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Container Transhipment and Demand for Container Terminal Capacity in Scotland

Table 3.7 presents forecasts of container transhipment demand in North Europe for both cases. The ratio of the growth of container transhipment to that in import/export handling demand in North Europe averaged 1.85 over 1991-2001 and 1.50 over 1996-2001. In forecasting transhipment for the region to 2015, OSC has applied a ratio of 1.4 declining to 1.2 in Case I, and 1.3 declining to 1.1 in Case II.

Table 3. 7 North Europe forecast container transhipment by range to 2015

Source: Ocean Shipping Consultants Ltd

On this basis transhipment demand in North Europe is forecast to increase by 69-90% to 11.38-12.78 m teu over 2001-10, and by a further 26-34% over 2010-15. The most rapid growth is expected to be in the Eastern North Continent ports. The expansion of transhipment traffic in this port region is forecast at 74-103% over 2001-10. Forecasts for 2015 suggest a transhipment market of between 14.3-17.1 m teu.

Figure 3.3 charts the forecast rise in transhipment traffic in North Europe to 2015 for Case I. Table 3.8 presents forecasts for both import/export and transhipment in North Europe to 2015.

Table 3.8: North Europe forecast container handling demand by type to 2015

Source: Ocean Shipping Consultants Ltd

Under Case I transhipment is forecast to almost triple between 2001-2015, from 6.72 m teu to 17.1 m teu, which appears much in line with previous rapid expansion of this sector of the market. Even under the less optimistic Case II scenario transhipment is forecast to more than double, from 6.72 m teu to 14.29 m teu. Clearly, transhipment is the most dynamic part of the container shipping business.

Table 3.9 contrasts forecast container handling demand with forecast capacity in North Europe to generate average containerport utilisation rates by port range for the period to 2010. The key assumptions that OSC make here are:

• All planned developments proceed; and,
• No account is taken of the effects of excessive utilisation levels.

Analysis of the port supply/demand balance indicates that the major North European ports are already operating well beyond the benchmark 70% capacity utilization level. Beyond this level, port congestion becomes a serious issue. UK and East North Continent ports appear to be in a particularly acute position as they are now operating well beyond this level. A main consequence of ongoing port congestion in the UK is that major carriers are diverting large ships to West North Continent ports and relying more on feeding UK containers.

By 2005, taking into account all planned port capacity additions, the overall capacity utilization levels in future years under either demand scenario are not expected to fall below the 70% threshold for East North Continent or UK major ports. Consequently, additional port capacity will be necessary in both areas by 2005. West North Continent ports appear under less pressure and would be expected to take up some of the slack.

The UK position is expected to ease by 2010, again assuming all planned developments proceed in the south of England. The position will also be expected to ease in West North Continent, although again assuming all planned capacity materialises.

Table 3.9: North Europe forecast container handling supply/demand balance to 2010

Source: Ocean Shipping Consultants Ltd

However, the capacity position is not expected to ease sufficiently in respect of East North Continent ports, at which the predominant focus is already on transhipment. Consequently, there would appear to be a requirement for additional capacity to specifically target this market, and in particular the Baltic/Scandinavia transhipment business.

3.3 Forecast terminal capacity required in Scotland

Assuming all planned investments in new terminal capacity materialise, this suggests that by 2010 there will be adequate capacity at UK major ports and at North Continent West ports, but still a need for additional capacity serving North Continent East markets, the latter predominantly involving transhipment for Baltic/Scandinavia areas. There would therefore seem to be a role for proposed Scottish hubs more especially in terms of North Continent East transhipment markets, even in the event that all planned developments proceed.

A key issue relates to the question surrounding existing planned developments and whether or not all of these proposed developments will actually occur. It is the view here that not all of these planned developments will materialise, and that there will therefore be a need for additional capacity to focus on markets currently served by major ports in the UK and East North Continent.

An important aspect of the proposed Scottish container hubs is that these facilities should not necessarily be regarded as straightforward substitutes for existing seaports. The basic advantages implied for these hubs as compared with existing ports is that their locations coupled with a move towards increased hub and spoke container movements would generate both cost savings and managerial advantages, as well as offering important environmental benefits. Thus, in terms of current multiport schedules, whilst Rotterdam may be a substitute for Antwerp, Bremerhaven a substitute for Hamburg, and Felixstowe a substitute for Southampton, the Scottish hubs offer a step change away from the traditional network approach to serving North Europe based on not readily copied strategic advantages.

Pressure on capacity is expected to be severe up to and beyond 2005 under current plans. It is only towards 2010, and particularly over the 2008-2010 period, that pressure is expected to ease under current projections as more capacity is introduced, although again this is assuming all planned developments take place. This implies that there could be an opportunity for introduction of new capacity during the 2006-2008 period, and more especially for capacity geared towards the transhipment sector in addition to the UK import/export market.

In regard to the issue of planned developments proceeding/not proceeding, further analysis has been undertaken to establish the overall utilisation impact of any step reduction in OSC's forecast of container terminal capacity in each of the three major containerport sectors in North Europe. The outcome of this exercise is explained below, with estimates made in relation to what, if any, additional capacity could be necessary in the event of a reduction in planned developments taking place.

An important first step here is to establish the benchmark level of container terminal utilisation. By applying simple single-channel-multiserver queuing theory, it is possible to demonstrate that once a container port reaches 70% capacity utilization, congestion then ensues in terms of unacceptable waiting times ². Operational excess capacity therefore has to be viewed as an unavoidable cost rather than an indication of inefficiency and wastage of resources.

Drewry make a distinction between berth occupancy and capacity utilisation, suggesting that container terminals are unable to function above 65-70% berth occupancy, because above this level, vessel queuing times (i.e. awaiting a berth) rapidly become excessive, especially with a random arrival pattern (or a mixture of scheduled and random arrivals). This is not to say that a terminal will necessarily function at 100% based on the above berth occupancy level; shipping lines will want to see an element of spare capacity in the system because otherwise they have no ability to switch ports or terminals.

The problem of 'operational' excess capacity is further exacerbated through the increased use of very large container ships ³. This is mainly to do with the limited number of cranes that can be put to work on a ship at a given time, added to the fact that longer vessels take up far more quay space. In effect, larger ships necessitate even more excess capacity in ports. The implication of this is that a container terminal handling the largest vessels might expect to have a maximum annual handling capacity of less than 70%.

Research into container terminal capacity in Taiwan demonstrates rather similar outcomes. There, container terminal capacity was found to be dependent on the following factors ⁴:

• The handling system adopted;
• Crane dimensions and in particular the stacking height of cranes;
• Container yard size;
• Average dwell time of containers and transhipment ratio;
• Characteristics of terminal operator in expediting the planning procedure of the terminal.

As container dwell times for transhipment terminals are less than for local import/export containers, this means that capacity is greater for a terminal with a higher transhipment ratio. In effect, container terminal capacity decreases as average dwell time increases. With a transhipment ratio of 50%, maximum annual handling capacity of a terminal is estimated to be 75%. As the average transhipment ratio for north European ports is around 30%, this means average dwell time for the latter will be higher, which suggests that maximum annual handling capacity of 70% would appear to be about right.

When operating above maximum annual handling capacity, congestion occurs and a port exhibits diseconomies of one sort or another even though port revenues may be satisfactory. In this situation congestion represents a major problem and ship waiting times become unacceptably long. Port capacity becomes over-utilised, accidents in cargo-handling are more likely, carriers impose surcharges on shippers, and demurrages are claimed. Thus, although a container port may continue to function at say 80% capacity utilization or even more, as this represents saturation it means the facility is stretched to such a level that customers become dissatisfied and it risks losing business to other competing ports.

This scenario (i.e. saturation) appears to accurately reflect the current position at the two containerports in the UK capable of handling post-Panamax container vessels, Felixstowe and Southampton, and can be illustrated by the following examples:

• Major carriers CMA-CGM, MSC and Maersk Sealand, faced with having to rearrange schedules due to a shortage of berths at UK ports, have re-routed some of their larger vessels via continental ports using feeders for UK traffic ⁵;
• Road hauliers have introduced surcharges to cover the cost of additional waiting time at the most congested UK ports ⁶; and,
• Partly due to congestion at the docks, but also gridlock and increased costs on the distribution routes away from them, large shippers such as B&Q have moved their major distribution centres from the south to the north of England, preferring to use feeders from the continent instead of direct UK calls ⁷.

Clearly, terminal utilisation levels above 70% are achievable, and terminal operators will seek to handle as much traffic as possible, and indeed will have to where capacity is inadequate (e.g. as in the UK at present). However, the downside of this is that inefficiencies in the chain (e.g. lorries and ships queuing, etc.) will result in additional costs for port users and must serve to make a terminal less attractive. On the basis of empirical research supported by practical examples noted above, a benchmark 70% utilisation level is applied here in order to assess future capacity needs in north Europe.

Table 3.10 illustrates that even if all current planned developments in northern Europe come to fruition (i.e. an additional 19.15 m teu of capacity), then under OSC's Case I demand forecasts there would still be a requirement for an additional 1.65 m teu of capacity by 2010. It stands to reason, therefore, that if some of the projected capacity does not come on stream, pressure on available capacity will increase by 2010.

A reduction of 10% in planned capacity additions would generate demand for an additional 3.56 m teu capacity by 2010. A reduction of 20% would generate demand for an additional 5.48 m teu, and a reduction of 30% would generate demand for an additional 7.4 m teu.

Table 3.10: Additional capacity planned for 2010, with capacity reduction scenarios of 10-30%, by North European Port Area (Case I only)

* 20.8 m teu of additional capacity would be required by 2010 to achieve an average 70% utilisation

As OSC's Case II demand scenarios imply a reduction in demand of some 2.8m teu by 2010 compared with Case I, this would imply no net shortage in overall capacity, assuming all planned developments proceed. However, under any of the 10%-30% reductions in planned capacity scenarios there would still be a need for additional capacity based on the 70% utilisation rule, even under the lower Case II demand projections.

These calculations are based on the north European market as a whole. However, the North Continent East port market, which is primarily handling transhipment traffic for Baltic/Scandinavia, is forecast to experience far higher levels of utilisation than the other port markets. The difficulties arising from this will make carriers search for cost effective as well as logistically network-acceptable alternatives. Thus, while there may well be potential for the proposed Scottish hubs in terms of UK and North Continent West markets, the main opportunities appear to relate to penetration of the North Continent East transhipment markets.

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