P O L I C Y A N D R E S E A R C H S E R I E S

8185

6SEATRADE, LOGISTICS,

AND TRANSPORT

HANS JTURGEN PETERS

Infrastructure and Urban

Development Department

POLICY, PLANNING, AND RESEARCHTHE WORLD BANK

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Titles in the Policy and Research Series

PRS 1 Adjustment Lending: An Evaluation of Ten Years of Experience County EconomicsDepartment

*PRS 2 Tax Policy in Sub-Saharan Africa: A Framework for Analysis Zmarak ShaliziLyn Squire

PRS 3 The Effects of Industrial Countries' Policies on Developing J. Michael FingerCountries Patrick Messerlin

PRS 4 The Reform of State-Owned Enterprises: Lessons from Mary ShirleyWorld Bank Lending

PRS 5 Trade Finance in Developing Countries Yung Whee Rhee

PRS 6 Seatrade, Logistics, and Transport Hans Jiirgen Peters

PRS 7 Competition Policies for Industrialized Countries Claudio R. Frischtak

P O L I C Y A N D R E S E A R C . H S E R I E S

6

SEATRADE, LOGISTICS,

AND

TRANSPORT

HANS JUJRGEN PETERS

Infrastructure and Urban Development Department

The World BankWashington, D.C.

Copyright X 1989The World Bank1818 H Street, NWWashington, DC 20433, USA

All rights reservedManufactured in the United States of AmericaFirst printing September 1989PRS 6

Papers in the Policy & Research Series present results of policy analysis and research to encouragediscussion and comment. To disseminate the findings with the least possible delay, the text has notbeen edited as would be appropriate to more formal publications, and the World Bank accepts no re-sponsibility for errors. Citation and the use of such a paper should take account of its provisionalcharacter. The findings, interpretations, and conclusions expressed in this paper are entirely those ofthe author(s) and should not be attributed in any manner to the World Bank, to its affiliated organiza-tions, or to members of its Board of Executive Directors or the countries they represent.

The material in this publication is copyrighted. Requests for permission to reproduce portions of itshould be sent to the Director, Publications Department at the address shown in the copyright noticeabove. The World Bank encourages dissemination of its work and will normally give permissionpromptly and, when the reproduction is for noncommercial purposes, without asking a fee. Permissionto photocopy portions for classroom use is not required, though notification of such use having beenmade will be appreciated.

The complete backlist of publications from the World Bank is shown in the annual Index of Publications,which contains an alphabetical title list and indexes of subjects, authors, and countries and regions; it isof value principally to libraries and institutional purchasers. The latest edition is available free of chargefrom Publications Sales Unit, Department F, The World Bank, 1818 H Street, NW, Washington, DC,USA, or from Publications, The World Bank, 66 avenue d'I6na, 75116 Paris, France.

Hans Jurgen Peters is principal maritime specialist in the Transport Division of the Infrastructure andUrban Development Department.

Library of Congress Cataloging-in-Publication Data

Peters, Hans Jurgen, 1939-Seatrade, logistics, and transport / Hans Jiirgen Peters.

p. cm. - (Policy & research series; 6)ISBN 0-8213-1364-91. Shipping. 2. Business logistics. I. International Bank for Reconstruction and Development. II.

Title. III. Series.HE571.P45 1989387.5'44-dc2O 89-27749

CIP

Table of Contents

Introduction 1

International developments in seatrade and maritime transport 2Trade 2Shipping 2Ports 6

Trade logistics, shipping, and ports in developing countries 9Logistics Organization 9The provision of shipping services 10Port management and development 12The adjustment process 12

Future directions 16Conclusions 16Strategic research 17The Bank's economic and sector work 17

Boxes1 Cost structures of ocean carriage: what has changed?2 Selecting ocean carriers: what do shippers value most?3 Restructuring in the shipping industry: what are the causes and effects?4 The elements of port self-assessment: what matters?5 Port selection criteria: what counts?6 Changing port hierarchies: what is happening?7 Different routes to containerization: how do competitive strategies compare?8 Ports without prospects for mainline status: are there options?

Figures1 The choice among logistics options2 Container port traffic growth

. .

Introduction the industry's viability. In many cases, however,such maritime nationalism has merely hurt

International seatrade has fluctuated greatly be- seatrade.cause of expansions and contractions in the global With international commodity markets noweconomy. Developments in commodity markets so closely integrated, exporters have to respondhave been equally unsteady, presenting serious to the special requirements of their trading part-and often intractable problems for the trade and ners. The once-stable supply relationships foreconomic development of countries. Because of individual commodities can no longer be takenthe difficulties of efficiently adjusting to chang- for granted. Modern technologies and globaling trade environments, many governments have information networks enable traders to scan theintroduced measures to protect their trade mar- world market for required goods in an instant.kets. But these protectionist measures usually Such developments have increased competitiveincur large economic and financial costs and re- pressures among countries and industries. Cus-duce competitiveness. Added to these complexi- tomers have become more and more demanding,ties are the changing practices in the distribution not only for price and quality but also for speedyof traded commodities. For example, inventory and reliable product delivery. Developing coun-control has become important in reducing final tries are thus confronted with the need to adjustproduct costs. The corresponding requirements to the trade management practices of their part-for adjustments in the global logistics network ner countries and, by implication, to the practiceshave spread from the industrial countries to their in the international transport industry. The com-trading partners in the developing world. mercial success of any export industry in a devel-

These developments - together with the ex- oping country now depends on the ability to tiecessive overbuilding in the shipping industry and effectively into international trade networks.the unprecedented advances in cargo packaging, Given these developments, developing coun-handling, and transport technologies - have tries have stringent requirements to remain com-resulted in a major rationalizing and restructur- petitive in traditional export commodities and -

ing of the maritime sector. Restructuring has more important - to succeed in diversifyingalso meant that many ports have lost traditional exports and promoting domestic industries. Sincepatronage, as carriers concentrated on fewer trade most trade flows between developing and indus-routes to exploit the scale economies of newer trial countries are on the seas, shipping and portsvessels. Facing declining market shares for their are particularly important. If the distributionnational flag carriers and reduced cargo flows network for traded commodities is to functionthrough many of their ports, governments have effectively, state-of-the-art infrastructure and tech-resorted to protectionist measures to maintain nology are essential. But it is equally important

I

to have a regulatory environment,-conducive to markets against imports from other countries.stimulating improved performance. Ports have Import quotas are established and bilateral tradeto reassess their roles and functions, and national volumes are fixed on the basis of reciprocal agree-flag carriers must determine whether they can ments. And several regional groups of countriesmaintain their viability in competition with inter- form more or less protected markets throughnational rivals. It is likely that the insights from multilateral conventions. Trade among suchsuch market analyses will conflict with national countries is thereby facilitated, but commercialpolicies for the sector. interaction between these groups and the outside

These circumstances make it extremely diffi- world is usually constrained. For developingcult for developing country governments to en- countries that try to reduce their dependence onsure the efficient conduct of trade while provid- a few primary commodities for export earningsing shipping and port services. Maritime nation- and attempt to diversify into manufactures andalism is part of this debate, and it impedes re- other processed commodities, these constraintsquired system adjustments. Its economic and on market access impede trade expansion andsocial costs are usually very high. national development.

The provision of shipping and port services isInternational developments in seatrade and another form of protectionism. Officials in manymaritime transport countries are anxious to solve shipping problems

associated with high and fluctuating freight rates,Trade control by conferences, and the loss of foreign

exchange to foreign-owned shipping lines. Con-The seaborne proportion of world trade has held ferences in ocean transport are cartels establishedfairly steady at 20 percent to 25 percent of total by shipping companies which set freight ratesshipments, rising from about a billion metric tons and regulate the provision of services. In many(MTs) in 1960 to 3.25 billion MTs in 1974. The parts of the world maritime nationalism has be-steep increases came to an end with the oil crisis come more or less pervasive and is sustainingof 1974, but shipping recovered to reach a peak of two important trends - the rapid expansion ofalmost four billion MTs in 1979. With the onset of national shipping capacity, and the actions toa worldwide recession, the expansion ended in control the movement of national cargoes notthe face of declining exports and imports in most, only in national bottoms but also through na-if not all economies. Shipping markets benefited tional ports. As a general observation, protec-from the strong u-turn in trade in 1984, and after tionist measures in shipping usually carry a sub-a pause in 1985, resumed their climb in 1986. stantial element of avoidable costs, which under

Almost all traded commodities reveal highly most circumstances increases the costs of tradederratic trends over the last 15 to 20 years. Gener- commodities and undermines their competitive-ally, in the face of falling demand for oil and ness. To overcome this disadvantage, many gov-declining primary commodity prices, most OPEC emments subsidize shipping and ports. A recentand non oil-producing developing countries have estimate by the General Agreement on Tariffsseverely curtailed imports - a situation likely to and Trade (GATT) suggests that protectionistpersist for some time. In the Organization for policies in the United States currently cost aboutEconomic Cooperation and Development (OECD) $3 billion a year when subsidies, regulatory meas-countries, differences in economic performance, ures, and compliance costs are taken into account.erratic fluctuations in exchange rates, and chang- The costs for Europe are similar.ing patterns of competitive advantage in majorcommodity trades make seaborne trade flows Shippingvolatile. And the newly industrializing coun-tries, particularly in Asia, have started to pene- Although global seabome trade grew only 30trate aggressively almost all export markets with percent between 1970 and 1986, the size of thea growing variety of manufactured goods. These world merchant fleet almost doubled, rising fromdevelopments are changing the structure, level, 340 million dead weight tons (DWT) to 650 mil-and direction of intemational seaborne trade. lion DWT. This unprecedented growth can largely

Deteriorating trade balances and uncompeti- be explained by surprisingly optimistic reactionstive domestic industries have prompted an in- in the shipping industry (international bankerscreasing number of governments to protect local talk about a casino mentality) to what appear in

2

hindsight to have been only short-lived trade inevitable presence of high economic and finan-expansions. Visions of a trade bonanza in oil in cial costs, and bankruptcies in the shipping in-the early 1970s - and in other commodities in dustry abound. In the struggle for survival,later years - encouraged shipowners to enlarge shipowners are often willing to carry cargo thattheir fleets and induced banks to compete with covers no more than the variable cost.each other to finance shipbuilding. The capacity Declining freight rates, fierce competition, andof these massive fleets today exceeds market overcapacity have forced shipping companies todemand in all commodities by substantial mar- look for every possible means to reduce the costsgins. As a result, freight rates have declined of transporting cargo. Consequently, the mari-substantially: the 1986 international dry and liq- time industry has undergone unprecedenteduid cargo freight rate indices were 26 percent and changes over the last 15 years - in ship, cargo30 percent, respectively, below 1980's levels. handling, and communication technologies, inOwing to these circumstances, there has been a the organization and structure of shipping serv-considerable deterioration in the financial per- ices, in the integration of sea and land transport,formance of the international shipping industry, and in the role of ports.whose collective debt to commercial banks ap- Advances in ship design and shipbuildingproaches $80 billion. arrangements are geared to reduce the costs of

The depressed market for shipping services newbuildings and operations. During the lastand the resultant overcapacity have caused the three decades, the size and carrying capacity ofprices of new ships, called newbuildings, and liquid and dry bulk carriers has increased moresecond-hand ships to decline an average of 40 than 10 times. Major changes in general cargopercent between 1980 and 1986. A major contrib- management spurred the emergence of containeruting factor is that global shipbuilding capacity ships with ever-increasing dimensions and car-exceeds true demand by about 40 percent. As a rying capacities. Developments in engine designresult governments that invested heavily in ship- and reductions in crew and maintenance costsyard development are offering ship financing have contributed to greater efficiency and cost-packages at very attractive terms, which further effectiveness, lowering ship operating costs sub-entices many carriers, especially in developing stantially. For instance, the 20-foot equivalentcountries, to invest in additional tonnage. unit (TEU)-mile operating cost of cellular con-

Ownership of the world's merchant fleet re- tainer ships built in 1982 and 1986 differs by 40mains heavily concentrated in the OECD coun- percent. But the daily fixed costs of moderntries (42 percent). About 30 percent of the fleet ships are much higher than those of earlier gen-sails under flags of convenience. The developing eration vessels (see box 1, overleaf). These devel-countries own almost 20 percent of the world opments have resulted in major changes in thefleet; most of it registered in the Far East. About 8 behavior of shipping companies.percent of the world fleet is owned and regis- Ships designed and built for highly efficienttered in socialist countries. The shipping indus- operations with significant daily cost structurestry in most regions is in the process of containing depend critically on the timely availability of cargothe detrimental effects of overcapacity through and on fast loading and unloading in ports. Thesescrapping older ships, service mergers, and the requirements have led to the development ofintroduction of more cost-effective technologies. increasingly effective cargo-handling technolo-Some of these observations apply particularly to gies. Fleet deployment and cargo flow manage-the bulk sector, where operators have resorted in ment have benefited from substantial efficiencygrowing numbers to scrapping of older tonnage gains as a result of increasingly sophisticated elec-and acquisition of more modern purpose-built tronic data interchange (EDI) networks in use insecond-hand tonnage, resulting in significant the international transport and freightforwardingincreases in scrapping and second-hand prices industries. But imbalances in cargo flows amongfor bulk carriers since the corresponding fleet different countries and widespread port perform-had started to contract. However, there remain ance problems, particularly in developing coun-many instances in which individual governments tries, are major impediments for many shippingencourage fleet expansions through subsidy lines. These problems adversely affect capacityschemes for newbuildings and arrangements utilization and financial performance, but mostaimed at protecting the market share of national importantly raise the costs of seaborne trade. Infleets. A closer look at these practices reveals the 1986 the shipping proportion of import trade in

3

siderably higher if one added the costs of ineffi-Box 1 Cost structures of ocean carTiage: cient cargo management in many developingwhat has changed? country ports.

An added dimension to seaborne trade logis-Modern purpose-built vessels usually cost more than tic anaementis nth i easing i rae of$50,000 a day for depreciation, crew, management, op- v v erations, and fuel. The fixed cost element represents up cargo delivery standards. Shippers - that is,to 80 percent of total daily costs. This means that they cargo owners and their contracted agent,-3 - havehave to be used intensively, sailing on the high seas become much more discriminating in their de-with the highest possible loads. Any inordinate delay mands for ocean carriage (see box 2). In fact,in port is very expensive. Generally speaking, a lost shippers in growing numbers dictate the packag-hour costs somewhere between $2,000 and $2,500. There ing, routing, and transport arrangements. Theare differences in cost among different types of vessels need to price export commodities competitivelyand dffferent carriers, basically reflecting different cor-poratemanagementpractices. This example showscosts has led industries in the OECD countries and infor typical Taiwanese and U.S. container operators in several developing economies to streamline in-1984 cost ventory management and control. Reducing

Tanuanese stocks of inputs to production has allowed majorU.S. flag flag cost cuts, but it requires highly dependable deliv-

Capacity in 20-foot equivalent eries. Similar changes in distribution manage-units (ITUs) 4,200 2,800 ment of marketed commodities are taking hold

Annual cost (millions of dollars) in different production sectors. To reduce theCapital 7.1 45Operating 5.0 2.2 costs of inventories, importers favor arrangementsVoyage 5.4 4.4 that supply the required goods "just in time,"

Mions of TEU-miles a year 175 11.1 that is, within a short time span before the antici-Operating costs (cents a TEU-mile) pated use in production or sales. In all this,

100 percent utilization 3.4 3.0 transport becomes more and more an integral70 percent utization 4.9 . part of production and marketing strategies in

Developing country general cargo fleets consist industry and trade. It is clear that selecting least-mainly of conventional general cargo or bulk vessels, cost transport options is no longer a sure recipeand combination ships that can carry breakbulk cargo for optimal distribution of commodities, as suchand containers. The cost characteristics of these fleets options often imply increased inventories anddiffer from those of modern tonnage deployecl by U.S., higher-than-necessary costs, jeopardizing sales.European, and some Far Eastern carriers, partly be- Expanding intemational EDI networks play acause of technology and management but also becausethese vessels spend so much time in port that they are major role in these changing requirements. Fig-less productive than their industrialized country com- ure 1 illustrates the potential trade-offs betweenpetitors. Typical costs of developing country vessels transportation, storage, and communicationsare given below. costs. The commercial success of export and

Conventional Combination Container import markets is increasingly dependent on re-breakbulkship carrier (,d liable and cost-effective trade logistics manage-

DWT) DWT) TEU) ment arrangements. Clearly, the changing logis-tics management strategies represent the biggest

Annual coats (millions of dollars)Capital 0.9 2.1 6.8 challenge to ocean shipping and will determineOperations 1.8 2.9 3.3 the fortunes of individual carriers.Voyage 1.6 2.4 35 The highly competitive international shippingToWta 4.3 7.4 13.6 industry has reduced costs and improved serv-

Millions of ton-mifles a year 210 410 2,016 ipoeOperating costs (cents a ton-mile) ices to its customers through cargo unitization,

100 percent utilization 1.9 1.8 0.7 restructuring of shipping services, and multimo-70 percent utilization 2.7 2.6 1.0 dal transport arrangements. Although the basic

operating cost parameters in the provision of ship-cost, insurance, and freight (cif) terms was 4.5 ping services are essentially the same for all tradepercent on average for industrial countries and routes, the actual freight rates for container ship-almost 10 percent on average for developing ping vary considerably in different market seg-countries. In several developing countries, par- ments as a result of the influence of conferenceticularly in Africa, a share as high as 20 percent cartels and other forms of monopolistic behavior.was observed. These percentages would be con- The push to introduce cargo unitization re-

4

Figure 1 The choice among logistics optionsBox 2 Selecting ocean carriers: what doshippers value most? Costs (Freight unit)

A recent survey of European shipowners assessed the TOTAL COSTS

changing requirements for ocean carriage of tradedcommodities. When asked what citeria were used inselecting a spedfic carrier, the respondents ranked thesefactors in the following order: \OBIA TON

Rank

Carrier rate I Str.g.Frequency of service 2 -- - - -C---sun-- -ion-Quality of service 3Carrierreputation 4 Scope of logistics management alternativesConference liner 5 Fst, high--ot t-.s-po-t Sl.-oost tr.n port

Nonconference liner 6 Elt-ic d.t. tranmission D Manual dat. t.i- ion

Ro-Ro service 7Fully cellular service 8Feeder service 9Bulk service 10

the-world services will reflect the success of thissulted from the increasing cost of labor and the approach to liner shipping and of the lines con-slow rate of break-bulk cargo handling. Today, cerned. The more immediate impact will be in-almost 70 percent of general cargo is moved in creased uncertainty and instability at those portscontainers, and more and more bulk trades are not emerging as load centers for a major trade.containerized. These circumstances have led to This may put a damper on port expansion proj-the development of increasingly efficient con- ects while port authorities seek to establish theirtainer ships or combination vessels, which can positions in a new equilibrium and await furthercarry different cargoes in different forms of pack- overall growth in container traffic.aging at the same time. Obviously, such combi- The container simplified intermodal transfersnation ships add measurably to an operator's and allowed a rapid development of door-to-flexibility in adjusting to different markets and door services. This shift was matched by a loos-trade routes. While the penetration of container- ening of the legal and commercial environmentsized trades has reached saturation levels in most that had previously treated the different legs inindustrial countries, containerization in most the movement of cargo as separate entities. Withdeveloping countries continues very rapidly. the growing volume of container trades and

The need to overcome the problems associ- greater demand for speed and tight scheduling,ated with imbalances in cargo flows, minimnize it has become increasingly necessary for the road,empty backhauls, and maximize capacity utiliza- rail, and water transport systems to be physicallytion has induced structural and organizational and operationally linked. Reacting to these chang-changes in shipping, such as round-the-world ing requirements, key international ocean carri-services. These services are provided by high- ers have realigned their service provisions sub-capacity dedicated containerships that limit their stantially (see box 3, overleaf). Most of the effec-calls to regional load centers connecting with a tive realignments took place outside conferencesystem of local feeder services. These develop- settings. These carriers (particularly American andments will influence long-term trends at individ- Far Eastern) have undergone a transformationual ports, and are certain to affect local shipping from providing ocean transport to providing in-and intemational liner conferences. The restruc- tegrated door-to-door - or multimodal - trans-turing has prompted an increase in the size of port services. In the context of such services, thenewbuildings. For instance, in the trans-Pacific sea transport link represents only a portion of themarket, the average containership expanded from total costs. Imaginative management, aggressive1,200 TEUs in 1982 to 2,800 TEUs in 1986. While marketing, and superior service have enabledthat market has become a trendsetter for the these carriers to control increasingly larger mar-maritime industries, it is expected that similar ket shares, resulting in a trend toward oligopolytrends will be initiated in other segments of the in many market segments. In Pacific trade theworld market. The ultimate impact of round- market share of the top 10 carriers (in terms of

5

Box 3 Restructuring the shipping industry: what are the causes and effects?

The 1966 debut of the U.S. carrier Sea-Land on the Atlantic not grounds for encouragement.routes suddenly forced European carriers to begin ship- With little leeway at sea, most of the major operators areping general cargo in containers. The substantial invest- looking inland at the total distribution chain in an attemptment required in container ships, containers, and termi- to regain their competitive advantage. With the cost ofnals demanded that the established operators form joint the deep-sea leg of most major routes below 35 per cent ofventures, join consortia, and even merge with other firms the total, inland distribution, terminal and container-han-to achieve the scale economies afforded by the new order. dling costs make up the lion's share of the overall door-toDuring the buildup of container capacity in the late 1960s - door through-transport bill. Since the concentration ofand early 1970s, the risk was limited by the traditional seaborne capacity is an inescapable result of the restruc-approach to organization. Vessel pooling and trade shar- turing process, the costs of providing inland infrastruc-ing between lines in an alignment of consortia, combined ture - on a scale remotely economic - will further con-with the conference system for price fixing and cargo res- centrate the distribution function in a few hands.ervation, preserved the status quo. As traditional shipping companies seek to expand in-

In the mid-1970s the traditional liner shipping industry land with road and rail services, American President Lineswas distorted by the entry of independent newcomers, (APL), a U.S. carrier, serves as a model. Based on consid-mainly from the Far East, in response to the ready availa- erable domestic volumes, daily coast-to-coast servicesbility of cheap financing that enabled them to build mod- (double-stacked to add to the economies) give the mainlyem, efficient fleets. The impact was immediate. Their arri- Pacific-based operator an enviable position in service andval coincided with problems in the newbuilding yards, cost. The addition of own-account road haulage capacityleft idle because of a drop in orders. With loads of domes- completes the picture. With higher paying, time-sensitivetically generated cargo, the new operators could undercut freight a sales target, APL markets swift, reliable transitthe established carriers where it hurt the most: on the times backed by computerized documentation and cargo-high-paying freight that the conference systems' commod- tracking facilities. APL is progressively expanding its fullity-based tariffs perpetuated. The long and bitter argu- coverage services virtualy to all the countries along Asia'sments about reliability and level of service proved diffi- Pacific rim.cult to sustain when the independents were operating The carriers' full service operation, known as physicalnewer, more efficient ships on competitive - if not more distribution management (PDM), streamlines the entirefrequent - schedules. By the early 1980s, with container functions of production scheduling, warehousing, andpenetration reaching average levels of 70 percent and a delivery. PDM aims at the best possible tradeoff betweenperceived maximum near 95 percent on mainstream routes, time and money in the distribution of goods. Significantcapacity increases far exceeded the growth in traffic vol- savings can frequently be made by simple lateral think-ume. Rates came under great pressure, and the estab- ing, which is often difficult for a shipping manager whoselished lines were unable to compete. Many were saddled every experience tells him to stuff as much into a con-with inefficient stea -powered tonnage less than 10 years tainer as possible. In this context, it is interesting thatold and with outstanding debt. Further rationalization combined sea-air services on long-haul routes are becom-was therefore inescapable and often painful. Re-engining ing more important. These services offer faster transitand jumboization were two strategies to restore competi- times and lower costs than the all air-option. For ex-tive advantage, but the pressures were still excessive. ample, the rates from Northern Europe to Australasia via

The move toward ever-greater scale economies was Singapore are 30 to 40 percent below air freight rates on aheightened during the 1980s. The pressure to maintain 25-day transit. The sea only route would imply about 40fixed schedules has forced resource pooling among smaller days in transit.operators and outlays for large fleets by the independents. Despite the increasing concentration of capacity intoClearly the pressure on rates is not going to ease in the the hands of a few, there wiU certainly remain a niche forforeseeable future. It is by no means certain that there is a smaller independent operators, especially on secondarylower limit at which rates stabilize. Experience suggests and tertiary routes. Even on the mainstream routes, serv-that operators wil continue to be willing to offer capacity ice based on minimum cost port-to-port operations willbelow cost for a time to secure market share, and the continue for some time, mostly in the case of developingeffects of direct and indirect state interests and subsidies is countries' trades.

vessel capacity controlled) has increased from 58 Portspercent in 1982 to 71 percent in 1986. Trendstoward larger vessels and growing structural links The importance of seaborne trade to nationalwith the container transport network have accen- economies cannot be overstated, and many gov-tuated the demands on ports. In turn, port au- ernments offer financial assistance to port devel-thorities are beginning to appreciate their strate- opment, directly or indirectly. It is also commongic role in the complex, dynamic, and capital-in- for port authorities to be closely linked with localtensive sea transport industry. government structures. The employment and

6

income-generating capacity of ports is fully ap- gains, and some once-dominant ports are losingpreciated at all levels of government, to the ex- their traditional customers. This means that porttent that port development projects have formed administrators must constantly devise strategiesan integral part of important regional develop- to adjust to the changing environment and de-ment schemes in many parts of the world. This vote many of their energies to marketing (see boxwider economic imperative, probably more than 4, overleaf). Such campaigns are directed morenormal commercial practice, makes interport toward shippers than ship operators, at least incompetition so vigorous in many areas of the the general cargo sector, as the choice of port callsworld and among neighboring ports in the same in large multimodal transport networks is nowcountry. Progressively, hinterlands have lost their more at the discretion of the shipper than the in-strict definition. For many cargoes a growing dividual operator. The campaigns have also be-choice of ports is possible - even across frontiers come more public and possibly more bitter, as- as a result of continuing spatial and service trade gains at one port will more often than notchanges in economic activities and land trans- be made at the expense of another port in theport systems. In addition, the proximity of many region - or even in the same country.ports makes them direct competitors along the The factors in interport competition are nu-various trade routes. merous - often going well beyond the obvious

One way in which ports attempt to stay one elements of location, facilities, seaward and land-step ahead of the competition is by modernizing side access, efficiency, and charges to includeand expanding their facilities. An awareness of inland transport costs and government policiestrends in carrier strategies and ship and cargo for port development and transport. Increasingly,handling technologies is required to enable port a principal criterion for shippers and their con-managers to make demand-responsive and cost- tracted cafriers is the ship turnaround time, giveneffective decisions on investments and operating the high daily cost of these ships, instead of thearrangements. The implications of changing serv- port charge. Other factors undoubtedly enter theice arrangements derived from such carrier strate- equation, particularly the extent to which a portgies, and the technology developments for indi- is effectively tied in to land distribution systemsvidual ports are usually profound. The availabil- (see box 5, overleaf). But in many regions cargo-ity of funds at less than market rates or as public handling performance is not a major concern. In-expenditure has enabled or encouraged very large tense competition has ensured equally efficientprojects to go ahead under a different sort of handling, with modern equipment at very com-economic and commercial scrutiny than would petitive prices at all the major regional ports. Theapply to private sector projects of the same mag- intense competition generates a steady stream ofnitude. This situation is a sore point with ports aggressive port tariff packages and complaints ofthat receive no subsidies. At the same time, ports unfair competition - including accusations offaced with the possibility of losing financial sup- undercutting port charges through currency fluc-port argue that assistance is critical in the present tuations and preferential government assistanceperiod of modernization and expansion if they through, say, interest-free loans. The result isare to maintain their market share. With large that shippers and ship operators are generallyand rapid increases in port capacity, the need for receiving extremely good value for their pay-individual ports to retain or increase their market ments to ports, while the ports in turn are oftenshare is critical to their continued viability, al- hard-pressed to maintain their financial position,though the administrative and financial struc- particularly in times of considerable capital ex-ture of some ports allows them to record operat- penditures and trade uncertainties.ing losses for many consecutive years. The un- A degree of excess capacity in world ports canpredictability of trade flows and the ability of be considered advantageous because it gives ship-ship operators to change port calls easily only pers more flexibility and allows ports to absorbadds to the pressure on port authorities. Trade rapid changes in cargo volumes and types. Easyvolumes and mixes through individual ports are flows of international trade are thus assured, butin constant flux - compounding the problems there are fears that available and planned portfor port planners. capacity is in many instances excessive. A com-

The relative position among ports is also chang- mon argument for capacity expansion is that shiping. While there are dominant ports in some operators will not rely on a port that does notregions of the world, others are making rapid progress in tandem with a carrier's own develop-

7

Box 4 The elements of port self-assessment' what matters?

From time to time every port must assess its position in cycles, growth trends in producer and consumer coun-the marketplace and determine how the environment has tries, the effects of emerging consumption patterns, im-changed and what the future is likely to hold. Such self- port substitution policies, and shifts in manufacturingplantassessment is fundamental for improving service provi- locations, changes in financial regimes, the status of ports,sions, financial performance, and more generally to en- and the regulation of transport.sure effective adaptations to expected market develop- * Identification of actual and potential direct or indi-ments. The prerequisites for formulating a related man- rect competitors, their business objectives, finandal yard-agement strategy are internal and external appraisals. sticks and strength, operating results, and their supply

The internal appraisal comprises: and demand assessments.* Services performed by customer, commodity, and * Evaluations of technology changes in transport and

revenue potential. It also includes revenues by type and cargo handling. For transport, this should include physi-service. cal and operation characteristics of vessels and land trans-

* The performance of available facilities by productiv- port equipment. For cargo handling, this should cover on-ity, quality of service, degree of utilization, and the safety board handling gear, terminal-handling equipment, docu-record. mentation and information systems, warehousing and

* The status of facilities, their technical condition and distribution, installations at manufacturers' and consum-capacities, comprising those already installed, under con- ers' premises, and inland handling depots.struction and planned. The information from the internal appraisal is used to

* The port management's strategy, induding corpo- identify a port's strengths and weaknesses. This does notrate objectives and finandal targets. mean listing every minute deficiency. The idea is to search

* Port personnel in terms of categories, numbers, pro- for those strengths and weaknesses that have brought aductivity, qualification, and training needs. port to its current position. Any future strategy built on its

The external appraisal comprises: strengths has a much higher probability of success than a* A review of international developments, induding strategy based on a weakness. The information generated

political changes, curnency movements, legal develop- by the external appraisal is used to identify the opportuni-ments related to safety, environment and liability, changes ties and threats that a port does or will encounter. Again,in foreign legislation and regulations, restructuring in minute details are not important. The goal is to determineshipping and transport networks, and conference embar- a few broad areas in which a port should or should notgoes. develop strategies. The idea is that opportunities should

* Market analyses, to cover commodity types and be exploited while threats should be averted. The way inquantities by origin and destination, patterns of trade which the selection of strategies is executed depends very(either in terms of a single commodity or as part of total much on a particular port and its decisionmakers. Therelogistics or multimodal systems), tariff developments, wiUl be debates over strategies solely to exploit an oppor-trends in transport costs, and changes in documentation tunity, and others that build on a port's strengths. Theprocedures. safest approach is to design strategies around al four

* Assessment of economic factors, to include business criteria: strengths, weaknesses, opportunities, and threats.

ment. Ports fear being left to stagnate if they mistic about expected throughputs, and conse-cannot match the technological changes dictated quently bet heavily on worldwide trade growthby vessel size. Although there is frequently no and the individual port's ability to attract a shareindication that the growth of trade will keep pace of that trade.with the planned expansion of port facilities, the The continuous restructuring in the liner trades,perceived economic and strategic benefits of particularly the high-profile activities of compa-maintaining competitive ports are likely to con- nies involved in round-the-world container serv-tinue to motivate investments. The current rate ices, has led to speculation that ports are enteringof world investment in port capacity appears to a phase of more intensive competition and devel-be outstripping growth in commodity markets. opment which will result in the emergence ofAnd many port expansion and improvement dominant load center ports to the detriment ofprojects seem to be aimed at retaining existing other ports in each region. It is by no meansport customers or attracting those at nearby ports clear, however, whether and for how long portsrather than catering to real trade growth. But the that have assumed the role and functions of loadlong lead times required for major port develop- centers will continue to maintain their position,ments make it necessary to build in a significant given the volatility of trade markets and the highlyelement of capacity above known trade levels. dynamic international shipping industries thatPort development plans are thus frequently opti- serve these markets. Port expansion and devel-

8

opment for container trades are booming,matched by the emphasis on marketing by port Box 5 Port selection criteria: what counts?authorities. The development of modem con- Port competition has intensified over the last 25 years.tamer berths and terminals is very capital-inten- Although there has always been rivalry among portssive, and there are high stakes riding on the abil- for traffic from hinterland regions, containerization hasity of individual ports to attract trade - and in enlarged and extended this competition. The throughthe longer term on overall growth in container- transport concept and intermodality options frequentlyized cargo volumes. But ports depend increas- provide exporters and importers with a greater choiceingly on the health of the shipping industry they of ports of exit and entry. In this context, the criteria forserve. The shipping sector is overbuilt and likely port choice among shippers have drastically changed.to be unstable. The immediate prospects for indi- A recent survey of the Atlantic market indicates that theto ~~~~~~~~~~~~~~~~traditional approaches to explain inter-port competi-vidual ports will therefore be closely linked to tion, including the hinterland concept, are not particu-the fortunes of their major customers, and there larly helpful. The competing ports must be viewedis a real prospect that some ports will become from the exporters' and importers' perspectives. It isfinancial drains rather than economic generators. important to note that port charges are far less impor-

tant than previously in determining the choice of ports.

Trade logistics, shipping, and ports in develop- The forwarders in the study did not give much weighting countries to port attributes in the overall port selection process.

Port Selection Criteria Rank Port Sennc Criteria Rank

Logistics Organization Number of sailings 1 Road and rail services I

Inland freight rates 2 Container facilities 2Export trade in most developing countries has Proximity of port 3 Tracking systems 3

been limited to a few primary and agricultural Congestion 4 Warehousing 4

commodities, essentially reflecting the economic Intermodal links 5 Consolidation services 5

policies of colonial administrations. In fact, much Port eqcupment 6 Mavhaling yards 6of the transport infrastructure in many develop- Customs handling 8 Bulk facilities 8ing countries - and often domestic regulations Port security 9 Cold storage facilities 9

governing the provision of trade-related trans- Portsize 10port services - still reflects those trade manage- In port studies, the efficiency of faclities has been of

ment practices. But many countries have experi- considerable significance in determining a port's com-enced significant fluctuations in global demand petitive position. Furthermore, a port is often seen tofor their traditional exports, often accompanied occupy a central role in the routing of commodity flows.

by falling prices. For this reason, a key element The results of the survey, which reflect attitudes cer-of most developing countries' trade strategy is tainly not limited to the Atlantic market, would appear

to indicate that characteristics of ports themselves dothe need to diversify their exports. Such strate- not control container flows as directly as one mightgies normally encourage the establishment of suppose. The choice of routes is shaped by transporta-various categories of manufacturing industries. tion costs and service differentials rather than by char-The products of these young industries are partly acteristics of seaport terminals. Obviously port facili-aimed at reducing import requirements, but are ties must be maintained and upgraded where neces-also selectively destined for major overseas mar- sary, but the survey suggests that quite often such im-kets as potential foreign exchange eamners. provements are unlikely to have an effect in diverting

traffic to a port.Many developing countries have achieved self- To gain a better understanding of interport competi-

sufficiency in domestic consumption demand, tion, the location decisions of the ocean carriers must beparticularly for cement, fertilizers, and steel. The examined. Vital questions are: Why is service estab-corresponding local industries have matured and lished, at which ports, and at what levels of frequency?search for ways to sell excess production. Riding The importance of the carriers extends beyond the pro-high on their success in meeting domestic needs, vision of shipping services. The growing role of manyindustry managers are taking a close look at in- lines in providing tdhoor t ultimodal tansport opera-

ternational markets to justify further plant ex- tors must be taken into account in any consideration ofpansion. International customers have become interport competition.increasingly demanding, however, not only vis-a-vis price and quality but also with regard to cally dependent on effective distribution of ex-speedy and reliable product delivery. Trade pro- port commodities. An opportunity and challengemotion in developing countries is therefore criti- at the same time for developing countries is the

9

tendency within the industrial sectors in Western ments to their trade management practices toeconomies and Japan to reduce in-house produc- hold down logistics cost-driven inflation in theirtion of components for various marketed prod- domestic trades. Much can be gained from im-ucts. The trend among manufacturers in these proving the provision of transport services forindustrial economies is to relocate the produc- locally traded commodities. If the physical dis-tion of components to countries with lower labor tribution network for traded commodities is tocosts and other conditions of comparative advan- function efficiently, facilities must respond totage, such as reduced overhead costs and local technology changes and be effectively managed.currencies that are pegged to the U.S. dollar. But Equally important, the regulatory environmentthe location decisions are largely influenced by must be conducive to stimulating improved sys-logistics considerations. Since the cost of distri- tems performance.bution logistics often range between 30 percent In developing countries the regulatory andand 50 percent of the market prices of a traded institutional environment has tended to impedeproduct, there is an understandable urge to re- trade development. Protectionist attitudes con-duce these costs. The answer usually points to tinue to prevail. The pervasive maritime nation-reducing inventories. To take advantage of these alism is a costly proposition, reducing the inter-trends, developing countries again face the need national competitiveness of exports and inflatingto improve delivery arrangements, in this case the cost of imports.for such components which they intend to pro-duce domestically. The provision of shipping services

International commodity markets have becomeclosely integrated, which means that these coun- Between 1980 and 1986 the world merchant fleettries have to be very responsive to the special began to contract. Several shipowners made stra-requirements of their foreign trading partners. tegic withdrawals from mainstream shipping andEDI systems have enabled international traders show little predilection for buying back into theand industry to scan the markets for required market, even at depressed rates. Equity has beengoods, whether primary, semifinished, or final. drained from the industry by many years of op-The stable supply relationships for individual erating losses and the prolonged dramatic fall incommodities between developing countries and the market worth of assets, compared with theirtheir trade partners in industrial economies have cost of acquisition. Most of the traditional par-largely ceased to exist. Much trading is on a spot ticipants are therefore existing on external financ-basis. These developments have increased the ing of one kind or another. They often do notcompetitive pressures among countries and in- have the ability to stand back and examine thedustries. A producer of, say, chocolate, is not shipping markets objectively. Such an ability canconcerned about where he buys cocoa beans, but only be based on substantial liquid resources thatis very interested in getting them at the lowest permit investment and disinvestment decisionspossible cost. A key answer to this concern usu- to be derived from a cool market assessment ratherally rests with logistics. Developing countries than from the pressing need to generate somethus confront the fact that any trading nation in cash flow. This state of affairs characterizes thetoday's market is forced to adjust to the trade shipping industry in many developing countries.management practices of its partner countries, Developing economies' fleets have steadily in-and by implication to the practices in the interna- creased over the last 15 years from 20 milliontional transport industry. In other words, the com- DWT in 1970 to almost 130 million DWT in 1986.mercial success of any export-oriented industry Asia recorded the most vigorous growth, par-in a developing country depends more and more ticularly South Korea, Taiwan, Hong Kong, andon its ability to tie effectively into the emerging Singapore, whose carriers have displayed a re-international trade logistics service networks. markable ability to establish a niche and progres-

Given these international developments, de- sively penetrate key shipping markets. Today,veloping countries face stringent requirements if many of these carriers are among the premierthey are to remain competitive in their traditional providers of global maritime transport services.export commodities, and more importantly, if They own and operate state-of-the-art equipmentthey are to succeed in diversifying exports and and qualify as pioneers of highly efficient servicepromoting domestic industries. At the same time, arrangements, such as the round-the-world serv-these countries have to make substantial adjust- ices. In almost complete contrast, the shipping

10

industry in many other developing countries tems makes ocean shipping an increasingly capi-remains in a permanent crisis. Due to their rela- tal-intensive business. This puts many develop-tively low volume of trade and their limited ing countries in a dilemma. Cheap labor tends tocompetitiveness in the international shipping be available but capital is not. Since the financialmarket, these fleets commonly are poorly used, returns on liner shipping in the 1980s are hardlyand their financial performance is dismal. a major attraction, opting out altogether and leav-

One reason the developing countries moved ing sea transport to cargo-hungry foreign carri-so aggressively into the shipping markets was ers is a viable option. But questions of nationaltheir concern about invisible trade. The conten- interest, or security, usually preclude this ap-tion was - and largely still is - that substantial proach. As a result, the carriers of developingand avoidable payments in scarce foreign ex- countries are pitched into the international oceanchange were going to foreign carriers and their transport market with its high cost of entryinsurers. Officials decided the solution was to whether they like it or not. Their stance in thisacquire their own tonnage. In some cases the market, however, remains intrinsically fragile.decision was also influenced by strategic consid- Because of this situation, the governments oferations. Often, easy export credit financing was fleet-owning developing countries have institutedavailable from foreign shipyards, further encour- regulations geared toward maintaining, if notaging such decisions. improving, their national flag carriers' market

The success of Asian newly industrializing share. In many respects, the Liner Code spon-countries in the maritime industry can be attrib- sored by the United Nations Conference on Tradeuted to the fact that, first, corporate management and Development (UNCrAD), which ensures awas able to operate without government interfer- 40-percent share of traded commodities to beence. And second, these countries developed carried by developing country operators, hasservice arrangements outside the bounds of liner encouraged such regulatory moves. Typical pro-conferences. The few other cases of success re- tectionist arrangements for national flag carriersflected situations in which the sheer volume of in developing countries include cargo reserva-national cargo was enough to generate the rela- tion, preferential port charges, prohibitionstively high tonnage required to operate domestic against transshipment, and conference monopo-fleets, such as in China and Brazil. Some coun- lies that exclude outsiders. To enforce these pro-tries with large trade volumes, like Indonesia, visions, developing country governments inhave failed in their attempts to expand the utili- growing numbers are establishing freight bureauszation of nationally owned tonnage. The reasons in the countries of their trading partners. Allfor these failures were manifold, with excessive cargo destined for a country has to be registeredstate intervention being the most critical. While in such bureau, which then allocates consign-the potential exists for integrating the shipping ments to national flag carriers on a preferentiallines of neighboring developing countries into basis. Since these carriers are usually not welljoint sailing schedules to improve capacity utili- managed and seldom have modern vessels atzation, the continuing antipathy among govern- their disposal, their service costs are high andments in some regions has stalled such possible reliability is poor.arrangements. For example, neither Indian or These circumstances have a dampening effectPakistani ships call at the other country's ports. on developing countries' trade performance.

Meanwhile, the big European carriers, U.S. Potential international trade partners with theiroperators, and Far Eastern shipping companies increasingly sophisticated production and distri-continue to develop service networks independ- bution logistics arrangements shy away froment of developing country companies, although commerce with countries that regulate sea trans-links do exist in the feeder sector. These service port for commodities. To contain such marketnetworks are usually very responsive to shipper reactions, developing countries' governmentsdemands, providing reliable and high quality generally resort to subsidizing their national flagtransport and delivery. Consequently, these large carriers so they can underbid the more efficientcarriers with modern equipment, and fully coor- international competition. What they normallydinated through-transport arrangements domi- do not realize is that freight rates have lost muchnate many market segments. importance for shippers in light of speedy and

The high level of investment required in terms reliable delivery requirements. In any case, theof ships, equipment, and cargo management sys- implied economic and financial costs are sub-

11

stantial for those developing countries that are In many instances, developing country portsdetermined to remain involved in ocean carriage. have lost out because of their costly and unreli-

able service, and because of inadequate links withPort management and development inland distribution systems. When through-trans-

port operations are hardly possible, modern shipsPorts in most developing countries have a long with high daily cost structures have declined tohistory. Originally established for commercial, call. None of the major carriers will risk thestrategic, regional, and even social welfare con- delays and costs that are normal at many of thesesiderations, they have been compelled to adjust government-owned ports.to remain viable. With no major development in Governments of developing countries havethe organization of shipping over long periods, become quite sensitive to this issue as they recog-the few changes that took place were primarily in nize the detrimental effects on trade performancethe land surrounding the ports. But such changes and port use. But instead of taking necessarydid not pose significant threats to individual ports, corrective measures aimed at adjusting their portwhich in general could always count on fairly systems to changing user demands, they havestable demand for their services. emphasized maintaining the status quo. In fact,

In the postwar years, however, shippers turned in many instances scarce public resources areto their transport operators with more and more poured into port development schemes in thestringent demands for cost-effective services. The vague hope that the expanded and bettertransport operators, in turn, scrambled to ad- equipped ports will regain lost traffic. The pointdress changing demand patterns. In the wake of is, however, that modernized port facilities arethese developments, substantial adjustments have only part of the solution. Inland distribution net-been taking place in the structure and organiza- works have to be improved and well integratedtion of land and sea transport. As a result, many with ports at the same time. But most important,ports lost the spatial hegemony they had always the organization and management of port opera-taken for granted. The loss of dominance over a tion and cargo handling services must be stream-once-traditional hinterland and the ongoing re- lined, the principal criterion for winning the con-structuring in the ocean carriage of traded com- fidence of potential port users whose sole interestmodities have had detrimental effects on traffic is low service costs (and reliability). A prerequi-flows and revenues in many ports. On the other site for such arrangements is autonomy for porthand, some developing country ports have expe- managers under a liberal regulatory environment.rienced unprecedented growth rates because of In most developing countries, the absence of suchtheir favorable location along key trade routes in an environment is at the core of port problems.specific geographic areas - and because officialspursued the right strategies for managing and The adjustment processdeveloping facilities. In short, there has been afundamental transformation of the port systems' The prerequisite for initiating effective systemmap in many regions (see box 6). adjustments is convincing governments that effi-

The resulting shock to ports in developing cient ports and shipping services are importantcountries has been severe, and because the re- to the competitive position of a country's exportsstructuring came about so quickly and the ad- and to the domestic price of imports. The nextjustment burden continues, these ports are still step is to understand the objectives and strate-trying to sort out what happened and why. What gies of a nation's actual and potential trade part-makes this process so difficult is the fact that ners - and the role of the international transporteven the luckier ports that initially registered service industries that cater to their needs. Inincreases in traffic growth often had to accept many situations the insights gained from suchsubsequent and unforeseen declines. The analy- market analyses will conflict with governmentsis of this decline shows the fallacy of assuming goals for fleet maintenance, port development,that container traffic will grow incessantly (fig- and employment generation. But here is whereure 2, overleaf). The explanation has to be sought hard choices have to be made between the objec-in the dynamic factors that keep intemational tives for economic and social development. Whattrade and related transport service industries is considered best for a country's maritime trans-changing their organization and networks in the port system and its labor force is not necessarilyconstant search for logistics cost reductions. ideal for the nation's exporters and importers.

12

Box 6 Changing port hierarchies: what is happening?

Containerization has been the most important determi- recorded remarkable growth rates, it is likely that steadilynant of change in regional port systems. In most countries increasing trade will prompt the emergence of local hubsthe initial response to containerization was hardly more in the major countries before long. Malaysia and Souththan a series of ad hoc measures adopted to meet the crises Korea are strong candidates.spurred by the new shipping technology. With increasing The situation in South Asia and the Middle East is morecontainerization and changes in ship size and sophistica- mixed. At present, the Indian subcontinent is essentiallytion, the load-centering characteristics cf the new technol- served through feeder operations out of Colombo. Lim-ogy underlined its potential for restructuring shipping ited container penetration, capacity constraints, and effi-networks and port hierarchies. ciency problems in the ports of Bangladesh, India, and

Increasingly efficient but more expensive ships forced Paldstan suggest that this situation is likely tocontinueforoperators to rationalize their service networks. Mainline several years. In the Persian Gulf, regional governmentsservices concentrated on key ports along coastal ranges, have made sizable investments in six state-of-the-art con-selected because of their strategic location and greater tainer terminals. Dubai has been the most successful inefficiency. Other ports did not necessarily suffer losses in attracting mainline calls and has become a regional loadcargo volume, but the type of calling ships changed as center. The fate of the other ports is unclear, and there isthese ports essentialy assumed a feeder function vis-a-vis some question whether the investments there will ever bethe emerging regional load centers. There has thus been a recovered.fundamental change in the map of the port systems Despite substantial regional container flows, no realthroughout the world. load center has emerged in the Mediterranean. The giant

The experience in different regions varies - basically in the region - the Port of Marseilles - has only limitedreflecting the extent of container penetration. The eastern importance outside France, and neighboring ports in Italyseaboard of North America and the western coastal ranges and Spain aspire to serve as the load center in the region.of Europe were the first regional port systems to be trans- Given their strategic location, Cyprus and Malta plan toformed. North America had 17 major international Atlan- establish regional hubs for shipping services. Malta hastic linehaul ports in 1970, of which only seven retained this invested $250 miUlion in a dedicated container port atfunction by the mid-1980s. Maritime industry sources Marsaxlokk, planned as a load center for the westernspeculate that only three wiU succeed as load centers. In Mediterranean. To date, only a few mainline containerWestern Europe the port of Rotterdam has emerged as the vessels have caUed there.key load center for the Benelux countries, France, West Along African coastal ranges, Abidjan and Dakar in theGermany and increasingly the United Kingdom. The other West and Mombasa in the East are increasingly used byregional ports stiU serve important roles, but their histori- international carriers as regional cargo distribution cen-cal predominance is declining rapidly. ters. Durban is stil the key load center for southern

In the developing world the only region in the same Africa; Jeddah and ports in the Persian Gulf serve as trans-stage development is Asia's Pacific rim. Regional ports shipment centers for northeast African countries. In thethat had traditionally served as major market forces man- Caribbean, San Juan in Puerto Rico has been able to posi-aged to solidify their position through imaginative man- tion itself as the key transfer point for seaborne cargoes, al-agement, aggressive marketing, substantial productivity though Kingston in Jamaica has had some success in at-improvements, and the successful adoption of modern tracting mainline calls for transshipment. The situationtechnologies. Thus Hong Kong, Kaohsiung in Taiwan, the along both coasts of South America is patchy. Because ofJapanese ports of Yokohama and Kobe, and Singapore the extensive coastal ranges it is likely that national loademerged as focal points for the regional organization of centers wiU develop right from the start - without themaritime transport. Today, each of these ports is con- preceding regional centers, as in the Far East. Develop-nected with surrounding economies through a vast net- ments in Brazil and Chile point in this direction.work of feeder ports. But since most of the region has

Other critical factors come into play in this is often heavily distorted through access to lowdifficult process. One is that international ocean interest capital and other substantial subsidiestransport is essentially free of regulation. Ship- available to carriers and ports in some countries.ping by the more aggressive ocean carriers points All these circumstances make it extremely diffi-to the inescapable fact that the traditional protec- cult for a developing country government to en-tive umbrella of liner conferences is likely to col- sure the efficient conduct of trade while trying tolapse before long. Under deregulation, free com- preserve the national goal of providing shippingpetition will set the rules. The resulting benefits and port services.for trade are probably going to be substantial, but What are the basic ingredients of commonlyin the shipping industry only the fittest will sur- required maritime transport system adjustmentsvive. In addition, competition between carriers in developing countries for improving seatradefrom different countries - and between ports - performance?

13

Figure 2 Container port traffic growth operations support networks will be very costly.The situation with ports is more difficult, given

10 Number of ports 10 their immovability. Clearly, each port has to as-9 . 0 1983/84 9 sess its future role and function in the changing

1984/858 trade and transport environments. Based on such1989/86

7 _ .' % -Averege assessments, strategies have to be elaborated6 concerning its management organization and

s * 5 development. Employment issues are likely to4 - O loom large. Labor-intensive options are practi-3 ; 0 :\ . 3 cable only where they do not interfere with the

user requirements of efficient cargo packaging,*; i :t4 E} FI X * 0. t4 handling, and fast ship turnaround. There is not

-55-30-05-2 0 5 , ,02,3 * , , , , , , Xmuch hope that ports will be able to sustain their-40 -35 -30 -25 -l-to -s o 5 lo 15 20 25 30 35 40 traditionally large workforce and remain com-

Annual percentage growth rates petitive. And there is the requirement that man-Note Sample is 50 developing country ports. agers look beyond the perimeters of their ports to

arrange for effective inland integration with the* Integrated and coordinated sea and land surface transport networks. This need is possibly

transport infrastructure and services. the most difficult task as required changes are* Integrated and standardized cargo handling generally outside the management control of port

facilities and equipment. administrations. For ports that stand to lose their- Streamlined communication networks for traditional role as multipurpose facilities, there

organizing cargo flows and transport service ar- are ways to specialize in the handling of individ-rangements. ual commodities or services (see box 8, overleaf).

- Coordinated administration and management There seems to be a growing interest in priva-of all services involved in controlling and han- tization as a means of either developing and op-dling the flow of traded commodities. erating new port infrastructure, or of achieving

- Harmonized trade and transport service greater productivity than is possible under cur-documentation. rent arrangements in existing ports. In most of

- Clarity of liability responsibilities. Asia, for example, private operation of port fa-For sea transport, there are various options for cilities is seen as a necessary and desirable alter-

maintaining the participation of national inter- native after a long period of state dominationests without causing undue stress in the local and control. Hong Kong, Malaysia, Taiwan, andeconomy. Bareboat chartering limits doubtful Thailand have achieved substantial port efficiencycapital outlays in the uncertain shipping market. gains through privatization. If privatizationWith the likely continuation of overtonnage in means greater efficiency and productivity, a pri-different segments of the international shipping vately operated facility is likely to prove moreindustry, this proposition has gained a special attractive than one bogged down in red tape.attraction. In addition, national flag carriers of And if privatization involves large, highly inte-developing countries would be well advised to grated corporate structures, large firms, or multi-investigate every opportunity for joint services nationals, a facility will probably be developedwith the more experienced and better established with strong links to efficient shipping networks.international carriers (see box 7). In particular, Privatization may thus offer the opportunity tothere is the wide open area of feeder services, develop new and efficient terminals that couldwhich has become so important in the context of change the pattern and structure of existing cargoemerging load centers and the resultant hub- and ship movements.spoke shipping arrangements. With their local The efficiency of shipping and port services inand regional market knowledge, developing meeting demands of trade and industry dependscountry shipping interests are especially well on the conduct of customs clearance services,suited to be feeder operators. Should the deci- freight forwarding, harmonized documentation,sion remain to go it alone, much imagination and and effective cargo insurance. Developing coun-management talent will be required to establish a tries generallly underestimate the importance ofmarket niche. The choice of cost-effective equip- facilitating trade, and much corrective action hasment and establishment of required service and to go into streamlining these arrangements.

14

Box 7 Different routes to containerization: how do competitive strategies compare?

Control of the container fleet is spread patchily across The three principal Indian carriers have pursued dif-the globe. US., European, and Japanese shipowners led ferent strategies. Copying the successful foreign carrierthe first wave of containership acquisition; they were service arrangements, they have set up transshipmentlater joined by a number of largely nontraditional carri- operations through Spain. They rely heavily on theers. Thus today, in addition to OECD members and the containership charter market for suitable vessels toEast bloc, Taiwan, China, South Korea, Singapore, and upgrade their liner services, and on slot charter ar-Hong Kong (plus Malaysia and the Arab Gulf oil-ex- rangements with foreign carriers. Bareboat charteringporting countries) have to be considered full-fledged enabled emerging operators to deploy modern, high-members of the container elite. This leaves Central and quality tonnage without committing scarce investmentSouth America, certain Asian nations, and pretty much resources. Generally, such an arrangement promises tothe whole of Africa for the third wave. It is interesting be more effective than whole sheaves of well-intendedto observe the different routes to containerization in international conventions that support policies aimedthese regions. at promoting costly fleets of national flag carriers. Sri

Conditions in the prindpal Europe-South America Lanka's national line was among the pioneers of con-trades are highly favorable to joint ventures. Wide- tainerization in the region. Although the company ownsspread cargo allocation schemes mean that the non- a number of relatively small container ships, its deep-conference sector is small, leaving carriers enmeshed in sea commitments have increasingly been met by char-complex webs of loading and discharge rights. Some tered tonnage. The Pakistan National Shipping Corpo-regional operators have followed the traditional evolu- ration has also turned to the charter market for contain-tionary route by acquiring tonnage and operating it as a erized tonnage.joint venture in association with the fleets of their more In Southeast Asia, Indonesia has failed to follow updeveloped trading partners. The first consortium ap- its initial ventures into containerization. Geographypeared on the West Coast run in the shape of Eurosal, and, indeed, financial logic insist on feedering its far-combining Bolivian, Chilean, and Ecuadorian carriers flung ports through Singapore, the central point of thewith Dutch and German partners. Containerization of main East-West liner trade axis. The Indonesian gov-the East Coast has been a more gradual affair with emient tried to prevent this through tight controlsDutch, German, and French carriers taldng the lead, and over cargo allocations, aided by the presence of a strongsome joint scheduling with private Brazilian operators. conference set-up. This system finally broke down,This accumulation of container carrying power has left following the recent liberalization of foreign trade. Thethe national lines of Argentina, Brazil, and Uruguay out challenge for Indonesian container operators is to de-in the cold. All three countries, however, are develop- velop purpose-built tonnage and to introduce effectiveing intra-American services through their national flag arrangements for feedering. Elsewhere, developmentcarriers. While Br;Xzil has opted to go cellular, partially in deep-sea shipping is mixed. Philippine flag carriersusing converted vessels, Argentina and Uruguay lines largely continue to operate conventional multipurposebasically continue to operate multipurpose carriers with tonnage.a strong conventional emphasis. There is some reliance The comparatively more developed states of Weston the charter market, but overall, South American liner Africa also remain determinedly multipurpose in phi-companies have become more involved in container losophy - the inevitable consequence of a strong con-vessel ownership than, for instance, their counterparts ventional element in their export trade. But the con-in South Asia. tainer-carrying capacities of the combination tonnage

The countries of the Indian subcontinent face a spe- deployed is rising. Cameroon, Gabon, the Ivory Coast,cial array of obstacles to the development of their con- Nigeria, and Togo have taken steps to equip their newtainer fleets. The principal cargo generators in the re- multipurpose tonnage with significant container up-gion - India and Pakistan - are relatively unrestricted takes. Moreover, new national carriers are still emerg-markets. Sri Lanka and Bangladesh, however, maintain ing, like the Liberian Providence Shipping Corporationcargo allocation schemes. Geographical factors have that works on a charter basis with European conferencecontributed to foreign competition for the region's cargo. partners.The proximity of Pakistan and West India to the Persian A combination of commercial pressures and nationalGulf makes the institution of regional feeders a viable maritime aspirations will undoubtedly force many ofoption. International carriers transship to feeders in the the developing country lines along the al-cellular routeregion. Since the advent of containerization in this sooner or later. The continuing presence of a significantregion in the early 1980s, the Indian shipping industry fleet of modern, container vessels available for charterhas complained about foreign container lines skimming may well enable some to follow a relatively low-riskthe expensive freight and leaving only low-value cargo route into the fully cellular business. This, in turn,for the domestic carriers. could work against the more traditional joint venture

15

Box 8 Ports without prospect for mainline status: are there options?

Specialization is one way for small ports to survive. In route to their own advantage. Lessons are to be learnednearly all cases, smaller ports provide a service to local for developing country ports in similar circumstances.enterprises in the surrounding hinterlands. In effect, a No universal equipment requirement or managerialpersonal relationship usually exists between shipper and approach can be applied to small port operations. Theport operator. This often longstanding relationship fre- only generalization is that all smaller facilities operatequently dictates the workings of the port facility. Unlike according to their own circumstances. In many cases,their larger counterparts, that depend heavily on the stan- older, technically outmoded machinery is efficient enoughdardization of components and equipment to target global to match the requirements of the operation. Frequently,markets, small-scale operations develop according to their special equipment can be leased. The next most importantown needs and the needs of individual customers. Con- consideration for successful small port operations is thecentration on these needs, combined with an awareness of organization of labor. Flexible employees, without retric-their own physical and commercial limitations, is the key tive union work rules, enable small ports to capture ato generating healthy profits. Many smaller ports without share of the market by offering an all-inclusive negotiablehope of maldng it into mainline status have followed this service to smaller scale shippers.

Future directions ing countries, the question is: How can the WorldBank Group improve its ability to advise borrow-

Conclusions ing countries on the right course of action?Looking at the common problems in interna-

The experience of the World Bank's operations tional seatrade and maritime transport circles,supporting seatrade and maritime infrastructure the following issues can be singled out:reflects difficulties in grasping the consequences * Forecasting developments in commodity andof the changing environments in which develop- related seatrade markets.ing countries' seatrade, shipping, and ports have * Watching and interpreting trends in physicalto perform. This is not surprising because every- distribution management practices of trade andone involved in these activities - producers, trad- industry.ers, shippers, transport service managers, port * Keeping up with advances in trade relatedadministrators, and governments - finds it in- transport technologies and their effect on cargocreasingly difficult to adjust in a demand-respon- management.sive, cost-effective manner. Investments are * Assessing the causes and effects of restruc-sometimes too early, sometimes too late, and of- turing in international shipping, including multi-ten in excess of what is really needed. Most cum- modal through-transport service arrangements.bersome is the right choice of technology and of * Understanding the problems and the impactsmanagerial and operational arrangements. There of changes introduced in the general area of tradesimply are too many factors at play in shaping facilitation (such as document harmonization,the demand for and the supply of seatrade distri- insurance and liability, credit arrangements, andbution services. Any trade or industry manager customs involvement).will admit to devoting more resources to market * Developing an appreciation of the effects ofanalyses and to developing responsive trade lo- protectionist policies and international conven-gistics management strategies. Preparing their tions on the conduct of seatrade.technical staff to deal with these requirements is Each of the foregoing issues is likelv to entail aof vital importance. considerable scope for investigation of the actual

What is true for the actors on the scene is true and potential future interactions between tradefor the Bank. Sector support operations have and transport markets, between commodity sup-been formulated with a generally narrow focus pliers and producers, and between shippers andon the immediate problems of port systems man- consignees - all of which are becoming moreagement. The small number of lending opera- complex and more sophisticated. Importantly,tions in support of shipping in developing coun- there can be little distinction between the associ-tries have contributed little to the Bank's ability ated system adjustment needs confronting the in-to address the problems of maritime transport in dustrial and developing countries. At best, onea rapidly changing environment. Since these can argue about the degree and phasing in eithermatters are of such vital importance for develop- case. The results of such investigations should

16

provide basic indications as to how and how last are case studies that will focus on trends andmuch to adjust developing country seabome trade issues in selected economies. The findings underand maritime transport regulations, legislative the different research tasks will form the basis forand institutional frameworks, and shipping and strategy papers on the identified issues in tradeport infrastructure systems in the light of market and transport markets. Conceming seabomechanges. trade and maritime transport, the research ad-

dresses the issues of load centering and feederStrategic research ports, development and management strategies

for port systems and individual ports, central-Much of the concern about the effects of chang- ized versus decentralized port administrationing international trade and transport markets on arrangements, comparison of options regardingshipping and ports in developing countries is public or private port operations, and relatedshared by a variety of public and private sector financial policies. In shipping, the focus is oninstitutions. These institutions are involved, ei- questions relating to the role and function of na-ther by mandate or because of particular interest, tional flag carriers, development and manage-in analyzing the implications of such market ment strategies for feeder services, and coastalchanges for developing countries. A wealth of and inter-island shipping. Importantly, the asso-data and background information is thus avail- ciated implications for adjustments in regulatoryable, if fragmented and dispersed. Obviously, and institutional regimes are also analyzed.the nature and extent of available analyses anddata often reflect the interest and political atti- The Bank's economic and sector worktudes of those who commissioned such work.Given the volatile trends in commodity markets Assessments should be made of existing institu-and the rapid changes in the intemational trans- tional, regulatory, and procedural impedimentsport and freight forwarding industries, findings to trade development. For internal trade, eco-often lose relevance and accuracy in a short time. nomic work should assess the relationship be-Accordingly, there is a need for periodic updates tween emerging regional development patternsand sometimes for expansions of the original (population distribution and development of keyinvestigations. economic activities, like industry and agriculture)

In response to the generally perceived need and the changing demand for and supply of es-for strategic guidelines and identified analytical sential commodities. It is also important to deter-weaknesses, the Bank has initiated a research mine the likely effects of increasing domesticprogram to address seabome trade and related production of specific commodities on futuremaritime transport sector issues. This research import requirements.will draw substantially on work in the United Realistic assessments of intemational andNations regional commissions, UNCTAD, GAIT, domestic commodity markets are essential forthe European Economic Commission (EEC), the projecting trade flows in regional and country-OECD, and the International Chamber of Com- specific settings. Given the potentially high eco-merce. Several research institutes are providing nomic and financial costs for many developingcontributions, and - very importantly - a few countries of maintaining deep sea line-haul portsintemational transport operators, trading houses, and national flag carriers, the need to assess theand freight forwarders have assisted. It is ex- corresponding consequences for individual bor-pected that a major proportion of the required rowing countries is obvious. These consequencesbackground investigations will materialize include the performance of invisible trade andthrough appropriately oriented country economic the subsidy requirements of national supportand transport sector work. Relevant components schemes for ports and shipping. The Bank's coun-of sector lending operations will provide feed- try economic work should establish a macroecon-back to the research efforts. omic framework that will govem the develop-

This research is part of a more global effort to ment and management of national ports and flagassess the changing practices in trade and indus- carriers. The effects of these policies have to betry concerning production logistics and distribu- measured against country economic managementtion management. These efforts include market and performance. It is very likely that such ef-analyses, technical assessments, procedural over- forts will demonstrate the need for substantialviews, and developing country investigations. The changes in maritime sector strategies in many

17

borrowing countries. management will have to take account of theTransport sector work related to national port implied requirements of selected system devel-

and shipping industries needs to start with over- opment strategies. In many cases, efforts to im-all assessments of current and future trade flows. prove system management will have to dwell onAn important input to transport sector work will the decentralization and privatization of portbe assessing the economic as well as financial administrations and shipping services. At thecosts and benefits of national port and shipping same time, there is an increasing need to addresspolicies. Within the broad macroeconomic frame- the other elements of trade logistics management,works, transport sector work should focus on such as freight forwarding, customs services, in-possible measures to enhance the efficiency of surance, and credit facilities.maritime transport systems in serving actual and The most critical gap to be filled is in impactprojected trade flows. Corresponding analyses analyses of the prevailing regulatory regimes thatshould cover system development planning, sys- govern the provision of maritime infrastructuretem management, system regulations, and sys- and shipping services. More than inefficient in-tem financing. stitutional and procedural practices, rigid and

System development planning has to incorpo- obsolete regulations frequently impede desirablerate necessary adjustments in the role of national system adjustments and necessary reforms. Simi-ports and flag carriers in their interplay with larly, progress in multimodal transport arrange-other regional ports and international shipping. ments is generally constrained. Finally, systemThe emerging trends of load centering and com- planning, management, and financing should beplementary feeder ports and shipping services closely integrated. System financing is heavilywill be an essential element of such planning. influenced by the strategies selected but also de-Multimodal transport development and the spe- termines the thrust of such strategies. The essen-cial requirements for national sea and land trans- tial elements of this financing are pricing for portport networks and services need to be consid- and shipping services, cost recovery, deprecia-ered. Possible measures for improving system tion policies, and subsidy schemes.

18

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