Dire need to understand how the world’s ports and shipping work
Posted on January 14th, 2021

By Rohan Maskarola/DailyFT Courtesy NewsIn.Asia

Colombo, January 11: I have always maintained that shipping and ports businesses are truly global, networked with multiple parties. No country which wants to be in the global shipping can compete single handedly without international partnerships.

It is irrelevant whether a nation is developed or developing or has cargo and technology. All need partnerships to capture global trade in a network of ports and shipping services taking advantage of the economic opportunities the sector provides for maritime nations.

This column gives insights to readers with examples of how the global shipping and the ports industry is positioned. It is most relevant in the current context of Sri Lanka, where a sentiment of nationalism is built through a false propaganda campaign that ports and terminals of Sri Lanka must be run by the State.

This argument will indeed please people who do not understand the business models of modern ports and shipping. From Asia to Europe, Middle East to Africa and to the Americas, major ports are a business of partnerships of governments, terminal operators, shipping lines and other financial institutions. Each party brings in business synergies and contributes to growth through assets and financial resources sharing.

Others bring geography, global scale and regional networks to bind major ports with shipping lines, (both major lines and feeder lines). These arrangements help mitigate inefficiencies and reduce costs of operations by ensuring that the ports and terminal businesses are continued with each other’s commitment. As they say success comes with ‘teamwork’.

Partnerships not only bring business synergies but ensure continued business security as well as financial transparency among stakeholders. In this background, the port of Colombo which has been ranked number 22 in container volume and number 13 in connectivity has had this growth purely due to the international business and the partnerships it has developed over the last 20 years.

However, if Colombo wants to grow beyond a transshipment hub of the Indian subcontinent, (transshipment being a business that is highly competitive and that can move from one port to another overnight if the environment is not conducive), it needs to change its strategy. The example is Singapore, which once tried to remove a major shipping line from a partnership and within weeks it started to lose transshipment business to Malaysia and had to reverse its stance to retain business the Malasian business.

Although the world’s number one seaport at that juncture, Singapore  realized that location is not sufficient to retain businesses, and that international partners are the key to success.

Who controls the global container markets, ports, and routes?

Many people who are not in the shipping industry are unaware that shipping is mainly controlled by massive global ship operators and owners who have pumped in billions of dollars for getting ship hardware to provide scalable transportation solutions for world trade.

It is always easier to question why every maritime nation cannot have its own fleet of ships. The answer lies in achieving economies of scale and global funding for getting massive hardware on a long-term basis and to sustain market volatility, such as imbalances in trade as we are facing today due to COVID-19.

Major economies and developed countries control well over 80% of the world’s container cargo throughput. However, it is interesting to note that those developed countries also build partnerships and alliances to maximize asset sharing and planning cargo collecting and discharging routes. One can ask, why should Maersk, the Denmark-based world’s biggest shipping line go into partnership with its competitors? The reason is economics. Today, the ten major shipping lines work in three major alliances in partnership combining synergies to provide shipping services to global customers.

By being partners they negotiate with ports and terminal operators of the required services and commit volumes globally to international port operators while sharing assets such as ships. Therefore, it is proven beyond doubt that, irrespective of the country’s wealth and the size of the shipping line, they do partner with competing lines for logical reasons as networks provide better business models and solutions than working in isolation.

Who handles global containers?

Container handling done by ports around the world is once again done in partnership for reasons of competitiveness and to secure committed market shares. For this purpose, irrespective of the region, terminal operators, shipping lines and states work together in operating global throughput in ports. Interestingly, the global average for state participation/ownership is around 20%, whereas, international terminal operators, shipping companies and other private equities account for  nearly 80% of ports and terminal equities. Therefore, the argument that the State should operate in isolation is a myth and a misguided nationalistic view by those who do not understand the global networks of ports. It is not the countries that decide on which shipping line calls on its ports, but a variety of factors determine that.

If you look at the Indian subcontinent, India has the biggest cargo volume output. But it is not India that decides how the shipping routes and port calls are designed. Nor does Sri Lanka. The ship owners take that call. In the recent weeks when Colombo had congestion as a transshipment port, Sri Lanka immediately had service withdrawals and shipping lines moved to other ports in the region. At the same time Colombo being the biggest transshipment volume handler in the world, accounts for less than 20% of Indian subcontinent throughput.

Both Sri Lanka and India took the correct decision over the past two decades by going into joint ventures for its terminals. Over the past 20 years most Indian ports have gone into joint ventures with DP World of Dubai, PSA of Singapore, and AP Moller of Denmark. At the same time Sri Lanka too had partnerships since 1999, with numerous parties at SAGT and recently the CICT with China. These partnerships have brought in efficiencies as well as business to port of Colombo making it at one time the second fastest growing port in the world.

Interestingly, the much talked about Adani Ports has been investing in India and other parts of the world and is fast beating DP World in the Indian subcontinent’s throughput share.

Therefore, it is as important for Colombo and its East Terminal to be developed as a consortium to partner terminal operators as well as international shipping lines wherever possible. Indeed, the share of the landlord should be fair and must ensure that the business brings in more revenue to the State as the port of Colombo grows with international partnerships.

Certainly, operating in isolation is not the answer, as proposed by nationalists. Even in India, the last major government terminal in Jawaharlal Nehru Port Trust is now calling for privatization to compete with other terminals in India.  Even in communist China, most of the major port operating groups are either state-owned enterprises or have state-owned enterprises as their major shareholders – for example Shanghai International Port Group and Qingdao Port International.

But these and other state-owned port companies are run as private or quasi-private organizations, and some are quoted on stock exchanges. Additionally, many Chinese port companies operate their container terminals in joint ventures with private operators such as PSA, HPH, APMT and DP World. So, the argument of self-management of ports and terminals is just a populist political slogan.

Why should ports look outwards?

None of these investments are called selling of ports”. They are all joint ventures, where terminal operators can give global solutions to global alliances and secure sustainable growth with profit sharing with States and other stakeholders. The most important factor here is that it relieves government and the taxpayer of the need to pump in massive investments for infrastructure development.

The most popular model around the world is the ‘landlord model’, where governments not only earn terminal revenue but in the medium term take other royalties along with fresh revenue through value added maritime services. This is what has been recommended in Sri Lanka for decades, but policy makers are yet to make this crucial change if we need to become a maritime hub.

The secret of the success of these global terminal operators is aligning themselves with competitors and working in partnerships with shipping lines and cargo owning countries. The Port of Singapore Authority (PSA) handles 30 million TEUs in partnership with shipping lines and investors. While another 30 million TEUs are handled around the world through investments, making its total throughput 60 million TEUs.

Similar are the operations of DP World, China and other global operators. Even London’s most modern and new terminal is operated by DP World of UAE.

This is where Sri Lanka went wrong. Although it established a ports authority way before some of the other global terminal operators including DP World, it failed to look outwards to use its hard-earned money and knowledge to invest in international ports. Instead, the policy makers kept on looking inwards, and as what is happening today, it is now starting to resist foreign investments, including our largest cargo provider, India, and one of the biggest ship operators in the world, Japan, to partner ECT.

This closed mindset will be the downfall of our ports sector if government gives in to hard nationalism and unions on another agenda without understanding the consequences. If one thinks the location is the only reason that hubs are created, they are quite mistaken, as modern-day shipping is more built on networks and partnerships. Preparing for that kind of competitiveness with proper capacity enhancement is the best and realistic way to make the SLPA a success.

(The writer is an economist, the CEO, Shippers’ Academy Colombo and Chairman, Logistics Advisory Committee, National Export Strategy to the Export Development Board – Sri Lanka. Currently the Director General of Sri Lanka Association of Manufacturers and Exporters of Rubber Products and former chairman of the Sri Lanka Shippers’ Council and Secretary General of Asian Shippers’ Council. He can be contacted at rohanmas458@gmail.com.)

2 Responses to “Dire need to understand how the world’s ports and shipping work”

  1. Nimal Says:

    Very good article, hopes likes of Mr Anra Kumara.D read this.I suggest that we give Colombo port to the Singaporeans working along with the Indians where India has one of the biggest export and import markets and we must cash in with the help of the Singaporeans.
    Then we must allow the Chinese with partnership with AP of Denmark to run the Hamanthota port.This set up will be used with the trade between emerging markets in the far East and the rest of the world.
    We could give Trincomalee to the Japanese and Singaporeans. Allow the Singaporian citizens to settle in areas close to Trinco.We are not selling the country but doing business using foreign resources to the benefit of the country, provided the politicians are not earning commissions or bribes..

  2. aloy Says:

    It was always through the ports that our enemies entered the country. First it was Elara, then many other enemies but they were all defeated until the Portuguese and as they were much more technologically advanced we had to wait until the europeons fought among themselves and leave. All those western nations who came as friends were allowed by our rulers and it looks as if the present lot is also going to do the same.

    India is a big country and our biggest problem is them. When a Northern leader sneezes our neighbors biggest head ache is that problem.
    So far all UNPs so called big guns, whether in the old party or SJB, they all are pro-investments from foreigners. I have listened to their ace economist Harsha, and the discussion with banker Wickremaratne that is going on on Sirasa at the very moment. There is one thing in common in all these people: they are the ones who wrote footnotes for the Banku hora Ranil and also sold the H’tota to Chinese for 200 years. And while that banku hora could not get a single seat from his party (but a lot of yellow robes are now seems to be backing him for what ever reason) these old guys are arguing why we should not let foreigners come and handle our most valuable asset.
    According to this guy (Eran) Singapore which virtually had no income in 60s but now having $60,000 while we have only $2000. He also says today the countries are protected not by guns but by remotely controlled high tech things.
    I like to ask this old codger whether Singapore also leased out their asserts to gain that economic level?. Singapore had LKY who was pragmatic and was a great patriot, while these rogues got together and impoverished our country.

    And about saving a country with guns: How did our army saved our country from the most powerful fighting force in the world?. 28000 people sacrificed their lives using guns to save the country and today these old people who are still clinging to power are able to talk because they did just that. Our armies will have do the same again very soon as the thirst for money of the rulers from ’77 onwards has never been met.

    The proposal that we should give the port to Singapore is also a hilarious one. Singapore is a friendly country. But they are our competitor. Keep in mind that we were not allowed to join ASEAN where we had more ancient ties just because it was blocked by Singapore’s FM at the time of its formation, one Rajaratnam (hope I got the name correctly).

    India too will be our competitor in terms of global shipping and what they are trying to do is to steal our place in the sea route.
    Therefore to my mind anyone proposing this sale or to give it away in any other form to my mind is a traitor and should be severely dealt with.
    For that matter what is most important thing is our sovereignty and our ability to do it the way we want it. They say we could not even hoist our national flag and sing our national anthem because of foreign investment in the Colombo’s Chinese port. Isn’t that a ‘balu weema’ and we want to be in the same situation again? .

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