Cooling off

Going all out to attract transhipment volumes might not be the cash cow that many ports hope for when they embark on the exercise.

In fact, the transhipment trail can end up being a costly exercise with little gain, according to consultants.

David Wignall, of Singapore-based Seaport Consultants, offers a cautionary note to ports that aggressively target transhipment volumes — “most port authorities and many governments seem to think it is the holy grail to attract the big ships. It isn’t.”

He says that for containers there remains a key “practical” fact.

“Most container shipping executives can explain their view of transhipment in a single statement, ‘a cost we don’t want to pay’. It is a cost … it never adds to the revenue of the line. It does not create business.

“In reaction to this fact the lines’ management of it is tight, effective and ruthless. Terminals should be aware of this. It makes sense for them if they have spare capacity, it tops up the revenue line nicely.

“However, should they undertake an exercise on the value of building capacity to allow them to undertake transhipment, they will be somewhat disappointed. Transhipment will not support the construction of a terminal; the exception of course being if you are a shipping line seeking to reduce your costs.”

Mr Wignall says normal practice in the financial analysis of terminals may be to assume revenue will grow in line with the total volume handled.

“The revenue from transhipping a container will be lower than loading or unloading that container. It needs to be understood though that as the percentage of transhipment increases, revenue per teu falls.

“When making a financial assessment of an expansion, a valid exercise is to remove all transhipment from your terminal and understand the improvement in performance and how much longer you do not need to build more capacity. Consider your performance as a pure origin and destination port first. Then consider the additive value the transhipment really brings.”

Mr Wignall points to the example of the performance of Freeport in the Bahamas, which shows EBIT dropping as MSC’s shareholding increased.

He adds that Singapore and Dubai stand out as examples of good transhipment terminals — “but the real secret is someone who does not mind a lower return for your business, or in the case of Singapore has the critical mass.”

Transhipment business has appeared lucrative since the exponential growth in the transhipment terminal scene during the 1990s and early 2000s, which benefited container and dry bulk terminals the most.

Some ports were created from virtually a greenfield site after a main line shipping operator came along and saw the benefits of having a hub in a crossroad of the main shipping routes. One view is that the operator then approached the relevant authority and, with a lot of encouragement and promises of significant revenue, persuaded the authority to construct the port facility.

While many ports were financed by the authority, in some cases (especially with Maersk) the shipping line was the source of funds, and as such had a large say in what the port would look like and how it would operate. In these greenfield ports, the entire facility was in effect masterminded by the shipping line to give them the facility that provided exactly they wanted.

On the other hand, in the existing, and usually major ports, the port authority frequently would identify potential operators and approach them, often with carrots such as reduced port dues and also perhaps with the offer of single-user status.

Joost Smits, of Systems Navigator in Delft, The Netherlands, defines four different types of container transhipment terminals in operation today. These are: hub-and-spoke transhipment (exchange between deep-sea and feeder vessels); relay transhipment (between deep-sea and deep-sea); interlining transhipment (between deep-sea and deep-sea in parallel strings); and feeder-to-feeder exchange.

Of them all, he sees hub-and-spoke as having the only good chance of future existence, due to the arrival of the very large container carriers such as the Maersk Triple-E Class. “The current largest container vessel is the Emma Maersk (about 15,500 teu) and the new Triple-E Class is able to transport 18,000 teu. This capacity causes a number of problems at ports,” he says.

For those ports still considering transhipment trade, there are a few essentials they need in their toolkit, namely the ability to accommodate larger vessels with good sea access and vessel draught; 24-hour easy access from the sea with minimal delay in berthing due to shortage of tugs, pilots, etc; no draft restrictions at any state of tide; free berth on arrival so that vessels are not required to anchor (except at worst case a few hours for tide); flexible and stable labour force; well-maintained shore plant and equipment; and preferably single-user facilities giving shipping line options to reschedule vessels at their discretion without the constraints of other lines using the facility.

A successful transhipment terminal should be profitable to start with, scoring well on KPIs such as berth occupancy; turnaround time; volumes transhipped; and movements per time period for key terminal equipment.

However the complexity of the transhipment process means that a port authority should be wary about going it alone. Many different companies can use the terminal and associated services, so it is important to design a terminal that fits the needs of all companies.

Mr Smits says an important step is to talk to the companies that are going to use the terminal, defining system KPIs so the terminal provides added value to all players.

He queries, however, the practice of many terminals to use berth occupancy as a main KPI.

“I don’t agree on that, since I believe that the turnaround time is more important, e.g. a terminal can have a berth occupancy of 60% which can look very good in the eyes of port executives. However, when waiting times are a couple of hours, this port isn’t offering a very good quality to its clients.

“Ports should acknowledge their position within the supply chain instead of focusing on their own operations.”

Mr Smits says the time port authorities devote to the needs of transhipment terminals differs.

“When we look at the latest port developments in Rotterdam, Antwerp and London, we see that Rotterdam is creating a port environment in which VLCCs can berth by dredging waterways to 23 metres.

“Antwerp is, together with The Netherlands, dredging the River Schelde to a depth of 13.1 metres, while the newest terminal in London, the London Gateway, has a depth of 14.5 metres. With a depth of 14.5 metres, London Gateway is not prepared for the future, so the port authorities might have to consider building an offshore transhipment terminal.”

Using the London Gateway example, he says approximately 50% of its infrastructure costs relate to dredging and road/rail access, and these costs are more or less avoided at an offshore natural deep-water terminal.