of 12.04 m.
These maximum dimensions are based on the capacity of existing lock systems.
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Situation May 1994 Situation May 1996 Situation March 1998 Situation end 2003
Figure 1: M&A and strategic alliances on the trade Europe Far East (Source: ITMMA-
UA)
Note: the main mergers and acquisitions are shown on this figure by the joining arrows
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5
For instance, the freight rates on a port-to-port basis between North Europe and the Far East amount to
some $ 0.045 per TEU-km (based on a freight rate of $ 800 and a route length of 10000nm, THC and
additional adjustment factors not included), while inland haulage per truck from north European ports
usually ranges from $ 0.8 to $ 2 per TEU-km on an average. By barge the route Antwerp-Emmerich (190
km) costs about $ 90 per TEU or $ 0.5 per TEU-km (including handling cost and port dues at inland
terminal, but without pre- and endhaul by truck or seaport terminal costs - figures based on CCS Tariff
Information System). On longer distances, unit prices per TEU-km for barging are slightly lower.
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of frequency, punctuality, reliability and geographical coverage (Slack et al, 1996). The
increasingly complex distribution requirements of the customers create significant
opportunities for shipping lines. Carriers that have traditionally been concerned only with
the transportation of goods from one point to another are now seeking logistics businesses
in the area of just-in-time inventory practices, supply chain integration and logistics
information system management. With only a few exceptions, however, the management
of pure logistics services is done by subsidiaries that share the same mother company as
the shipping line but operate independently of liner shipping operations, and as such also
ship cargo on competitor lines (Heaver, 2002).
Some shipping lines such as Maersk Sealand have gone rather far in door-to-door
services and integrated logistic packages (that is Maersk Logistics), managing the
container terminal operation (that is APM Terminals with a network of dedicated terminals
that has been opened to third users as well) and inland transport (for example European
Rail Shuttle in joint venture with P&O Nedlloyd6) and bypassing the freight forwarder by
developing direct relationships with the shipper. Other shipping lines stick to the shipping
business and try to enhance network integration through structural or ad hoc co-ordination
with independent inland transport operators and logistics service providers. A last group of
shipping lines combines a strategy of selective investments in key supporting activities (for
example agency services or distribution centres) with sub-contracting of less critical
services. Shipping lines generally do not own inland transport equipment. Instead they
tempt to use trustworthy independent inland operators services on a (long-term) contract
base (see Konings, 1993; Baird and Lindsay, 1996; Graham, 1998; Cariou, 2001;
Evangelista and Morvillo, 1998 and Heaver, 2002).
Carriers are confronted with some important barriers to further improve inland
logistics. Landside operations are management intensive and generally involve a high
proportion of bought-in services. Customer requirements and behaviour often impede
carriers from minimizing inland logistics costs. Late bookings for example are costly,
because instead of going by train or barge, they must go by truck to catch the ship, for no
extra revenue. Moreover, inland movements generate some under-remunerated activities
such as the repositioning of empty units, network control and tracking. Other important
barriers relate to volume and equipment-type of imbalances, (unforeseen) delays in ports
and the inland transport leg as well as the uncertainty of forecasts. Carriers are using IT
solutions to face the challenges in inland logistics and to manage global container flows
taking into account the effects of global trade imbalances. Moreover, they have learned to
lessen equipment surpluses/deficits through container cabotage, inter-line equipment
interchanges, chassis pools and master leases7. Equipment interchange agreements are
often, but not always, maintained among some liner conference members and some
6
ERS operates shuttle trains mainly out of the port of Rotterdam to inland destinations in the Benelux,
Germany, Poland, Italy, Belgium, the Czech republic, Hungary and Slovakia. Started at 3 shuttles a week in
1994 ERS now offers 200+ shuttles a week (Van Slobbe, 2002). ERS demonstrates the aim of a number of
shipping lines to jointly develop intermodal shuttles on routes where the existing rail products lack a good
price-quality relation. Only few deepsea carriers are directly involved in inland navigation. Typically, barge
services are maintained by independent barge operators (Charlier and Ridolfi, 1994).
7
Container cabotage makes it possible to considerably cut the costs related to the repositioning of empty
containers: carriers will build up relationships with inland transport operators which move their equipment to
where it is needed free of charge. In return the inland operator gets free one-way use of the box. Master
leases allow carriers to pick up/drop off equipment at will, placing the repositioning problem to the leasing
company. The pick up/drop off charges reflect imbalances.
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members of the same strategic alliance (for example New World Alliance). So-called grey
box agreements are quite rare: the concept has not proven workable partly because many
carriers attach too much attention to company branding via the equipment used.
The formation of global alliances has taken inter-carrier co-operation to new heights,
with members sharing inland logistics information, techniques and resources as well as
negotiating collectively with suppliers (terminals, rail operators, feeders, barge operators,
etc.). By extending to the landside, alliances clearly differ from older forms of operating
agreements.
Shipping lines and alliances seek to increase the percentage of carrier haulage on the
European continent. The share of carrier haulage presently is about 30 per cent on an
average, but large differences can be observed among routes and regions (MDS
Transmodal, 1998). A few carriers have succeeded in attaining a high level of carrier
haulage. For instance, P&O Nedlloyd had a carrier haulage percentage in Europe of 49%
in 2002 compared to 45.4 per cent in 1999 (Van Slobbe, 2002). Some other carriers with
less experience or interest in European inland transport control less then 10 per cent of
inland container movements. If the inland leg is based on merchant haulage than the carrier
loses control of and information on its boxes. Carriers are not eager to impose financial
penalties for clients that hold boxes too long, as they fear of upsetting and maybe losing
the customer.
Carriers have very little room to increase the income out of inland logistics. If the
carrier haulage tariffs edge above the open market rates, the merchant haulage option
might become more attractive. The resulting competitive pressures partly explain the weak
level of price contention between carrier and customer when it comes to charges in the
inland leg.
Liner conferences such as TACA (Trans-Atlantic Conference Agreement) have tried to
install shared fixing of intermodal inland rates. The European Commission opposes to such
practices and decided that the broad block exemption from the usual ban on restrictive
agreements given to traditional maritime liner conferences (Council Regulation no.
4056/86) cannot be broadened to include inland operations.
Inland and container logistics thus constitute an important field of action to shipping
lines. Lines that are successful in achieving cost gains from smarter management of inland
and container logistics can secure an important cost savings advantage. Moreover, because
this is difficult to do, it is likely to be a sustainable way of differentiating business from
rivals.
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completely on traffic flows that are distantly generated by the interaction of widely
separated places and stimulated by the ports en route location or intermediacy.
Much literature has addressed the issue of the hub-feeder system versus direct port
calls at continental ports. Some have suggested that the most efficient east/west pattern is
the equatorial round-the-world, following the beltway of the world (cf. Ashar 2002 and De
Monie, 1997). This service pattern focuses on a hub and spokes system of ports that allows
shipping lines to provide a global grid of east/west, north/south and regional services. The
large ships on the east/west routes will call mainly at transhipment hubs where containers
will be shifted to multi-layered feeder subsystems serving north/south, diagonal and
regional routes.
Liner service network design tends to move from a pure cost-driven exercise to a more
customer-oriented differentiation exercise, as the optimal network design is not only a
function of carrier-specific operational factors, but more and more of shippers needs (for
transit time and other service elements) and of shippers willingness to pay for a better
service. A pattern with the biggest ships possible on high-speed operations between a
reduced number of hubs could be interesting from a pure liner network cost perspective,
but it has not yet occurred in practice, partly because of customer needs. Hence, the more
cost efficient the network becomes from a carriers perspective, the less convenient that
network could be for the shippers needs in terms of frequency and flexibility. The reality
of deepsea operations is that even the largest ships operate on multi-port itineraries.
Alliances and consolidation have created multi-string networks on the major trade routes
and both shippers and liners are used to it. The multi-loop system of the alliances seems to
offer a higher sailing frequency than the single loop-single carrier system. A system of
more loops with smaller vessels bears less risk and could therefore eventually turn out to
be a cheaper option than running very large vessels on only few loops.
The future spatial development of liner schedules will largely depend on the balance of
power between carriers and shippers8. The higher the bargaining power of shippers vis--
vis carriers the more pressure for direct calls as this will shift the cargo follows ship
principle to the ship follows cargo principle. Carriers are in the process of reviewing
their strategy with respect to liner shipping networks. As liner service network design has
become a more customer-oriented differentiation exercise, this could very well introduce a
tendency towards less transhipment and more direct port of calls (even for the bigger
vessels). Gilman (1999) and Robinson (1998) rightly pointed out that the networks
operated by large vessels will continue to be based on end-to-end services. Hub-and-spoke
systems are just a part of the overall scene.
2.5.2 Global coverage
Notwithstanding existing leader-follower strategies in liner service design, large
differences can be observed among container carriers when it comes to the global coverage
of liner services (Slack et al, 2001).
8
The attractiveness of the sea-sea hub-and-spoke network to a carrier also partly depends on the actor who
will bear the transhipment costs. In the current market environment shippers typically bear these costs via
extra THC (Brooks, 2000). Terminal Handling Charges (THC) can be defined as a tariff, charged by the
shipping line to the shipper and which (should) cover (part or all of) the terminal handling costs, which the
shipping line pays to the terminal operator (Dynamar, 2003). This aspect in the balance of power between
shippers and carriers increases the cost advantages of the hubbing option from a carriers perspective, but
may render a hub-and-spoke configuration uncompetitive from a shippers perspective.
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Frmont and Sopp (2003) demonstrate that the alliances mentioned in figure 1 deploy
almost 90 per cent of their weekly slot capacity within the triad East Asia, North America
and Europe. They have hardly any presence on the secondary routes. Alliances clearly try
to build strongholds on the routes they are present and leave other routes to others. This
allows the realisation of economies of scale and scope in a global triad-based network.
Notwithstanding the customers push for global services, a large number of individual
carriers typically remain regionally based, offering the bulk of their services on a limited
number of trade routes. Asian carriers such as APL, Hanjin, NYK, China Shipping and
HMM typically focus on intra-Asian trade, transpacific trade and the Europe Far East
route, partly because of their huge dependence on export flows generated by their Asian
home bases. MOL and Evergreen are among the few exceptions frequenting secondary
routes such as Africa and South-America. As their individual market shares on these
highly competitive triad routes generally are very low, the former carriers lack leadership
role in the market and undergo the full effect of market fluctuations. Many of these carriers
have allocated 70 to 80 per cent of their slot capacity to a strategic alliance (table 3). The
alliance structure is crucial to the survival of many of these Asian carriers and open
windows of opportunities to a broader global coverage and higher frequencies without
significantly increasing the investment requirements.
Maersk Sealand, MSC, CMA-CGM and P&O Nedlloyd are among the truly global
liner operators, with a strong presence also in secondary routes. Especially Maersk Sealand
has created a balanced global coverage of liner services. The networks of CMA-CGM and
MSC differ from the general scheme of traffic circulation through a network of specific
hubs (many of these hubs are not among the worlds biggest container ports) and a more
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selective serving of secondary markets such as Africa (strong presence by MSC), the
Caribbean and the East Mediterranean.
The above reveals the profound differences in service design among shipping lines.
Some carriers have clearly opted for a true global coverage, others are somewhat stuck in a
triad-based service network forcing them to develop a strong focus on cost bases. In these
cases, strategic alliances reveal to be instrumental for the creation of differentiating service
attributes vis--vis rivals and for creating customer value.
9
Drewry Shipping Consultants (2003) collected throughput figures for terminals in which carriers have a
non-minority shareholding: Evergreen handled 5.7 million TEU worldwide on its terminals in 2002, Cosco
4.7 million TEU, Hanjin 4.7, APL 4.3, NYK Line 3.5 (including 1.3 million TEU at its subsidiary Ceres
Terminals), OOCL 3, NOL 2.5, K-Line 2.2, MSC 2.2, Yang Ming 1.3 and Hyundai 1.1 million TEU.
Container shipping lines approach terminal management in a different way: they seek control over berths
while other pure terminal operating companies manage multi-user facilities. Many of these liner terminals
offer stevedoring services to third carriers as well thereby creating some hybrid form in between pure
dedicated facilities and independently operated multi-user facilities.
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In particular China now attracts a lot of attention from global terminal operators - see
Wang (2003) for a detailed discussion - as shipping lines are dedicating higher capacities
and deploying larger vessels to cope with the increasing Chinese container imports and
exports, especially relation to the China-Europe trade (Yap et al, 2003). Chinese ports have
become prominent in the ranking of the worlds largest container ports (table 5).
Annual growth
1985 1990 1995 1998 2000 2002 2003 98-02
Container ports with a throughput exceeding 1.7 million TEU in 2002
1 Hong Kong CHINA 2,29 5,10 12,55 14,58 18,10 19,14 20,45 7,8%
2 Singapore Singapore 1,70 5,09 11,85 15,14 17,04 16,94 18,41 3,0%
3 Busan Korea 1,16 2,35 4,50 5,75 7,54 9,54 10,37 16,5%
4 Shanghai CHINA 0,20 0,46 1,53 3,07 5,61 8,61 11,28 45,2%
5 Kaohsiung Taiwan 1,90 3,49 5,05 6,27 7,43 8,49 8,84 8,9%
6 Shenzhen CHINA 0,00 0,03 0,37 2,06 3,99 7,61 10,65 67,4%
7 Rotterdam Netherlands 2,65 3,67 4,79 6,01 6,27 6,52 7,11 2,1%
8 Los Angeles USA 1,10 2,12 2,56 3,38 4,88 6,11 7,18 20,2%
9 Hamburg Germany 1,16 1,97 2,89 3,55 4,25 5,37 6,14 12,9%
10 Antwerpen Belgium 1,24 1,55 2,33 3,27 4,08 4,78 5,54 11,6%
11 Port Klang Malaysia n.a. 0,47 1,13 1,82 3,21 4,53 4,80 37,3%
12 LongBeach USA 1,14 1,60 2,84 4,10 4,60 4,52 4,66 2,6%
13 Dubai Ports Jebel Ali n.a. 0,92 2,07 2,80 3,06 4,19 n.a. 12,4%
14 New York USA 2,37 1,87 2,22 2,52 3,05 3,79 4,40 12,7%
15 Qingdao CHINA 0,00 0,14 0,60 1,21 2,12 3,41 4,24 45,3%
16 Tokyo Japan n.a. 1,56 2,18 2,49 2,90 3,03 3,20 5,3%
17 Bremen Germany 0,99 1,16 1,52 1,81 2,75 2,98 3,19 16,2%
18 Gioia Tauro Italy 0,00 0,00 0,02 2,13 2,65 2,95 3,15 9,7%
19 Manila Philippines n.a. 1,01 1,69 1,85 2,29 2,46 2,55 8,2%
20 Tanjong Priok n.a. 0,64 1,50 1,90 2,77 2,90 n.a. 13,2%
21 Lam Chabang Thailand n.a. n.a. 0,53 1,56 2,11 2,66 3,18 17,6%
22 Tanjung Pelepas Malaysia 0,00 0,00 0,00 0,00 0,42 2,67 3,49
23 Jakarta Indonesia n.a. n.a. 1,50 1,90 2,48 2,70 2,76
24 Tianjin CHINA 0,00 0,29 0,70 1,02 1,71 2,41 3,01 34,1%
25 Yokohama 1,33 1,65 2,73 2,06 2,32 2,36 2,47 3,7%
26 Algeciras Spain 0,35 0,55 1,15 1,83 2,01 2,23 2,52 5,5%
27 Guangzhou CHINA 0,00 0,08 0,51 0,85 1,43 2,17 2,76 39,1%
28 Kobe Japan 1,86 2,60 1,46 1,86 2,03 2,38 2,39 7,0%
29 Nhava Sheva 0,00 0,00 0,24 0,67 1,12 1,95 n.a. 47,7%
30 Nagoya Japan n.a. 0,90 1,48 1,43 1,90 1,93 2,05 8,7%
31 Ningbo CHINA 0,00 0,00 0,16 0,35 0,90 1,86 2,76 106,7%
32 Xiamen CHINA 0,00 0,03 0,33 0,65 1,08 1,75 2,33 42,1%
33 Le Havre France 0,57 0,86 0,97 1,32 1,46 1,72 1,98 7,6%
Other Chinese ports
Dalian CHINA 0,00 0,13 0,37 0,53 1,01 1,35 1,68 39,3%
Jingmen CHINA 0,49 0,74
Fuzhou CHINA 0,00 0,00 0,00 0,06 0,34 0,48 0,55 175,6%
European port system (*) 12,36 17,00 24,75 35,06 41,20 46,50 8,2%
Chinese mainland, incl. HK (**) 2,49 6,25 17,13 24,38 36,30 48,81 59,71 25,0%
Chinese mainland, excl. HK (**) 0,20 1,15 4,58 9,80 18,20 29,66 39,26 50,7%
North-American port system (***) 11,36 14,99 20,90 25,35 29,73 31,00 5,6%
Source: ITMMA-UA based on statistics Ministry of Communications PRC, AAPA and port authority data
Pursuing organic growth is generally the lowest risk/lowest reward strategy available
to container terminal operators. It is only by pursuit of higher risk growth strategies that
todays global operators have progressed from being single location/regional players into
the global market. In developing a global expansion strategy, HPH, PSA Corp, APM
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Terminals and P&O Ports try to keep a competitive edge by building barriers to prevent
competitors entering their domains or against them succeeding if they do. These barriers
are partly based on the building of strongholds in selected ports around the world and on
advanced know how on the construction and management of container terminals. The scale
of operations has created deep pockets or substantial surplus resources that allow them to
withstand an intensive competitive war and that enable them to financially outperform
rival companies in case of bidding procedures for new terminal operations. The deep
pockets are used to move resources wherever they are necessary either to preserve their
own interests or tackle competition. In the current market situation, the global players
seem to be best placed to meet the high capital requirements to cover initial investments in
a terminal of a reasonable scale.
For example, PSA Corporation first built a stronghold at its home base Singapore
before taking the step towards global scale and coverage. The critical mass and its focused
strategy at Singapore enabled PSA Corp. to develop exceptional competencies in terminal
handling. Once the company established itself as an international benchmark, the
companys ambitions went global through a mixed strategy of organic growth (new
terminals) and acquisitions (for example HesseNoordNatie in 2002) backed up by a sound
financial status. This development was accelerated by increased competition at its
Singapore terminals, not at the least from newcomer Tanjung Pelepas - Malaysia, and with
it less opportunities for internal growth.
Smaller terminal operators have not been successful in neutralising the power of these
giants. Many of them avoid direct competition by concentrating on market niches, for
example on the shortsea market. Over the course of the next five years the gap between the
four largest companies and the remaining global operators (many of which are carrier-
based operators) is therefore set to widen further. By 2008, the top four operators will
control over one third of total world container port capacity (Drewry Shipping Consultants,
2003). This figure is set to continue increasing if the current level of acquisition activity
continues.
Market concentration is very evident when looking at the regional scale, although
systems used might differ regionally based on factors embedded in institutional and
governance aspects that are regionally bound. Slack and Frmont (2004) demonstrate that
the non-carrier based global terminal operators have not been able to penetrate the North
American stevedoring market, while at the same time they have expanded business
considerably in Asia and Europe. A lack of liberalisation in the port sector, dock labour
problems and a strong preference towards liner-operated terminals to secure port cargo
(port concern) and space (carrier concern) are the main reasons for the specific North
American situation.
In Europe, the top six leading operators handled nearly 70 per cent of the total
European container throughput in 2002 compared to 53 per cent in 1998, illustrating the
mature and consolidated nature of this market (table 6). These figures are expected to rise
as consolidation still continues and as the big players plan new massive terminals: PSA
Corp. in Flushing, Antwerp and Sines, P&O Ports along the Thames (London Gateway
project), Eurogate in Wilhelmshaven and HPH at Bathside Bay (Harwich - UK). The
consolidation trend in European container handling leads to some controversy (Notteboom,
2002). On the one hand, the extensive terminal networks are often considered as an
effective means to counterbalance the power of carrier combinations in liner shipping, to
realise economies of scale and to optimise the terminal function within logistics networks.
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At the same time, however, the industry structure has become sufficiently concentrated to
raise a fundamental question about whether market forces are sufficient to prevent the
abuse of market power. EU competition regulations have already affected Hutchison's
expansion within North Europe, and it is likely that any future moves by PSA Corp or
P&O Ports will also be carefully scrutinised by the regulatory authorities. Regulatory
bodies aim to encourage cost reductions and at the same time avoid the abuse of
oligopolistic market powers.
Total of six major European container terminals operating companies 106.49 31.93 18.68 17.7%
Grand total 275.00 46.50 35.06 8.2%
Share 6 operators in grand total 38.7% 68.7% 53.3%
Table 6: Global terminal operators presence in the European container port system
Note: figures include all terminals in which non-minority shareholdings were held.
Source: based on terminal operator data and Drewry Shipping Consultants (2003)
The response of the port sector to the shipping sector is inherently complementary to
the changes in the shipping world. At the end a network of efficient seaports is needed,
which for the sake of global welfare might lead to an efficient maritime transport system.
This implies that both shipping lines and terminal operators parties should be in a position
to work in similar working conditions.
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Especially German terminal operators are directly involved in intermodal rail transport
(Notteboom, 2002). In recent years, Eurogate has been particularly successful in creating a
European landbridge beween its German and Italian load centres. This Hannibal express, a
north-south rail corridor that connects the intermodal services of subsidiary Sogemar in
Italy to the shuttle network of boxexpress.de in Germany, offers carriers more flexibility in
liner service design and transit times (Alberghini, 2002). Some terminal operators have set
up road haulage companies or operate own feeder services. Finally, many terminal
operators have integrated inland terminals in their logistics networks (see table 7 for the
European case). These inland terminals in many cases serve as extended gates for deepsea
terminals.
ECT of Rotterdam operates a rail terminal in Venlo (since 1982) and trimodal terminals in Willebroek
(TCT Belgium since 1999) and Duisburg (also since 1999, (*)). ECT plans to build a barge terminal in
Venlo (Venlo Barge Terminal). ECT, Rotterdam Municipal Port Management and the forwarding company
Eurotrafo have a joint share of 53 per cent in a network of rail terminals in the Czech Republic and
Slovakia operated by CSKD-Intrans.
Seaport Terminals/Katoen Natie has invested in an inland terminal network in the Benelux (for example in
Wielsbeke and Terneuzen).
The combination P&O Ports/Logport has developed a logistics zone and trimodal terminal on the site of
Hafen Rheinhausen in Duisburg.
Unikai Hafenbetrieb, a subsidiary of HHLA (Hamburger Hafen- und Lagerhaus) recently sold its river
container terminals in Wrth (Middle Rhine) and Ottmarsheim (Upper Rhine) to Rhenus.
4 Conclusions
Shipping lines and terminal operators face increasingly turbulent, fast-changing and
uncertain situations. The port and shipping markets are not stable any longer because the
forces at work in the environment are rapidly changing. Technological advances,
deregulation, logistics integration and associated new organisational structures, in
particular, are constantly reshaping the port and maritime industries, and companies are
busily trying to disrupt the status quo rather than preserve it.
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Shipping lines have long believed to outperform rivals by deploying larger vessels.
This unilateral focus on operational costs at sea proved to have its limitations. The essence
of shipping lines existence is gradually shifting from pure shipping operations to
integrated logistics solutions. Each carrier tries to give a meaningful answer to this
paradigm shift. Through various forms of integration along the supply chain, shipping lines
are trying to generate revenue, to streamline sea, port and land operations and to create
customer value. For the time being, container terminal operators are mainly focused on
increasing the scale of operations. Global terminal operators clearly have shifted their
mindset from a local port level to a port network level, albeit that the terminal network
effects still have to be exploited to the full. There even exist evidence of increasing
logistics integration with inland terminals, hinterland transportation and broader logistics
services. Also here, the paradigm shift is at the core of operators refocusing.
Individual terminal operators and shipping lines might walk different paths on a quest
for higher margins and increased customer satisfaction. And more than once they change
paths as the bases of competitiveness in the highly competitive markets are likely to erode
sooner or later. Port and maritime companies try to sustain a competitive edge by building
barriers to prevent competitors from entering their domains. New entrants seek to minimise
these kinds of entry barriers, for example by entering from a contiguous market in which
they have already gained some knowledge and experience, or entering on a small scale. As
such, bases of competitiveness are likely to escalate in the port and maritime industries as
companies seek to make different market moves, for example by entering new markets or
building strongholds in existing markets, and building different barriers.
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