Port Management and Economic Growth
3.2 ECONOMIC GROWTH AS THE SPACE BETWEEN STIMULUS AND RESPONSE
Sustainability is a corporate juggle of staying power and prosperity and has reasonably become one of the most euphonious words in the port managers’ ears, as what it really implies is “sustainable growth.” It is one of the stronger indicators of economic, qual- ity, and innovative influence, and because of this reason, it is found in most of the ports’
web sites, port plans, and annual reports. Economic growth is perceived as a nation’s or industry’s capacity increase over time and the ability to accelerate the output. The mea- surement of economic growth is either in nominal terms, where inflation is included, or in real terms, which provides for inflation adjustments. Economic stimulus on the other hand pertains to a nation’s or the port’s capacity to trigger financial growth.
There is no security on this earth;
there is only opportunity.
Douglas McArthur General of the US Army (1880–1964)
Global maritime frontrunners are aware that sustainability eventually results in prof- itability. The American Association of Port Authorities (AAPA) has developed and cur- rently implements a sustainability platform for all its members. Sustainability within the maritime and port management practices also embodies the Leadership in Energy and Environmental Design (LEED) as well as Green Strategies for sustainable ports (AAPA 2013; EPA 2013a,b; Northeast Diesel 2008; USGBC 2013).
Sustainable ports embrace a holistic culture for their port operations. Environmental integrity commences with clean air and cleaner fuels, and technological innovations are offered to ensure the port’s sustainability and market prominence.
Each individual port has a distinctive package of topographical, socioeconomic, national, environmental, operational, technical, and financial particulars that structure and determine its growth pursuits. In fact, it is those distinctive characteristics that will help a port differentiate and find its niche markets, such as
i. Its management type, for example, landlord, service port, and so on
ii. The regional regulatory framework for safety, security, the environment, social responsibilities, and so on
iii. The industrial zones, warehouses, and customers that will define its market segments iv. Its cargo specialization, for example, oil and gas, containers, automobile indus-
try, passenger ships, and so on
v. Its infrastructure, connectivity and accessibility to rail, intrastate and interstate highways for hinterland connection, airports, inland ports, and so on
3.2.1 Physical versus Strategic Growth
While governments achieve growth by increasing government subsidies and implement- ing currency, financial, or fiscal policy reforms, ports and entrepreneurs monitor and evaluate growth in two distinguished categories: (1) organic or physical growth, and (2) strategic or long-term planning growth.
3.2.1.1 Organic or Physical Growth
Organic or physical growth reflects a port’s tangible and short-term growth. This is a tactical growth type that in military terms resembles a battle (as opposed to a port’s strategy, which is the war itself). It is more easily recognizable by the industry and the majority of the media and the communities, because of its tangible, short-term, and nonconfidential nature: it is practically easier to measure a port’s expansion in terms of assets, cash flow, investments, and current business compared to a strategic alliance of the next category, whose long-term benefits and initial confidential process cannot be easily assessed.
A port’s physical growth is based on the accumulation, expansion, or development of assets and services such as (a) land and assets acquisition, (b) capital investment, (c) strengthening links between port and hinterland, (d) enhancing ports’ energy effi- ciency, (e) dredging and expanding deepwater ports, and (f) bridging the maritime indus- try with oil and gas offshore activities. Namely:
a. Land and assets’ acquisition, for example, the purchase of land, offices, termi- nals, berths; cargo handling equipment such as cranes and derricks; infrastruc- ture and superstructure; port development and efficient land planning and land
management within the port, while also monitoring and controlling the land development in the port’s vicinity.
Land capacity is a critical factor for the port’s planning and growth strate- gies. A port’s future is determined by the land availability and its pertinent restric- tions that are usually of regulatory, regional competition, financial, or community nature. Some of the major limitations to the growth of a port and its supply chain pertain to the limited availability of port land, which may become a demotiva- tor to investors and potential clients and eventually a growth inhibitor. It is these restrictions that can prevent ports of considerable land capacity, from expand- ing its warehouse and multimodal or infrastructure plans. Conversely, there is no assurance that a port’s land capacity expansion, investment, and assets acquisition will attract new contracts and will enhance its market share (UNCTAD 2004b).
The lesson learned from numerous global ports is that the measurable and tan- gible demand for a port’s enhanced services should always precede the supply, that is, a port’s plans for physical expansion. In cases where ports adopted “pull pro- duction” strategies based on an intangible forecast demand, that is, invested in an enlarged port with new terminals and berths, increased warehousing, and new ser- vices in the hope of attracting new customers, their plans were not successful. On the other hand, when ports implemented a “push production” strategy, based on actual consumers’ demand, they managed to grow and increase their market share.
Some of the land use strategies commonly used in global ports include the following:
• Reinforcing policy making frameworks in order to obtain guidance and assistance for long-term port development. When port planning entails land acquisition and enlargement of the port–land interface, it is of critical signifi- cance to recognize the regulatory framework prior to the process of planning and implementation. Harmonization and understanding of any dissimilari- ties among regulatory and port policies should be proactively addressed, in order to eliminate future obstacles in the growth of port or land.
• Optimum land utilization; ameliorating the land–port interface among the port terminals and multimodal transportation, for example, rail, trucks. The port authorities should collaborate with various stakeholders in order to fore- cast the market and make plans on the hinterland accessibility, land develop- ment, market segments, and services to be offered. These plans should be monitored well in advance, in view of potential partnerships with the private sector. Efficient land utilization is a crucial port growth factor, to ensure the efficient handling, storage, and distribution of commodities from the port to local, intrastate, interstate, and global destinations.
• Time efficiency; identifying effective transportation routes that reduce travel mileage and relieve road traffic.
• Initiating dynamic partnerships with neighboring corporations, in order to support the port’s land expansion plans.
• Establishing a port buffer strategy to tackle any interface considerations involving the port, commercial land functions and alternative land uses.
Redesigning and developing land segments to serve as buffers to refineries, trade zones, or infrastructure connections with the hinterland (AAPA 2013;
Geelong Port 2013a,b; Port of Rotterdam 2006).
• Contractual stipulations, wording, and compliance. This stage pertains to the assurance that the development project will be completed punctually by
the due date. Special contractual provisions should safeguard the port’s inter- est, for example, the monitoring of the construction process or the signing of back-to-back contractual agreements between the port and third parties that may be partially or fully assigned the project’s completion.
The port administration should meticulously plan the landside expansion and logistical integration in terms of both long-term architecture and short-term functional stages, in order to eliminate any contradicting visions among national or state authorities, policy makers, urban planners, private companies, and so on. Adopting and encompassing these different strategic perspectives with differ- ent key players are necessary in order for ports to be in compliance and promote growth, while eliminating any future obstacles.
b. Capital investment, cash flow, shares, and so on. From 1946 through 2005, that is, within 60 years, capital investment for US public port development for improvements to port facilities and infrastructure exceeded $30.1 billion, which amounts to an annual funding of $501 million. Over the past decade, the median annual investment leaped to $1.5 billion annually, while they were allocated for the development of new port facilities and the modernization of existing ones. By 2016, US port authorities and their private-sector partners, that is, marine termi- nals, will invest $46 billion to enhance terminals and connected infrastructure.
Underinvestment in linking port and land infrastructure can be detrimental for the regional trade growth equally affecting a country’s imports and exports.
A port’s efficient market positioning is necessary to enhance accessibility to the regional and global markets (AAPA 2013).
Over the past few years, the private sector is increasingly investing in public ports’ terminals. For example, American International Group acquired termi- nal leases in six US ports from DP World, along with the operations of Marine Terminals Corporation. A Deutsche Bank subsidiary has acquired the Port of New York and New Jersey’s largest container terminal, that is, Maher Terminals.
Furthermore, Goldman Sachs obtained a 49% share in Carrix Incorporated, parent of SSA Marine. Ports and terminals’ investment is an appealing funding alternative for all concerned, because of the high returns on investment. The major modern obstacle for infrastructure funding pertains to the complexity and time-consuming process, such as the creditors increasing time for due diligence and evaluation process (MARAD 2013).
The investment benefits remain promising and lasting over time, as a result of (i) the steady economic recovery after the 2008 global crisis; (ii) the increasing global and US trade growth, which necessitates bigger ports and more termi- nals to accommodate the increased volumes of cargo; (iii) the recent oil and gas reserves discovered in the United States, Australia, and Western Africa (the Gulf of Guinea), which will create increased global trade flows; for example, based on a US Geological Survey, 30% of the globe’s untapped gas reserves and 13% of its undiscovered oil are found in the Arctic region (USGS 2008); (iv) new trade routes combined with critical passages such as the expansion of the Panama Canal in 2015 and the opening of the Arctic Circle by 2030 because of global warming; and (v) sea ports and terminals offering reliable and sustainable returns on investment.
c. Strengthening links between port and hinterland; internal and external port inte- gration; establishing long-term partnerships with influential supply chains that strengthen the connection between port, city, state, national, and global networks.
According to UNCTAD (2004a), a port’s strategy should focus on assertively marketing the opportunities for expansion of supply chain networks and com- modity flows to the hinterland. This will offer to ports the competitive advantage of the architecture as to the design and influence over the new networks with the hinterland. Starting from the port-interface clients such as terminal managers or transport companies that may expand their role in the supply chain, the network may eventually expand to include new players in the hinterland commodities flow, such as industries, manufacturers, commodity brokers, and so on. The col- laboration between the public sector, which is typically interested in regional growth and prosperity, and the private sector, which more assertively pursues the return on investment, will bring a win/win situation, where both the industry and the community gain.
d. Enhancing ports’ energy efficiency through efficient consumption, environmen- tal initiatives, and energy mix, that is, alternative energy options. Global ports increasingly depend on green power or alternative energy in order to tackle new environmental goals. The US West Coast is one of the areas with many seaports establishing and meeting particular targets for the acquisition and consumption of renewable energy.
Certain seaports have intensely invested in green energy as a prerequisite of new port expansion projects or in joint venture with their regional communities.
The installment of alternative energy including solar, photovoltaic, wind power, or generation machinery on port facilities is in the process of execution, typically in joint venture between port authorities, terminal operators, and energy provid- ers. These joint ventures profit the local cities along with the port authorities (Port of Portland 2010).
Modern ports are dedicated to minimizing traditional energy use and reliance upon fossil fuel-generated power to lower emissions, boost efficiency, and minimize costs. Ports’ energy planning processes aim to progress the ports’ energy goals, such as stimulating energy conservation and green port engineering. Modern ports are committed to boost the ratio of alternative energy in their energy mix.
• Biomass energy: Biomass waste-to-energy facilities are constructed. Typically, the port obtains green energy certificates (RECs) and carbon dioxide offsets, and they will be able to receive municipal solid waste and building and demo- lition waste and transform it to energy using an environmentally friendly gas- ification system. Ports’ participation in such environmental projects not only protects the environment but also enables the marketing of an innovative and promising technology that might be reproduced in other market sectors to minimize greenhouse gas emissions and provide green energy.
• Fuel cells: Fuel cells typically produce energy on-site, therefore lowering the tower’s need for electrical power from the power company. The alternative energy produced by fuel cells supports energy-dependent building systems and equipment, consequently enhancing the port’s energy security.
• Wind energy: Modern ports establish wind energy farms. Typically, port authorities cohost the venture with terminal operators whereas private devel- opers build and operate the wind farm. As an example, the Port of New York/New Jersey has acquired a farm that contains up to nine wind turbines in a position to supplying up to 50,000 megawatt-hours of electricity, which is comparable to powering roughly 6000 homes (Port of New York and New Jersey 2013).
The level of a port’s energy consumption and the energy type determine a port’s commitment to protect the environment. A port’s energy efficiency pol- icy pertains to reducing the utilization of electric power, which compensates by minimizing pollution levels and financial cost, thus achieving port sustainability (Port of Helsinki 2013). Modern ports’ planning and energy efficiency policies in the ports’ five-year plans typically set annual objectives of decreasing ports’
energy consumption by a specified percentage.
Investment in alternative energy pays off in the long run. Proactive ports that had invested in renewable energy equipment prior to the 2008 global cri- sis greatly benefited during the economic downturn and were able to handle power shortages. For instance, Indian ports like Gangavaram Port and Visakha Container Terminal Private Limited (VCTPL) are converting to green energy systems with the aim of reducing costs. Gangavaram Port has invested in solar panels and LED navigation lamps and has thereby saved 15% on its power bills.
Furthermore, VCTPL has succeeded to cut back approximately 40% energy by enhancing energy efficiency in illumination and making an investment in energy- efficient, green technology (Indian Ports Association 2013).
e. Dredging and expanding deepwater ports to accommodate increasing mega-ship sizes. A port’s financial prosperity is closely determined by the nation’s ability to remain competitive in a global market. As larger vessels with deeper drafts are considered to provide significant economies of scale, regional economies will only benefit from these opportunities if they construct considerably deeper ports. Port dredging is a technology-intensive, capital-intensive process that requires proper funding, management, and compliance to an environmental regulatory framework, owing to the severe environmental issues generated therefrom. Another significant factor to consider is that the future trade patterns and sea routes are almost unpre- dictable (Marine Board Commission, NRC 1985). A port authority’s planning strat- egy should therefore exercise canniness and due diligence in evaluating their current and future contract structures and securities prior to investing in dredging activities.
Dredging material is considered as highly polluted regardless of whether they are disposed in upland or in enclosed locations. For financial and environmental reasons, numerous seaports employ technological innovation to retain sediments in an effort to reduce or postpone dredging activities.
As an example, the Maritime and Port Authority of Singapore formed a stra- tegic alliance with a regional engineering company to produce an innovative technology. Hence, polluted dredged components and commercial waste mate- rial are treated and recycled into ecofriendly, harmless building materials. This minimizes or eradicates removal and possible contamination problems as a result of dredging and maritime pollutants such as oil sediments and copper debris (Maritime and Port Authority of Singapore 2013).
f. Bridging the maritime industry with oil and gas offshore activities, developing offshore terminals. Ports increasingly serve as a land platform for offshore oil support services, thus bridging the maritime, oil, and gas activities. Their prin- cipal business is discharging international crude oil from tanker ships, cargo storage, terminal facilities, and distribution through joining pipeline systems to refineries. For example, America’s first deepwater port, the Louisiana Offshore Oil Port in Baton Rouge, ensures the supply of offshore US crude oil through the entire Gulf Coast and Midwest (LOOP Port 2013). (Chapter 11 of this book is dedicated to ports’ offshore activities.)
3.2.1.2 Strategic or Long-Term Planning Growth
Strategic, long-term planning serves as a ship’s rudder: focusing on the port’s long-term vision helps the organization materialize its short-term plans. In military terms, strategic growth depicts the war itself. It is established in confidentiality and entails long-term plans, and its benefits, such as its revenue, may be spread over numerous activities and time span, making it hard for the outsiders to measure and evaluate them.
Over time, ports are modified because of changes in cargo volumes and types, ship types and sizes, and customers’ preferences, leading to changes of utilization in the port’s land, infrastructure, and accessibility. Hence, port managers should strategically forecast the long-term trends and act in a manner that better serves short-term port development, while decreasing the probability of improper port’s future development.
This is a strategic (as opposed to tactical) growth type that aims at enhancing a port’s market power by profitable contractual agreements; acquiring a strategy; obtaining a market niche or specialization; gaining a key role in a regional supply chain; introduc- ing a groundbreaking innovative technology; forming a strategic alliance with terminal operators and liners, oil majors, or pipeline consortiums; enhancing the port’s hinterland and transshipment activities; obtaining long-term cost advantages through economies of scale; and so on.
A port’s long-term strategy entails five principal alternatives for port reform:
1. Reengineering, or business process redesign, that is, undergoing an organiza- tional restructuring through focusing on the ground-up architecture of the busi- ness process.
2. Deregulation, liberalization, which is frequently associated with a gradual shift from a public port toward a landlord model, with the potential of transferring certain services or terminals to the private sector.
3. Privatization, which entails the shift from a landlord type to a fully privatized port model. This port management option enables the sale of superstructural assets. Another privatization aspect is the development of joint ventures with logistics companies and private-sector operators that will facilitate the hinter- land accessibility and networks.
4. Corporatization, which pertains to the restructuring of state or municipal estab- lishments, that is, port authorities, into corporations, so as to acquire financial and management tools from the public sector. In ports’ corporatization, the gov- ernment controls most of the corporation’s shares. Quite often, corporatization is the forerunner to partial or full privatization, in which case the private sector resumes increasing control over the port.
5. Commercialization: assignment of designated authorities and obligations from the central government to ports. A balance needs to be established between the port’s control by the central government, and its antipode, which is the port’s autonomy and operation as an independent entity. Since the 1960s, the concept of a gradual port autonomy became increasingly popular. However, the globaliza- tion between the late twenthieth and the early twenty-first centuries demonstrated that the corporations can only thrive though unity, mergers, and the formation of larger conglomerates. It is the author’s opinion that partial autonomy is a highly beneficial option that will make the port more flexible in their commercial nego- tiations, and yet government control will offer them the strength in unity that is offered in negotiating and establishing its multimodal logistics network.