Trends in Maritime Transport and Port Development in the Context of World Trade
Trends in Maritime Transport and Port Development in the Context of World Trade Carlos M. Gallegos 1. Structural changes in international trade and the evolution of maritime transport have a direct impact on port growth and expansion.
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Therefore, these elements and their recent characteristics must be examined, since they provide the frame of reference in which port reform in Latin America and the Caribbean has been carried out. These factors also determine future port development. A. Globalization, production, trade, and ports 2.
Globalization, or the expansion of markets and hence of the economic prospects of societies, is taking place not only because of the supra-national nature of markets, but also because of the flow of foreign investment and the strategies of multinational enterprises. These multinationals today account for two-thirds of global exports of goods and services and nearly 10% of domestic sales worldwide. 3. In this environment of increasing interdependence in the world, the international division of labor is changing as a result of structural changes in trade and unprecedented mobility of international capital.
However, while the integration of goods and services and capital is progressing at a rapid pace, integration of the labor market is much slower. In addition, ever more sophisticated technologies are being disseminated, in a framework of spectacular streamlining in communications and telecommunications. The development of information technology has, in turn, boosted productivity and, in many cases, worker income. In general, electronic transactions and communications technology have been the necessary complement to full internalization and globalization and their major impact on production and world trade. . In mid-1999, developing countries began to recover from the 1997-1998 financial crisis in Asia, which had a severe impact on countries in Latin America. This recovery was spurred on in particular by growth in domestic demand in the United States and other developed countries, low interest rates, and the Asian recovery. As a result, overall growth in gross domestic product (GDP) rose 3% (similar to growth in the developed countries). Countries are now back on the road to growth they embarked upon in 1993 that was interrupted in 1998. The global economy is projected to grow 3. % in 2000 (but only 3% in the developed countries). 5. In 1999, Latin America and the Caribbean recorded the worst economic indicators of the decade, due primarily to downturns in the Argentine and Brazilian economies. The region went into a recession (a drop on average of 0. 6% in GDP). The region’s estimated growth rate for 2000 is nearly 4%, spurred on particularly by sustained growth in recent months in Mexico, Central America, and the Caribbean. 6. The global economic recovery in the second half of 1999 was also reflected in the upturn in world trade. World commodity exports in 1999 were valued at US$5. 6 billion — up 3. 5% from the previous year when a negative rate of 1. 6% was posted. Export volume also grew, however at a similar rate to the previous year’s growth of 4. 5%; and for the third consecutive year, the average price of commodities fell (excluding oil). 7. World trade in services rose 2% in 1999, after last year’s sluggishness, with exported services valued at US$1. 3 billion, and there was a moderate rise in the international price of those services. 8. The regions of the world and the individual countries responded with quite varied demand and growth in their product in 1999.
The situation in Latin America and the Caribbean was rather unique. 9. With the 1999 recession, the volume of Latin American and Caribbean imports fell 2% on average. However, performance in the region varied greatly by country. Imports rose 15% in Mexico, but fell 12% in the rest of the region. Similarly, the region’s exports grew 7% in 1999, but in Mexico the figure was almost double (13. 7%). We should recall that almost 90% of Mexico’s exports (85% of which are manufactured goods) are to the US market, compared to 30% of exports from the rest of Latin America (40% of which are manufactured goods). 0. Intra-regional trade was also affected and fell considerably. The MERCOSUR countries experienced a downturn of 25% and the countries in the Andean Community, 28%. 11. Regarding the importation of services, the slowdown that began in 1998 persisted, and in 1999 there was a 9% drop on average (a 9% increase in Mexico, but a 13% drop in the remaining countries). 12. The outlook for the volume of world trade in 2000 is better; it is expected to rise 6. 5%, which is higher than the average increase in world production.
Trade indicators are expected to improve in Latin America and the Caribbean, because of higher oil prices, increased investment in the region, better commodity prices and, especially, a major recovery in exports in general. 13. Foreign trade has gained extraordinary strength and importance in the development strategies for the Latin American and Caribbean economies. Its expansion and growth is the engine of their economic growth. This is expected to continue, and what’s more the export structure is expected to be geared towards manufactured goods with high value added.
Since nearly 90% of trade in this region is shipped by sea, port development is of the utmost important. B. Characteristics of maritime transport 14. Below are some of the characteristics of maritime trade traffic for containers, liquid and dry bulk cargo, and tourism (US$3. 5 billion). 15. Despite the changing, adverse conditions in production and world trade mentioned above, transport of maritime trade continued to grow in 1999, but only by 1. 3% — a slower rate than in previous years (2. 2% in 1998 and 4. 1% in 1997). This was the lowest level recorded since 1987.
The volume of world trade transported on the seas was over 5. 1 billion tons, a similar figure to the previous year. Growth estimates for 2000 are roughly 4%, similar to 1997. 16. Containers. Use of containers has been on the rise since their introduction in 1956, and this market has the best growth outlook in the sector. As a result, high-capacity ships have been built; today more than 60 have a capacity over 5,000 20-foot equivalent units (TEUs). Container traffic was an estimated 190 million TEUs in 1999; of that amount the Port of Singapore moved 15. million TEUs. Studies forecast 6% annual growth in container traffic through 2005, as a result of continued expansion of the use of containers by the shipping industry in developing countries; increased trade in manufactured goods and products with a higher value added; the trend towards globalization by multinational manufacturers; and growth of megaships and the resulting rise in feeder and ferry traffic. 17. Liquid cargo. A total of 2. 159 million tons of liquid cargo was loaded in 1999, with an annual rate of change of less than 1. 3%.
Oil continues to be the main component, accounting for nearly 70% (roughly 1. 5 billion tons annually), followed by liquid gas and petrochemicals. Double-hull 300,000 ton supertankers are used the most to transport crude oil between its main axes, i. e. Asia, the United States, and Europe. 18. Dry bulk cargo. Maritime transport of trade in dry bulk cargo includes most notably: iron ore, coal, grain, bauxite/aluminium oxide, and phosphates. In 1999, together they represented 1. 233 million tons with an annual rate of change of 2. 8%; 70,000-ton bulk carriers are also important in this type of traffic.
Many shipping companies build panamax ships to measure with cranes to load and unload bulk cargo, which reduces transport costs. Bulk cargo is still the largest segment of maritime transport, representing almost one fourth of total freight loaded annually. 19. Tourism. The cruise ship industry had grown and received massive investments in recent years. It is estimated that over 7 million persons will take a cruise this year, a similar figure to last year, and the American market is the main consumer. Recently, high-tonnage ships have been built, such as the Royal Caribbean Voyager of the Seas, at 130,000 tons with he capacity to hold 3,115 passengers, inaugurated last November, and the Royal Caribbean Explorer of the Seas, which has the same characteristics and began service in October 2000. Regionally, the recipient markets are most notably the Caribbean and the new market in the Southern Cone. Ports are competing to attract these passenger ships and face the challenge of having the appropriate port infrastructure in place, as well as the complementary service facilities that passengers require, such as taxis, buses, guides, and shopping centers. This is certainly a growing market in every respect, but a very competitive, capital-intensive one.
C. The shipping industry: characteristics and prospects 20. The main shipping lines in the world, such as Maersk Sealand, Evergreen, P&O Nedlloyd, Hanjin, Cosco, and many others serve the most complex, profitable routes in the world, including some in Latin America and the Caribbean. 21. The 25 most powerful shipping lines control almost 60% of container transport capacity in world trade. In addition to growing concentration of container activity in the hands of the largest, most powerful shipping lines, there is an unrelenting process of consolidation and the forging of alliances among the main shipping lines.
In other words, they are growing larger every day, but have also decided to work together. The two most powerful alliances that were recently renewed are the Great Alliance (among NYK, Hapag Lloyd of Germany, the Anglo-Dutch company P&O Nedlloyd, Orient Overseas Container Lines (OOCL) of China, and the Mediterranean Shipping Company (MSC)) and the New World Alliance (among Mitsui OSK Lines (MOL) of Japan, APL/Neptuno Orient Lines (NOL) of Malaysia, and Hundai Merchant Marine (HMM) of Korea) which have focused primarily on reorganizing the main trade routes.
The sphere of action of these alliances is broader, involving a global strategy and ground services. This raises questions about the ability of certain container port terminals to survive and particularly about whether or not the conditions for perfect competition are present in these markets. 22. Another characteristic of this industry is the production and servicing of mega container vessels. The number and size of postpanamax container vessels will continue to grow, which will increase the transport of containers, reduce stops in the main routes, and therefore increase the services of feeder ships.
Ship capacity will continue to rise, and ports will have to adjust to their size. In 1999, over 120 postpanamax ships were operating. Maersk has ships that can transport nearly 7,000 TEUs (K and S classes) and 8,000-TEU ships are due out soon. Germanischer Lloyd is planning to operate a mega container ship of 15,000 TEUs by 2010, when the volume of container trade is expected to be double the current figure (roughly 200 million TEUs). The ship would cover the East-West route and feed ships of 4,000 and 5,000 TEUs.
This would reduce the number of port movements, but requires ports with enormous capacity. 23. Changes in container terminal operators. With the expansion of the container industry, the structure and organization of terminal operations have changed. Today there are three categories of container terminal operators: (i) port authorities that have decided to become directly involved in handling containers, such as the public ports of Singapore and the Virginia Port Authority or the private ports of Felixtowe or Freeport.
However, this category has been on the decline with the emergence of port corporations; (ii) private port terminal operating companies involved in a process of concentration, including stevedoring. The 15 main operators have expanded their activities outside of their ports of origin, associating themselves with large stevedoring groups (e. g. PSA Corporation, Hutchinson, ECT, P&O Ports, and SSA); and (iii) the shipping lines that have decided to control and manage their own container terminals. This decision was made for two main reasons.
The first was for strategic reasons, because these global transporters are involved in hub and transshipment ports and therefore need to control their operations, including docking priority and guaranteed availability of equipment for use. The second was to reduce costs, i. e. for savings, based on economies of scale and better control of terminal expenses. 24. The provision of port-to-port logistical services. As shipping lines (e. g. Maersk Logistics, Evergreen American Corporation) participate in ogistical service solutions, they absorb them or forge associations with these intermodal service providers to ensure consistent, regular service, meeting the client’s demands through the port-to-port supply chain. This range of logistical services, which includes the consolidation of containers, documentation services, and storage and distribution, will continue to expand and improve every day and will have a greater impact on reducing costs and enhancing efficiency. 25. Information and communications technology and electronic commerce.
Port services will step up their use of computerized systems and information technology, such as the Electronic Data Interchange (EDI) system and the Internet. The increase in transport capacity will require immediate data on the exact location and status of cargo, as well as on all logistical and institutional aspects of port operations. In light of these requirements, all port and shipping industry sectors will continue to invest in new systems and channels of communication.
The industry will be moving towards a paperless world in which all types of information are handled electronically. 26. Use of the Internet for electronic commerce is also important. That industry has shown impressive growth of 68% in the last year. This mode of commerce is affecting how the transport industry does business, and theories abound regarding its impact on the maritime port industry. Internet commerce was one of the topics discussed at the WTO negotiations, and the issue of taxes on e-commerce is still under study. 27.
These characteristics and trends in the shipping industry are the result of the development of the world economy and globalization, resulting in demand for new standards of efficiency for maritime transport and creating new challenges for the world’s ports. D. Economic reforms and trade challenges for ports in the region 28. Macroeconomic reforms. The region has undertaken a series of macroeconomic reforms that prioritize export promotion, putting aside import substitution, which has been considered detrimental since the 1970s. 29.
Important tariff reforms have been adopted that include marked drops in tariffs on finished products, and even lower levels for inputs for exportation; the adoption of fewer tariff tiers, with a single flat tariff; and the establishment of a positive, effective protection mechanism. This promotes the generation of value added, instead of punishing it. In terms of exchange rates, the various fixed exchange rates were eliminated, which were arbitrary and ignored market criteria. Real exchange rates govern currency exchange today.
Tax reform has also been tackled, but not with the necessary vigor. Domestic taxes on income, assets, use, or value added are now contributing more to national public treasuries, replacing taxes on foreign trade as the main source of revenue. There is still a long road ahead for tax reform in most countries. Attracting foreign capital is another important element on the list of reforms that have sped up the growth of our economies, by helping external resources to complement low domestic savings and finance projects in new productive sectors.
State reforms complete the picture; they are an effort to redirect state leadership in the economic development process, where the state goes from being a major player, monopolist, and executor of economic activity to playing the role of a regulatory, control body that works with the private sector. State reforms also include the privatization of public agencies (ports have been in the forefront here) and other public institutions, such as customs. 30. Almost all governments in the region have made a major effort to move forward with economic liberalization, trade opening, and export promotion, allowing for major growth in the 1990s.
Nonetheless the imbalance in wealth distribution, the inability of large segments of the population to overcome extreme poverty, and the still weak reforms of institutions and some branches of government are disturbing, destabilizing elements that are reflected in the serious economic malaise that many countries in the region are experiencing today. 31. FTAA 2005. The heads of government of the Hemisphere agreed at the Summits of Miami (1994) and Santiago (1998) to promote the Free Trade Area of the Americas (FTAA), in order to form a broad market stretching from Alaska to Tierra del Fuego that would be the largest international consumer arket, with 800 million inhabitants. Negotiations on customs rebates are geared towards complying with this date, and this mechanism is expected to substantially increase inter-American trade, thus intensifying the flow of hemispheric port traffic. 32. European Union. The policy of strengthening trade relations, particularly between South America and Europe, has been gaining major momentum; for example, trade negotiations with MERCOSUR are being promoted. Other plans, such as the free trade agreement between Mexico and Europe, confirm the trend towards increased trade between these two regions in the medium term. 33.
Subregional integration systems. Another factor that has accelerated the flow of trade is the existence of several subregional integration systems, such as the Andean Community of Nations (CAN), MERCOSUR, the Central American Common Market (CACM), or the Caribbean Community (CARICOM). They must speed up subregional trade, but must also support the formation of the FTAA and facilitate the standardization of different trade policies. All of this will translate into increased movement in maritime and hemispheric port traffic. It is noteworthy that, at the Andean level, over 50% of commodities were shipped by sea in 1999. 4. Strengthening international trade negotiations. The World Trade Organization (WTO) tried unsuccessfully to promote a new round of trade negotiations at its Third Ministerial Conference in Seattle in November 1999. The proposed work program for the next five years consisted in negotiations on liberalizing trade in agricultural products, services, food security, electronic commerce, and other topics. Even though the differences of the developing and developed countries could not be bridged, important progress was made, indicating that a new round could be launched soon.
The developed and developing countries also gave clear signs of their intent to continue with a policy of trade opening and economic liberalization, and there are no signs of a rebirth of protectionism. These indicators strengthen the foundation for the future growth and expansion of world trade. 35. Customs facilitating trade. Similarly, the World Customs Organization (WCO) is making progress in technical areas that facilitate trade, which favors the expansion of world trade in the short and medium terms.
Significant progress has been made towards adopting revised standards on the origin of traded goods; the new and revised version of the Convention on Simplification and Harmonization of Customs Procedures (“Kyoto Convention”); standards for applying the Code to assess the value of goods in customs according to transaction value criteria; the ongoing amendments under the Harmonized Commodity Description and Coding System; and the application of new information and communications technology.
All these customs instruments are essential complements for facilitating and expanding trade in our countries. E. Port actions for port development 36. Port reforms. The port sector in the region has exhibited change, but in different ways and to different degrees in each country. Generally speaking, the sector has been regulated and national port policies set, which in many cases had been absent. State monopolies in port operation and administration have been revised, by either totally or partially decentralizing port activity to local governments and/or granting the private sector concessions.
Labor constraints have been overcome, and port authorities have therefore been playing a different role. This new environment is reflected in the revision of port tariffs, seeking to develop a more efficient, more flexible port system that is swifter, safer, and cheaper. The experts attending this event will more clearly and objectively illustrate how port systems operate in different countries in the Hemisphere. 37.
I would like to reaffirm that, port reforms must be sped up for greater port efficiency and competitiveness, particularly in countries that have not yet done so, regardless of the ownership model the governments decide to adopt, since international trade will not wait, and the countries’ growth and development can not be put off because of undefined policy. Delaying this reform will only result in higher social costs in the medium term. While it is important to define a port system — be it public, private, or a combination of the two — it is essential to have the means and facilities or achieving levels of efficiency to be able to adapt to the requirements of world trade and compete successfully. Landlord ports are the most common arrangements in the region. That is where port authorities cease to serve as port operator, provide the necessary infrastructure, and grant concessions to the private sector to operate complementary services and terminals. Generally, in this situation, the central government grants financing to the sector, such as direct subsidies and credit guarantees. In general, this model promotes higher-quality service delivery. 38.
The impact of ports on promoting national economic development. This is another consideration that I would like to reiterate, with a few examples of what is being done in other developing countries that have made progress in port reform. These countries have concessionaires and private terminal operators and have been adversely affected by the various financial crises. Their development strategy also depends heavily on exports. However, strategic development plans and specific recommendations are in place to strengthen the role of the port sector to ensure significant recovery of the national economy.
They include: (i) operators reviewing their operating costs to eliminate unnecessary expenditures; (ii) enhancing the efficiency and productivity of port operations, particularly by shortening the time needed for container movement by crane or using more cranes for ships with higher cargo volume and employing information and communications technology in daily operations, bearing in mind the growing volume of cargo being moved and the corresponding volume of communications that must be executed; (iii) conducting more aggressive marketing campaigns to raise the volume of cargo sent directly from the country’s ports to its final destination; (iv) implementing infrastructure projects aimed at raising port capacity in the medium term; (v) conducting equipment and port facility maintenance campaigns to continue to ensure efficient operations; and (vi) continually revising the role of port authorities to cover changes in the market. In light of these reforms, their role is focused on planning and regulating port activity, facilitating the transport chain, controlling and supervising the activities of private enterprises by developing information systems, and promoting and working with the port community and foreign and international institutions. 39.
Take into account trends and developments in the maritime industry and port operators in order to adjust port development strategies to the world challenges of this century. (i) Global port operators will continue to expand to new geographic areas and will maximize the use of technology to create worldwide port networks that can offer consistent levels of services and modes of operation. More alliances will be forged among port terminal operators to promote economies of scale and use of global capacity. (ii) Since capital investments will be high, only the most powerful enterprises with significant financial resources will remain in these alliances. iii) Port facilities will acquire new and better standards and advanced technology in order to serve mega ships. (iv) Container storage capacity must be improved through new systems and new facility designs. (v) There will be significant investment in communications and information technology for a world run electronically. 40. Finally, partnership for development. This mechanism will be crucial for the future of regional port activity, given the urgent need for information exchanges for decision-making in port operations on shipping companies and port operators, as well as on producing projects to be implemented jointly and meeting market requirements in general. Bilateral and multilateral cooperation must increase.
The Organization of American States (OAS) has an Inter-American Committee on Ports (CIP) which serves as a forum for dialogue for the governments of all countries in the Americas and the port authorities, but also for port operators, shipping lines, and commercial, industrial, financial, academic, and scientific entities. Use of this mechanism is an effective, low-cost option for strengthening hemispheric cooperation among ports in the Americas and contributing to their development. Port forums, such as those offered by the Andean Committee of Water Transport Authorities (CAATA) and the Association of Caribbean States (ACS), among others, work along the same lines for cooperation and to achieve port efficiency, which our government authorities must use to the fullest. 41. Conclusion. Ladies and gentlemen, my goal has been to provide you with up-to-date information on the ever-changing world of ports.
What we are seeing in the world’s ports today we could never have envisioned 25 years ago, like 8,000-TEU megaships or ports with great capacity to move containers, such as the Port of Hong Kong with 16. 2 million TEUs per year. However, we often consider 25-year blocks in long-term investments in the maritime port industry. Changes in the industry in the next quarter of a century will be even more dizzying and spectacular, and our ports will have to adapt. 42. In this globalized world and in our corner of the world where 90% of our trade goes through ports, it is the responsibility of the governments, operators, shipping companies, service providers, and workers to work together to support the development of both our ports and our economies. Let’s forge an efficient, competitive inter-American alliance for the future of our ports! CIP00106E