Container Transhipment and Demand for Container Terminal Capacity in Scotland

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Container Transhipment and Demand for Container Terminal Capacity in Scotland

4. Container Industry Trends

4.1 Traffic growth

Historically, containerport throughput has increased up to three times as fast as GDP. While there are regional variations to this phenomenon, the correlation between GDP and containerport throughput continues, albeit at a reducing level. Projections up to 2015 indicate continuing strong growth in the containerport market. This growth takes three principal forms:

  • Organic growth;
  • Substitution growth (i.e. the conversion of conventional cargo to containers);
  • Induced growth (i.e. transhipment).

The incidence of transhipment is also increasing and transhipment has become the most dynamic aspect of container shipping in recent years. Increasing transhipment is due to the introduction of much larger vessels and a consequent reduction in the number of regional port calls. This issue is considered in more detail later in this section of the report. Also influential in this regard has been the ongoing development of new terminals, often at locations/sites where the primary focus is on transhipment traffic.

More moderate growth is expected for intra-regional short-sea traffic in Europe. However, potentially this traffic would also be of interest to any new transhipment terminal.

A combination of direct deep-sea import/export, transhipment and short-sea container traffic and the expected growth associated with each, ensures attractive future prospects for terminals that can penetrate the market. Indeed, the container terminal sector is regarded as having one of the best growth rates of all international business sectors. This is reflected in the fact that some $50 billion was invested in container terminals worldwide over the 1990-2001 period, with some $14 billion already earmarked for new terminal investments over the next 4-5 years 8.

4.2 Increase in ship size

One of the most significant trends affecting the container shipping industry has been the ongoing increase in the size of vessels employed. Over the last fifteen years or so the capacity of the largest container vessel in service has virtually doubled from around 4,500 teu to 8,400 teu. Recently 9,600 teu vessels have been ordered and the ordering of even larger vessels of up to 12,000 teu (i.e. Suez-max) is anticipated. Naval architects suggest it may eventually be feasible to construct and operate ships of 18,000 teu (Malacca-max), although as yet there are no signs of the industry moving this far ahead.

Table 4.1 presents design parameters of the current and future anticipated largest container ships. Current largest ships of 8,400 teu have a length of 348m, beam of 42.8m and draught of 14.0m. Adding 10% for underkeel clearance, this implies a minimum channel depth of at least 15.4m is required in port and alongside the berth. The squat phenomenon is also important in that such vessels may in fact reach 16.0m when sailing in shallow water, such as port channels 9.

Moving up to a 12,000 teu ship size (expected before 2010), channel/berth draught requirements would increase to 18.74m. New transhipment hubs such as Salalah and Tanjung Pelepas are currently planning to increase channel depth to 18m. Beyond 2010, if the Malaccamax is ever built and 18,000 teu ships enter service, required channel/berth depth would increase to 23.1m.

The introduction of bigger ships places additional burdens on ports to increase the depth of water in entrance channels and alongside berths far above what is currently offered. This implies that much greater investment is necessary in port infrastructure. Channel width must also be increased to take account of the wider ship beam, plus turning circles have to be enlarged to take account of greater vessel length. Modifications necessary on the shoreside include bigger cranes with longer outreach, lift height, and loading capacity. Current 'super' post-Panamax 10 cranes can weigh over 1,300 tonnes with greater wheel loads necessitating far stronger quay structures.

Table 4.1: Design parameters of largest container ships in service or envisaged

Malacca-max

Suez-max

Sovereign Maersk*

Length (m)

400.00

400.00

348.00

Breadth (m)

60.00

50.00

42.80

Draught (m)

21.00

17.04

14.00

Draught + 10% clearance (m)

23.10

18.74

15.40

Depth (m)

35.00

30.00

24.10

Displacement (tonnes)

313,371

212,194

142,500

Deadweight (tonnes)

243,600

157,935

105,000

Light Ship (Tonnes)

70,771

54,259

37,500

TEU capacity

18,154

11,989

8,400

Service speed (kn)

25.00

25.00

25.00

Engine power (kW)

116,588

91,537

61,000

Source: Based on Waals & Wijnolst, 2001 11
*In service

Handling larger ships also has added implications for terminal storage space, and leads to a significant impact on inland transport systems. Extensive road and rail facilities are a major consumer of port land, with on-terminal rail facilities resulting in increased container dwell time, and hence a need for additional land area. Nowadays, to fully discharge and load a big ship at a port which is largely dependent on land access for containers:

"…generates a dilemma of unimaginable proportions for the terminal operator and requires huge areas of land for train marshalling and road gate facilities."12

Although all of these pressures have to be taken into account, probably the most significant factor to challenge traditional ports in the context of their ability to accommodate bigger ships is sea access, and in particular vessel draught.

The application to develop a new container terminal at London Gateway on the Thames is a case in point. This new terminal proposed by P&O Ports, which was the subject of a recently completed public inquiry, will require substantial dredging of the existing channel over a distance of some 50 miles. Costs associated with dredging and disposal of dredged material for London Gateway are estimated at 150 million, which is equivalent to 34% of total costs relating to the new terminal (Table 4.2); indeed, dredging represents the single largest cost element for the proposed London Gateway development.

Table 4.2 Capital costs for London Gateway (Scheme A1), original rate

million

Dredging

82.7

19%

Surplus disposal

66.5

15%

Reclamation

14.3

3%

Container quay

78.8

18%

Other costs (e.g. land acquisition, paving, road and rail, linkspan etc.)

190.7

44%

Total

433.0

Source: Halcrow Group Ltd (2002) The (London Gateway Port Limited) Harbour Empowerment Order 2002: Port Alternative Studies, Report for The Peninsular and Oriental Steam Navigation Company

As P&O's London Gateway project envisages dredging to provide a depth of only 14.5m, this implies that even more dredging will be necessary in future if the terminal is to accommodate bigger ships now under construction or planned. Referring to the Environmental Statement for London Gateway, the Royal Society for the Protection of Birds (RSPB) claims that the dredge is actually 32.0 million m 3 and not 27.5 million m 3 as estimated by the developer, which means that total dredging costs could be even higher than stated.

The problem of limited water depth in navigation channels is not only related to UK ports. Of the existing containerports in northern Europe, only Rotterdam offers sufficient channel depth (dredged at the expense of the Dutch government) to handle the largest fully laden ships irrespective of tidal conditions. Other ports have attempted to minimise the effects of this constraint by sufficiently deepening the 'berth pocket' so that a fully laden ship can at least be handled at the berth, if not in the channel.

All seven of the principle container ports in Northern Europe - Rotterdam, Hamburg, Bremerhaven, Antwerp, Le Havre, Felixstowe and Southampton - offer a minimum water depth of 15.0m or above alongside the berth (see Table 4.3). However, this does not alter the fact that there is still a potential tidal delay facing the largest container vessels entering or leaving most of these ports when fully laden. As ships get even bigger this delay will worsen, with knock-on effects to other ports in the multiport schedule, adding to carrier costs, or it will trigger further major and expensive dredging programmes at each port (as recently announced at Bremerhaven , for example, and anticipated at Hamburg and Antwerp).

Table 4.3: Throughput, berth and channel depth for major North European container ports, 2001

TEU Throughput

Max. berth draught

Min. channel depth

Rotterdam

6,096,502

16.6

22.0

Hamburg

4,689,000

16.7

12.5

Antwerp

4,218,176

15.3

14.0

Bremerhaven

2,896,381

15.0

13.0

Felixstowe

2,750,000

15.0

14.5

Le Havre

1,525,000

14.5

15.0

Southampton

1,163,722

15.0

12.6

Zeebrugge

875,926

14.0

13.5

Liverpool

524,000

12.7

8.5

Thamesport

520,000

13.5

11.0

Tilbury

491,800

12.5

11.0

Sources: Containerisation International Yearbook; Fairplay World ports Guide; Cargo Systems 100-top container ports survey

Research by Ocean Shipping Consultants 13 supports the above in regard to the effect today's larger containerships have placed on front-rank ports by virtue of their size. Ocean Shipping Consultants make the following remarks in this regard:

  • Major ports are repeatedly finding themselves being criticised for draught limitations;
  • Terminals are required to provide even more post-Panamax container gantry cranes per vessel (four or more), in order to turn them around as rapidly as vessels half their size; and
  • Container yards need to be capable of accepting volumes of containers twice as large as before but in the same period of time.

Partly as a direct consequence of physical infrastructure limitations, carriers have been reducing the number of port calls per service loop. Reducing the number of port calls is dependent on the continued development of hub-and-spoke networks, based on one or two direct calls per major port range and an increasing use of transhipment.

As transhipment effectively doubles the number of recorded moves per container, this boosts hub port throughput to well above the rate of increase in trade. This benefit only applies to terminals that are successful in maintaining or achieving hub status, and OSC believe that not all ports are expected to be able to maintain their current roles in this changing competitive environment. The forecast general increase in container trade is nevertheless expected to benefit the whole spectrum of container ports, from major hub, through secondary hub, to short-sea and feeder ports.

4.3 Transhipment and dedicated terminals

The industry shift towards more hub and spoke services has resulted in an especially dynamic transhipment market and transhipment is expected to continue to account for an increasing share of containers handled. Traditionally this type of business has been regarded by ports as highly volatile because transhipment operations are not necessarily tied to a particular locality to the same extent as direct import/export cargo flows, although increasingly carriers are making investments in strategic hub terminals. The future expected development of transhipment is dependent on numerous interrelated factors, including:

  • Further increase in vessel size and moves to reduce the number of port calls in a given region;
  • Limited port and terminal accessibility for the largest classes of vessels;
  • Increasing operating costs for direct call versus transhipment;
  • Availability of port capacity geared towards transhipment operations and offering attractive packages for carriers;
  • Shipping line investment in dedicated terminals/strategic hubs, effectively locking a line into a particular port for the long term;
  • Development of relay operations linking various deep-sea services at a particular terminal.

Transhipment pricing is determined by the balance of supply and demand at all ports competing for this business. The revenue per container move in transhipment - which entails both a discharge and a loading - is generally lower than achieved in the import/export sector.

However, the costs involved in developing an 'offshore' transhipment hub are typically far less than providing the same scale of facilities at a shallow cityport that is largely dependant on land access. For example, as noted above, approximately 50% of London Gateway Terminal's infrastructure costs relate to dredging and road/rail access, and these costs are more or less entirely avoided at an offshore natural deep-water terminal - this means that the offshore terminal's development costs are far less than the cost of a similar size of terminal in a constrained location. The implication is that a terminal largely geared towards transhipment should be able to withstand lower handling rates, this being primarily a function of reduced capital costs.

Ongoing industry concentration in liner shipping has placed greater bargaining power in the hands of major consortia in their dealings with ports and terminals. Today's huge scale of investment necessary for major container handling operations also favours far closer relationships between lines and terminal operators. There has consequently been increased interest by major shipping lines in establishing dedicated - owned or joint venture - terminals. As vessel size increases, the control available through integration of stevedoring with vessel scheduling becomes more attractive. Whilst it is far from clear that dedicated terminals are cheaper, rather they represent an integration of the service to the customer. Logically the global carrier will seek to make a good financial return from any investment in a strategic hub, albeit the fundamental purpose (of carrier involvement in terminal operations) is to improve overall service provision and help reduce the cost of operating a global container transport network.

Over recent years a number of 'offshore' container transhipment terminals have been developed in answer to the many physical and environmental constraints associated with ongoing expansion within constrained traditional port locations. Table 4.4 lists some seventeen of these new ports.

The main advantages of 'offshore' hubs include:

  • Typically a natural water depth of at least 15m 14 or so with minimal dredging expense;
  • Quick and easy access from the open sea compared to many inland river and city-ports;
  • Preference for island or remote peninsula locations and feedering, thereby avoiding land transport through congested and densely populated urban areas;
  • Plentiful and relatively inexpensive land for future expansion;
  • Competitive labour rates and working practices compared to traditional ports;
  • Majority of cargo consists of transhipment, limiting need for investment in land transport infrastructure;
  • Terminals often owned/part-owned by carriers who are able to quickly transfer large volumes of containers to the new hub.

In relation to the last point, larger lines have been increasing their interest in dedicated terminals or obtaining a shared interest in terminals 15. This trend has drastically reduced the 'footloose' nature of shipping companies (and transhipment traffic), placing their relationship with ports and terminals on a sounder and longer-term economic base.

The ongoing development of new style 'offshore' transhipment hubs therefore constitutes the container shipping industry's answer to the changing demands posed through handling larger vessels and increasing trade flows. Proposals for new hubs at Scapa Flow and Hunterston need to be viewed in this context.

Table 4.4: Major 'offshore' transhipment hub terminals and max. berth depth

Port

Max berth depth (m)

Remarks

Algeciras, Spain

16.0

Maersk-Sealand terminal

Malta Freeport

15.5

Grand Alliance hub

Gioia Tauro, Italy

15.0

Contship + Maersk share

MITH, Cagliari

14.0

Contship

Salalah, Oman

16.0

Maersk-Sealand equity share

Sines, Portugal

17.0

PSA terminal

Taranto, Italy

16.0

Evergreen terminal

Port Said, Egypt

16.0

ECT/Maersk-Sealand

Aden

16.0

PSA terminal

Manzanillo, Panama

13.0

SSA

Freeport, Bahamas

16.0

Hutchison Ports

Sepetiba, Brasil

18.5

German operator

Colombo

16.0

P&O Ports

Tanjung Pelepas, Malaysia

16.0

Maersk-Sealand equity share

Kabil, Batam Island

17.0

Still at planning stage

Kitakyushu, Japan

15.0

PSA

Kwang Yang, South Korea

15.0

Hanjin/Hyundai

Sources: Containerisation International Yearbook; Fairplay Ports Guide; Cargo Systems "Opportunities for container ports" Report 1998.

4.4 Other significant trends

Container shipping is a particularly dynamic industry and it is therefore inevitable that there will be a wide range of issues and pressures which have an impact on ports and terminal suppliers. While most of the major issues have been considered above, the list below includes additional factors that need to be taken into account:

  • There is an increasing focus by carriers and shippers on the issue of service reliability, more especially as existing terminals become seriously congested and as ports struggle to accommodate ever larger vessel sizes;
  • Container terminal company operating margins have been outstanding, in some instances above 20%, offering high yield potential, and this has made the terminal investment business an attractive proposition for investors;
  • Transhipment ports have performed above the industry average in growth terms;
  • There is expected to be further carrier consolidation leading to fewer lines overall but each controlling vast fleets, global service networks, massive traffic volumes, and extensive terminal portfolios;
  • There is also expected to be further consolidation in the global terminal operating sector, resulting in relatively few firms dominating the world market;
  • The long-term decline in ocean freight rates is expected to continue, helped by economies of scale in ship size coupled with terminal productivity improvements, and this will drive carriers to seek further costs reductions through network changes;
  • 3PL's (third part logistics providers) are becoming major customers of carriers as shippers continue to outsource their logistics activities, and an interesting development may be the acquisition of carrier assets by 3PL's, of which there appears to be some likelihood in the short term;
  • Political and environmental issues are becoming more and more significant for port development projects;
  • Developers of transhipment terminals, together with relevant government agencies, promote the creation of Free Trade Zones nearby the port in an effort to provide the port with an expanding local cargo base;

By 2010, almost one third of all loaded containers worldwide are expected to relate to trade with China, a market that is undergoing phenomenal growth, and this suggests that new terminals should try to ensure they attract services linking their region with the Chinese market.