1. Advanced Port Economics Seminar, University of Antwerp, Institute of Transport and Maritime Management, December 17 2012 Ports, Inland Ports and Logistics Zones: Governance Issues Jean-Paul Rodrigue Professor Dept. of Global Studies & Geography Hofstra University New York, USA

2. 1- Terminals and Governance 2- The Financing of Intermodal Terminals 3- Global Terminal Operators 4- Challenges to Terminal governance

3. Terminals and Governance Technical and Policy Changes Transport Terminal Governance 

4. Intermodal Transportation: Emerging Paradoxes Geographical and functional diffusion of containerization. Massive investments. Rationalisation (corridors and sites). New standards, practices and technologies. Increasing returns. Revolution Growth Maturity Incremental changes. Decreasing returns. Evolution Consolidation (maritime, rail and trucking). Emergence of large operators. Deregulation PPP. Supply chain control. Added-value- capture. Governance

5. Foreland / Hinterland: An Ongoing Integration Through Containerization Maritime Shipping Economies of scale Setting of maritime networks Port terminals Inland Transportation Rail and fluvial shuttles Intermodal terminals Corridors (landbridges) Intermodal Logistics Continuity and capacity Inland ports / logistics zones

6. Shift in Public Transport Policy Perspective ConventionalEmerging Independent ModesIntermodal Systems Local EconomiesRegional / Global Economies Independent Jurisdictions (“turf wars”)Coalitions / Consensus Publicly FundedPublic / Private partnerships Users (public subsidy)Customers (revenue generation) Build (infrastructure provision)Manage (optimization of existing resources) Plan (regulations; political signals)Market (deregulations; price signals)

7. Commodity Chains and Added Value Commodity chain Added value Low High Manufacturing R&D Fabrication DistributionDesign Branding Marketing Sales / Service Concept Logistics

8. Why Governance of Intermodal Terminals Matters? ■ “The exercise of authority and institutional resources to manage activities in society and the economy. It concerns the public as well as the private sectors, but tends to apply differently depending if public or private interests are at stake.” ■ Terminal assets: Capital intensive. Consume land use. Have externalities (noise, emissions). Have many stakeholders (port authority, terminal operators, rail operators, trucking companies, etc.).

9. Transport Terminal Governance Ownership (Mostly public) Focused on compliance and revenue generation. Challenge of rent seeking behavior. Operations (Increasingly private) Usage of concessions. High productivity levels. Generation of externalities.PPPPPP

10. The Main Activities of Landlord Port Authorities Traffic Management Vessel traffic management (fast turnaround, security, reliability). Management of inbound and outbound inland traffic. Partnership with barge, rail and truck operators for inland distribution. Area Management Develop transport infrastructures. Provide space for port related activities (expansion or reconversion). Rationalize the land use. Customer Management Attract new customers. Retain existing customers (satisfaction). Find new added value activities. Stakeholder Management Influence regulation. Relations with local, regional and national public agencies.

11. Public and Private Roles in Port Management OwnershipPort admin.Nautical management Port infrastructure Super- structure Cargo handlingPilotageTowage & Mooring Dredging Public service port Tool port Landlord port Corporatized port Public Responsibility Private service port Private Responsibility

12. Freight Cluster Governance Scale and scope Recognition of the city as a hub / terminal. Multimodal and intermodal. Across jurisdictions. Actors Recognition of the stakes of various private and public actors. Different forms of ownership and jurisdiction. Decision taking Consensus and ad hoc. Public-private partnerships. “Coopetition”. Policy Able to influence and articulate incentives (zoning, public investments, regulations). Information technologies Freight community system; coordination and integration of information systems. Labor Foster training and research needs.

13. Main Governance Models for Inland Ports ModelCharacteristicsImplications Single Ownership A public or a private actor entirely responsible for development and operations. Single vision and conformity to a specific role. Potential lack of flexibility in view to changes (single mandate). Potential conflicts with surrounding communities. Public – Private Partnership Help combine public planning of infrastructures with private operational expertise. Public (local) interests represented. Tendency to prioritize public interests over private interests. Landlord ModelPublic ownership and private operations (a form of PPP). Long term concession agreements. Managerial flexibility between the owner, the site manager and the operators. Most of the risk assumed by private operators.

14. The Financing of Intermodal Terminals Private Participation and Public Divesture Privatization and Financing Models Public / Private Partnerships 

15. Main Causes of Public Divesture in the Transport Sector Fiscal Problems (we’re broke) High Operating Costs (we have few incentives) Cross- subsidies (profits are spent elsewhere) Equalization (everyone must have their fair share)

16. Lifespan of Main Transport Assets

17. Risk Transfer and Private Sector Involvement in Public- Private Partnerships Design - Build Degree of Private Sector Involvement Degree of Private Sector Risk Operation & Maintenance Build-Finance Design-Build-Finance-Maintain D-B-F-M-Operate Concession Privatization PPP Models

18. Conditions for Port Privatization Bidding process Open and transparent bidding process. Infrastructures Capacity and quality of port infrastructure as well as for hinterland access. Regulations Safety and labor conditions. Retrenchment and retraining of labor. Port authority Landlord model with clear role. Customs Efficient and transparent procedures.

19. Privatization and Financing Models Sale or concession agreement Divesture part of a political agenda (budget relief). Public sector is forced to sell or lease some of its infrastructures. Infrastructure is transferred on a freehold basis. Requirement; used for its initial purpose. Long term lease (50 – 75 years). Requirement that the concessionaire maintains, upgrade and build infrastructure and equipment. Concession for new project Tap new sources of capital outside conventional public funding. Fiscal restraints. Experiment with privatization. Getting the latest technical and managerial expertise for the infrastructure project. Management contract Ownership remains public. Management given to a private operator. Through a bidding process. Popular in the terminal operation business (maritime and rail). Efficiency improvements.

20. Value Propositions behind the Interest of Equity Firms in Transport Terminals Diversification (Risk mitigation value) Diversification (Risk mitigation value) Source of income (Operational value) Source of income (Operational value) Asset (Intrinsic value) Terminals occupy premium locations (waterfront). Globalization made terminal assets more valuable. Traffic growth linked with valuation. Same amount of land generates a higher income. Terminals as fairly liquid assets. Income (rent) linked with the traffic volume. Constant revenue stream with limited, or predictable, seasonality. Traffic growth expectations result in income growth expectations. Sectoral and geographical asset diversification. Mitigate risks linked with a specific regional or national market.

21. Port and Maritime Industry Finance Brokers Financial Markets Investors Commercial Banks Mortgage Banks Merchant Banks Finance Houses Leasing Companies Money Markets Capital Markets Equity Markets Private Placement Corporations Private Investors Investments Managers Insurance Companies Pension Funds Banks Trust Funds Finance Houses Shipping Companies Port Operators Earnings

22. The Prediction of Future Outcomes Predictability Uncertainty Time ForecastingScenariosSpeculations 5 years 10 years New Project

23. Global Terminal Operators Global Port Terminal Portfolios Port Operator Strategies Added Value Strategies 

24. Control of Global Container Terminals

25. Typology of Global Port Operators StevedoresMaritime Shipping Companies Financial Holdings Horizontal integrationVertical integrationPortfolio diversification Port operations is the core business; Investment in container terminals for expansion and diversification. Maritime shipping is the main business; Investment in container terminals as a support function. Financial assets management is the main business; Investment in container terminals for valuation and revenue generation. Expansion through direct investment. Expansion through direct investment or through parent companies. Expansion through acquisitions, mergers and reorganization of assets. PSA (Public), HHLA (Public), Eurogate (Private), HPH (Private), ICTSI (Private), SSA (Private). APM (Private), COSCO (Public), MSC (Private), APL (Private), Hanjin (Private), Evergreen (Private). DPW (Sovereign Wealth Fund), Ports America (AIG; Fund), RREEF (Deutsche Bank; Fund), Macquarie Infrastructure (Fund), Morgan Stanley Infrastructure (Fund).

26. Vertical and Horizontal Integration in Port Development Commodity Chain Port Holding Horizontal Integration Intermediate hub Inland Port Rail / Barge Distribution Center Inland Modes and Terminals Distribution Centers Maritime Shipping Port Terminal Operations Terminal Maritime Services Inland Services Port Services Vertical Integration

27. Top Twelve Global Container Terminal Operators in Equity- Based Throughput

28. Number of Terminals and Total Hectares Controlled by the Twelve Largest Port Holdings Terminals 47 38 50 42 9 9 11 20 10 14 13 16 14

29. Container Terminal Surface of the World's Major Port Holdings, 2010

30. Container Terminals of the Four Major Port Holdings, 2010

31. Portfolio by Equity-Based Capacity of Main Global Terminal Operators, 2010 APMT HPH DPW PSA

32. Regional Share in the Terminal Portfolio of the Twelve Largest Global Terminal Operators (Hectares, 2010)

33. Inter-firm Relationships in the Three Main Container Ports of the Rhine-Scheldt Delta, 2010 DP World PSA HUTCHISON PORT HOLDINGS APM Terminals (AP Moller G roup) ANTWERP Antwerp Gateway (3) PSA HNN MSC Home terminal CHZ APM Terminal ZEEBRUGGE ROTTERDAM Rotterdam World Gateway (Maasvlakte 2) Operational by 2013 ECT APM Terminal Maasvlakte CMA-CGM (2) MSC NYK Terminal 1 (Maasvlakte 2) Operational by 2014 Minority Shareholding (4) Waal- and Eemhaven Delta Terminal Euromax phase 1 Majority shareholding ZIM Line (1) DP World Delwaidedock North Sea Terminal Europe Terminal Deurganck Terminal New World Alliance CYKH Alliance Antwerp International Terminal (AIT) Shipping Line (Global) Terminal Operator Terminal Shanghai International Port Group (SIPG) Albert II-dock north (under construction) Cosco Pacific 100% 20% 50% 100% 50% 60% 30% 10% 100% 50% 100% 42.5% 10% 20% 10% 35% 100% 65% 75% 25% PORT Financial Holding

34. Inter-firm Relationships in the Three Main Container Ports of North America, 2010 LONG BEACH LOS ANGELES NEW YORK APM Terminals Port Elizabeth Port Newark Container Terminal Maher Terminal Global Terminal and Container Services New York Container Terminal APM Terminals (AP Moller Group) Maher Terminals Ports America 100% Global Container Terminals 100% Pacific Container Terminal Total Terminals International California United Terminals Pier G Berth Long Beach Container Terminal Terminal A Terminal C60 Global Gateway South APM Terminals Pier 400 Evergreen Terminal TraPac Los Angeles Berth 136 Yusen Terminals West Basin Container Terminal Stevedoring Services of America Ontario Teachers' Pension Plan 100% Cosco Pacific 51% 49% 100% Hanjin AIG Highstar Capital Deutsche Bank RREEF Macquarie Infrastructure 60% 40% 50% Hyundai 100% K-Lines 100% OOIL 100% MSC 50% APL Evergreen 50% Yangming 100% 40% 60% Mitsui OSK 100% NYK 100% Shipping LineT erminal Operator Terminal PORT Financial Holding 100%

35. ZHUHAI Inter-firm Relationships in the Main Container Ports of the Pearl River Delta, 2010 HONG KONG Asia Container Terminals DP World Hong Kong Hong Kong International Terminals COSCO-HIT Terminal Moderns Terminals Asia Port Services SHENZHEN Chiwan Container Terminal Shekou Container Terminals Da Chan Bay Terminal One Yantian International Container Terminals Zhuhai International Container Terminals GUANGZHOU Dongguan Container Terminal Guangzhou South China Oceangate Container Terminal Nansha Container Terminal Guangzhou Huangpu Xingang Terminal Guangzhou Huangpu Xinsha Terminal Nanhai International Container Terminals HUTCHISON PORT HOLDINGS PSA DP World Cosco Pacific 39% APM Terminals (AP Moller Group) 20% China Shipping Group 40% 50% Modern Terminals China Merchants Holdings International 49% 70% 49% 55% 66% 33% 67% 20% 100% 33% 10% 80% 20% Shipping LineT erminal Operator Terminal PORT Financial Holding 75% 25% 65% Guangzhou Port Group Shenzhen Municipal Government 41% 60% 35% Shenzhen Yantian Port Group 30%

36. The Strategies of Port Operators Profitability Increase the profitability of terminal assets; (better equipment, information systems and management). Port management is very lucrative. Financial Assets Large financial assets and the capacity to tap global financial markets. Terminals as equity generating returns. Managerial Expertise Experience in the management of containerized operations. IT and compliance with a variety of procedures. Gateway Access Establishing hinterland access. Creation of a “stronghold”. Provides a stable flow of containerized shipments. Development of related inland logistics activities. Leverage Negotiate with maritime shippers and inland freight transport companies favorable conditions. Some are subdiaries of maritime shipping companies. Traffic Capture Capture and maintain traffic for their terminals. Global Perspective Comprehensive view of the state of the industry. Anticipate developments and opportunities.

37. Challenges to Terminal Governance Changes in the Role of Port Authorities Security of Global Supply Chains A Volatile Global Trade Context 

38. Governance Changes in Port Authorities: Competing over the Hinterland Planning and management of port area. Provision of infrastructures. Planning framework. Enforcement of rules and regulations. Cargo handling. Nautical services (pilotage, towage, dredging). Conventional Port Authority Expanded Port Authority

39. Port Community System ExporterImporter ForelandHinterland

40. Risks in Global Supply Chains Supply Risks Demand Risks Operational Risks Natural disasters Extreme weather Pandemic Political instability Trade restrictions Terrorism Corruption Theft and illicit trade Piracy Demand shocks Price volatility Border delays Currency fluctuations Energy shortages ICT disruptions Infrastructure failures Environmental Geopolitical EconomicTechnological Uncontrollable Influenceable Controllable High (>30%) Average (15-30%) Low (<15%) ProbabilityMitigation FACTORS RISKS

41. Thefts by Type of Cargo and Location, United States, 2010

42. Maritime Security Initiatives Implemented by The United States or the European Union InitiativeTypeYearDescription Automated Targeting System (ATS) Cargo screening1999Weighted model applied to inbound cargo manifests to assign risk factors. Customs-Trade Partnership Against Terrorism (C-TPAT) Certification2001Transferring some of the Customs responsibilities to importers and exporters to reinforce overall security levels. Benefits include reduced likelihood that containers of participating firms will be examined. Container Security Initiative (CSI) Cargo tracking and screening 2002Increasing security related to ocean going containers by targeting and screening high risk containers bound for the US before they are loaded. Megaports initiativeCargo tracking and screening 2003Installation of radiation detection equipment in key foreign ports. Reducing the illicit trafficking of nuclear and other radiological materials. 24 hour ruleAdvance cargo information 2003Implementing the cargo-related information at least 24 hours before a container is loaded aboard the vessel at the last foreign port. Standards to Secure and Facilitate Global Trade (SAFE) Certification2005Implementing C-TPAT and CSI security practices with foreign trade partners. EU Authorized Economic Operator (AEO) Certification2008Identifying reliable traders and providing them with trade facilitation measures. Importer Security Filling and Additional Carrier Requirements (ISF, 10+2) Advance cargo information 2009Implementing the collection of cargo-related information by requiring information from both the importer (10 information elements) and the carrier (2 information elements) to be transmitted at least 24 hours before the goods are loaded. EU Pre-arrival and Pre- departure Advance cargo information 2009Advance information on goods brought into, or exported from the Customs territory of the EU (perimeter). 100% scanningCargo screening2012?Non-intrusive inspection of 100% of all inbound cargo containers.

43. Global Maritime Piracy, 2008-2009

44. West Texas Intermediate, Monthly Nominal Spot Oil Price (1970-2012)

45. China: The Largest Bubble in History? Rebalancing in demand

46. Baltic Dry Index, Monthly Value, 1985-2012

47. Conclusion: Terminal Governance in a New Global Economic Setting ■ Terminal Operators and Port Authorities New public / private partnerships. Shifting balance of power (global vs. local). ■ Finding value to capture New forms of distribution and integration with transport terminals. ■ Finding capital to finance Governance as a risk mitigation strategy. ■ Governance of global freight distribution Governance of foreland, hinterland and supply chains. Strategies and policies a reflection of the scale and scope of global supply chains.