Management models and Public/Private Partnerships in … · Management models and Public/Private Partnerships in the Port Sector Marc H. Juhel Sector Manager Transport The World Bank

Management models and Public/Private Partnerships in the Port Sector

Marc H. Juhel

Sector Manager Transport

The World Bank

port management and reform

2010 2

Table of contents

Introduction : the Port Reform Process

Port Management Models

Port Reform Modalities

Port Reform Tools

Port Labor

Customs Reform

Global Container Terminal Operators

Update on Private Sector Involvement in Port Operations


2010 3

Increased participation of private sector in ports in:

Investment

Management

Operations

Maintenance

Port services

requires insight in Port Management

and -Reform processes

Major port functions

Landlord function

Regulatory function

Planning function

Nautical function

Port marketing and promotion function

Cargo handling function

General functions

4


2010


2010 5


2010 6

The Port Reform process

port functions

port management

model

best model?

strong and weak points

changing boundary

conditions:

- performance

- finance

- competition

wish to change

- management and/or

- ownership and/or

- operational system

port reform modalities

service port

tool port

landlord port

improvement of port administration

liberalisation or de-regulation

commercialisation

corporatisation

privatisation

port reform tools

- contracting out/management contract

- concession

- lease

- bot schemes

- full privatisation

7


2010


2010 8

Port management models

Type Infra structure

Super Structure

Stevedoring labour

Other functions

Public service port

Public Public Public Mainly public

Tool port Public Public Private Mainly public

Landlord port

Public Private Private Mainly private

Private service port

Private Private Private Mainly private

Landlord port model

Examples: many NW European ports, including

Rotterdam

Public port management owns, develops and

maintains infrastructure which is leased to

private companies

Public port management usually also responsible

for regulatory function

Other functions either private (majority) or

public

9


2010


2010 10

Landlord port model (cont’d)

Examples of private companies in Rotterdam

Stevedoring

Warehousing and distribution

Industry

Pilotage

Towage

Bunkering

Mooring and unmooring

Landlord port model (cont’d)

Port labour employed by private stevedoring companies

(Port labour pool)

11


2010

Port management and reform

2010 12

Objectives to bring in the private

sector

0

5

10

15

20

25

30

35

40

45

50

Perc

enta

ge

Lower costs/higherefficiency

Expand trade

Know-how

Reduce costs publicsector

Other

port labor issues 2008 13

Main advantages of private sector

investment in ports

0

5

10

15

20

25

30

35

40

45

50

Perc

en

tag

e

Sharing investmentrisks

Managementexpertsie

Improvedproductivity

Helps trade growth

Other


2010 14

Port Reform modalities

Improvement of port administration

Liberalisation or de-regulation

Commercialisation

Corporatisation

Privatisation

15


2010

Legal/Institutional Setup

Central Body (Ministerial level)

Ports Authorities

Private Operators

16


2010


2010 17

port functions

port management

model

best model?


changing boundary

conditions:

- performance

- finance

- competition

wish to change

- management and/or

- ownership and/or



service port

tool port

landlord port



commercialisation

corporatisation

privatisation

port reform tools


- concession

- lease

- bot schemes



2010 18

port functions

port management

model

best model?


changing boundary

conditions:

- performance

- finance

- competition

wish to change

- management and/or

- ownership and/or



service port

tool port

landlord port



commercialisation

corporatisation

privatisation

port reform tools


- concession

- lease

- bot schemes



2010 19

port functions

port management

model

best model?


changing boundary

conditions:

- performance

- finance

- competition

wish to change

- management and/or

- ownership and/or



service port

tool port

landlord port



commercialisation

corporatisation

privatisation

port reform tools


- concession

- lease

- bot schemes



2010 20

port functions

port management

model

best model?


changing boundary

conditions:

- performance

- finance

- competition

wish to change

- management and/or

- ownership and/or



service port

tool port

landlord port



commercialisation

corporatisation

privatisation

port reform tools


- concession

- lease

- bot schemes



2010 21

port functions

port management

model

best model?


changing boundary

conditions:

- performance

- finance

- competition

wish to change

- management and/or

- ownership and/or



service port

tool port

landlord port



commercialisation

corporatisation

privatisation

port reform tools


- concession

- lease

- bot schemes


Privatisation

Investment: to invest = to spend

Divestiture: to sell = to earn

Privatisation = Divestiture process

Transfer of ownership of assets from public to

private sector, or

Application of private capital to fund investments

in port facilities, equipment and systems

(De Monie 1998)

22


2010


2010 23


2010 24

Port Reform tools

Contracting out / Management contract

Concession

Lease

BOT schemes

Full privatisation

Contracting out

Instead of executing certain functions ‘in house’ these may be contracted out

If executed against lower price

In case of sufficient competitive bidding

Especially for ‘non-core of the business’

activities such as

– Dredging

– Repair and maintenance

– Engineering services, etc.

25


2010

Management contract

Entire (or sector) of port is temporarily handed over to private party against management fee

Possible model:

• Private company provides managers for certain activities and receives ‘royalty’ for the activities (for instance royalty payment per move or TEU handled)

• In addition: Payment of bonus in case of higher throughput or financial result or penalty in case of lower results

26


2010


2010 27

Concession

Three forms of concessions

Lease

BOT schemes

Franchising (not used in ports)

Leasing

Objectives

Reduce commercial risks of large investments

Attempt to make users more loyal to port

Improve efficiency

28


2010


2010 29

Leasing (cont’d)

Most suitable lease partners

Shipping lines

Stevedoring companies

Importers and exporters

Inland transport companies

Lease contracts/partners

Preferred system: Lease contracts for multi-user terminals

Lease contract with shipping line feasible in case

• Shipping line is major client

• Port has sufficient additional handling capacity

30


2010

Build/Operate/Transfer (BOT) Basic definition: Private company responsible for

construction, financing, operation and

maintenance of port facility (including

equipment, buildings and quays)

Intermediate agreements possible

Private company owns and operates facility

during concession period and collects revenues

to repay financing and investment costs

31


2010

BOT (cont’d) Role of Port Authority often reduced to

regulatory body and landlord, responsible for

– Port planning

– Navigational items

– Safety and environment

BOT items can be:

– Fairways

– Terminals

– Port complexes (unusual)

32


2010

BOT (cont’d) BOT period normally at least 20 years

At end of BOT period private company returns fixed assets to Port Authority (usually) at written-down value

33


2010


2010 34

BOT models

BOT (Build/Operate/Transfer)

BOO (Build/Own/Operate)

EOT (Equip/Operate/Transfer)

BTO (Build/Transfer/Operate)

BOOT (Build/Own/Operate/Transfer)

BBO (Buy/Build/Operate)


2010 35

Full Privatisation

United Kingdom and New Zealand

Requires new legislation

Incompatible system with regard to national and regional interests in most countries

UK experience does not provide many arguments supporting full privatisation by sale of land and transfer of public functions to private sector


2010 36

Privatisation options of marine services

Harbourmaster’s function usually is public function

Pilotage – mixed experience

Towage often executed by private sector

Mooring services in small ports to be performed by stevedore; in larger ports by private firm


2010 37

Privatisation options of marine services (contd.)

VTS usually function of the public Port Authority

Aids to Navigation usually public responsibility

Dangerous Goods Control responsibilty of public

entity

Waste Management Services: often privatised

under strict control of public sector

Patrol vessels: public function


2010 38

Regulatory Function

Some form of Regulation essential

High level authority to control articles of

agreement between public and private parties

Not complying: Penalties

Involves intervention in functioning of markets

in terms of setting or controlling tariffs

Also deals with control of market and fair and

competitive behavior and practices

Regulation essential in case of monopoly or

significant market power

Tariff control option Observations

Tariff control

Tariff ranges difficult to be established

Provides a certain degree of free

entrepreneurship to the operator

Decrease risk and impact of ‘hit and run’

tactics and/of export of profits

Free entrepreneurship

Limited free entrepreneurship

In case only one terminal offers a particular service

the operator may charge high rates, in particular for

captive cargo. This is not in the interest of the port

community and the national economy

Only applicable when several terminals are offering

similar services in competition and the users are free to

conclude contracts with each of these, or when

alternative supply chains exist.

Free competition

Government sets ranges of tariffs per

commodity (minimum and maximum)

Agreement that a fixed percentage of the

revenue Is set aside for immediate or

later investments to improve or expand the port

Government establishes fixed tariffs

per type of commodity or type of traffic

No interference by the government

39


2010

Labor Reform and Related Social Issues


Decrease in employment of dockers in

Western Europe

0

2000

4000

6000

8000

10000

12000

14000

Rotte

rdam

Ham

burg

Antw

erp

Bre

men

Le Havr

e

Am

ster

dam

Tilbury

1980

2000

Module 7 42

Port Labor Environment

• Overstaffing • Outdated and inefficient work rules

• Inflated Pay scales • Unreliability • Limited skills

Port Labor

Development in Logistics and

Transportation

National Economic and Trade Policies

Change in markets and services

Technological advances

Union discipline

Poor training, limited resources

Government policies to maintain or create

employment

Out-dated management practices

Module 7 43

Factors Prompting Port Labor Reform

Within the port or from other ports

-Manufacturers -Exporters -Importers -Carriers

-Government support -Need to reduce government subsidies

Module 7 44

Aspects of Port Labor Potentially Affected by Reform

• Restrictions on which entities can offer services in the port • Reducing overstaffing • Rigid and outdated job descriptions and duties • Limitations on working hours and days • Inefficient overtime allocation at excessive wage rates • Hiring of port labor exclusively through the unions • Restrictions on output • Unsettled and combative workplace culture • Insufficient training and retraining opportunities • Lack of clear and meaningful productivity objectives • Inadequate occupational health and safety procedures


Principal areas of interest of port labor

Stable and fulfilling employment

Decent income

Decent working conditions

Social security and pension provisions

Education and vocational training

Workplace democracy

Freedom from any type of discrimination

Freedom from corruption and coercion


2010 46


Cooperation employers - employees

If workers’ Representatives or Unions are not

involved (from the beginning) in port labor reform

processes this may lead to

• Increasing mistrust as a consequence of historic disputes

• Inadequate and untimely preparation of the proposals

• Inadequate insight and resources for training needs


Advantage for employers to involve

labor in reform process

Adequately trained personnel is a main port asset

Practical knowledge and experience in port

operations

Problems solving capacity


Challenges for labor unions

Commitment of the Union leadership

Ability to unify workers’ short and long term interest

Need to improve expertise

Introduction of new union structures

Solutions for social problems caused by reform

Acceptance of reform

Deal with new culture of competition

Understanding of the need for new labor relations


Labor Reform Task Force (LRTF)

More changes of success in port labor reform by

forming Labor Reform Task Force (LRTF)

Participants

• Government

• Port Authority

• Port customers

• Unions

• Private company (-ies)


Scope of work of LRTF

Undertake studies or have these carried out

Organize seminars and workshops

Inform the community and stakeholders

Foster Union / private operator(s) Joint Committee

Define Government’s role

Develop Workforce Rationalization Plan (WRP)


WRP information requirements

Port Strategy and Masterplan

Throughput forecasts

Demographic information of present work force

Staffing levels and job descriptions

Estimates of minimum staffing levels

Analysis of national and local laws

Analysis of collective bargaining and employment

agreements

Training needs and skills and facilities


2010 53


Alternatives to dismissals

Flexible work arrangements including flexible work

hours, reduction of work hours, job sharing and

overtime restrictions

Freezing of new entries

Cost reductions

Job rotation (public – private)


Elements of retrenchment program

Compensation with incentives for early retirement or

voluntary separation

Compensation for involuntary separation

Provision for training and re-training

Guidance and assistance in job searching and

outplacement


Pitfalls in severance packages

Paying too much

Adverse selection

the best employees leave, the worst remain

Revolving Door

re-hiring of employees after the reform


2010 57

Module 7 58

Rationalizing the Workforce (1/2)

• Pre-reform/privatization

Advantages

-“cleaner” business decision presented to potential concessionaires and investors, reduction of their uncertainty -the government pays for its previous decisions (overstaffing, rigid work rules…) -less disruption to port operations

Drawbacks

-Too little cut from the workforce, because of political pressure -Under-optimized cutbacks, severance packages and lack of incentives to retain the best personnel

Module 7 59

Rationalizing the Workforce (2/2)

• Post-reform/privatization

Advantages

- Decisions are efficiency-minded and profit-oriented

Drawbacks

- Uncertainty and risk for investors => lower concession or selling price - More likely pursuance of industrial actions by port labor

- Give the operator the freedom to determine the firm’s required number of staff and skill mix

A piece of advice…


2010 60


Possible port labor reform guidelines

Clear statement by Government

Address labour issue first

Involve high ranking politician(s)

Timing

Ban on recruitment

Redundancy Payment Fund

Reduce on all levels

Reform in stages


Possible port labor reform guidelines

(contd)

Outplacement office

Involve Unions in process

Good arguments

Industrial democracy

Good communication / avoid polarisation

(Re-)Training facilities / programs

Job creating projects

Port labor should profit from port reform

Customs Reform

• A port is a logistics platform

• For customers, port performance is the platform performance

• Port Authority, Port Operators, Customs are different faces of a unique facility

• Port reform without customs reform unlikely to reach its objectives


2010 63


2010 64

Customs Role in Ports

• A Port is a Border

• Triple role of Customs

– Protect the country: Detection of unauthorized goods, border security

– Fiscal revenues: Ensure adequate valuation of goods

– Facilitating legitimate trade

• Security with Facilitation


2010 65


2010 66

Customs Modernization

• Risk management

– Intelligence gathering, databases, flags

– Automation of transactions

• Systematic controls replaced by targeted controls

– Less physical inspections

– Higher detection rate

• Authorized operator status

– Green lane port management and reform

2010 67

Less of this…


2010 68

More of this…(with moderation)


2010 69

Conclusions

Port reform not end in itself

Political process

Economic exercise

No two port reform exercises similar

Requires efficient public sector

Social process

Port reform and PPPs may provide important

benefits provided they are balanced

70


2010

Global Container

Terminal Operators


2010 72

Top 24 Global Terminal Operators handled

67% of the global container throughput in

2005 (Source: Port Reform Toolkit 2006)

0

10

20

30

40

50

60

70

Num

ber o

f con

cess

ions

ECA MNA SEA EA AFR LAC NA

Region

Dubai Ports World

Port of Singapore Authority

Hutchison Port Holding

APM Terminals

Top 10 World Container Terminal

Operators TEU Throughput 2007 – 2008

(Source: Containerisation International)


2010 73

0

10

20

30

40

50

60

Tp

ut

(mio

TE

U)

Operator

Tput 2007

Tput 2008

Top 10 World Container Terminal

Operators TEU Throughput Growth (%)

2007 – 2008

(Source: Containerisation International)


2010 74

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

Dif

fere

nce

20

08

-20

07

(%

)

Operator


2010 75

Share of Top 10 Global Terminal

Operators of total world container port

throughput 2008

Compilation of various sources

0 2 4 6 8 10 12 14

HHLA

SSA Marine

Evergreen

Eurogate

MSC

COSCO Pacific

DPW

PSA

APMT

HPH

Percentage

Op

era

tor


2010 76

Global Container Terminal Operators

Different statistics from different sources

Depends on the method of calculation

Drewry calculated the total throughput handled at facilities in which the global operators have a shareholding of more than 10 percent

Drewry (October 2008) mentions that the Top-20 Global Operators handled a throughput of 349 million TEU in 2007 or 70% of the total world port throughput

Their total 2007 throughput increased by 13% compared with 2006


2010 77

HPH Deep Sea Container Terminals 2009

(49)


2010 78

PSA Deep Sea Container Terminals 2009

(45)


2010 79

APM Deep Sea Container Terminals 2009

(55)


2010 80

DP World Deep Sea Container Terminals

2009 (49)

Update on Private

Sector Involvement in

Port Development and –

Operations


2010 82

Private participation in transport projects

in developing countries 1990-2007

(Source: World Bank and PPIAF, PPI Project database)

0

5

10

15

20

25

30

35

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

0

20

40

60

80

100

120

140

Airports Railroads Roads

Seaports Projects

2007 US$ billions Projects


2010 83

Governments, in particular since the 1990’s, started to invite the private sector both for capital and operational experience

To date, developing economy countries entered into 299 projects totalling more than US$ 33 billion of investment in 16 years

In Africa some 70% of the (container) port operations are still run by the public sector

LAC is second, but the process is gaining momentum

Private sector involvement


2010 84

The WB Port Reform Toolkit (Second Edition 2006) provides extensive details since not one solution fits all

The Landlord Port Management Model is the common preferred option worldwide

Private sector involvement will grow but Governments will continue to be the landlord, regulator and provider of basic infrastructure

Governments grant a concession (Lease or BOT) for 10-30 years

Investment costs of new facilities may run into billions of US$

Private sector involvement (contd.)


2010 85

Container capacity ownership and

management development

Source: Annual review of global container terminal operators – 2005 (Drewry)

Private Sector 77%

Public Sector 23%

2004 Global Capacity

455 mil TEU 2010 Global Capacity

610 mil TEU

Public Sector 21%

Private Sector 79%


2010 86

Private investors are flocking to the ports industry and so far have been proved right (ING source)

There is 'a 100% capacity demand' and this would outstrip the asset value

Cargo volume increases are outpacing terminal capacity

In recent years private investors paid multiples of 12 to14 times above the port group's earnings level

Private investors (Private Equity and hedge) funds usually have specific time frames of their investment – mostly three to eight years

Growing involvement of private

investors in port projects

(Source: Lloyds’ List November 2006)


2010 87

Examples

• Dubai Ports World (DPW) paid a multiple of 15.3 times for P&O Ports in February 2006

• Peel Ports paid a multiple of 11.5 times for Mersey Docks and Harbour Company

Contrast of recent buys with those of a few years ago

• Royal Nedlloyd paid a multiple of 5.1 times for ECT in 1998

• Mersey Docks then paid a multiple of 5.3 times for Medway Ports


investors in port projects (contd.)



2010 88

IPO’s: Oversubscription was much in evidence as from these Chinese examples: Xiamen was 94 times oversubscribed, Tianjin an amazing 1,703 and Dalian 851 times

Important issues: • The industry is dependent on world trade

and cyclicality and notoriously difficult to forecast

• Planning and lead times could be incredibly long


investors in port projects (contd.)


Crisis Update January 2010: Shipping

• 2009 has been the worst year ever for the container industry in terms of volume decline: from 10 to 30% across regions

• Resumption of significant growth unlikely until 2011

• Port capacity expansion largely on hold

• Utilization levels have fallen across the board (from -10 to -25 %)

• Shipping lines under extreme financial pressure, likely to trigger ownership changes (including in terminal operations business) and customer base alterations

• Freight rates still unsustainably low: - 40% on average compared to July 2008

• Anticipated 2009 losses for all container shipping lines: $10 billion

• Ports and terminals weathering the storm better than carriers:

– Profitability down but a margin of profit maintained

– Fall in shares values: DP World – 60%; ICTSI – 30%


2010 90

Development of Container Terminal

Productivity

(Source: Gordon Wilmsmeier – ECLAC)

Documents

Management models and Public/Private Partnerships in … · Management models and Public/Private Partnerships in the Port Sector Marc H. Juhel Sector Manager Transport The World Bank