Hearts and minds

It’s been a very rocky road for most of the Southern European ports, but there’s an interesting battle emerging – and, as Eleanor Hadland of BMT points out, a large part rests on nothing more than just plain “habit”.

Because the decisions about the route and mode of any cargo is largely down to a single person, “there is a lot of friction in the market, and it takes time for new ideas to take hold”, she explains.

To help the process along, the port of Barcelona has taken the bull by the horns. Santiago Garcia-Milà of Barcelona Port Authority says that it is a battle for “hearts and minds”. This is because most – around 94% – of Spanish freight gets hauled overland by road. While there are good cost effective and environmental synergies between ports and rail, however, you do need the rail to be linked up – and at present, the Iberian Peninsula isn’t on the same gauge track as the rest of Europe.

While the government is slowly putting in place a European-harmonised rail network spanning out from Madrid, it is passenger only, “and again, freight comes near the bottom of the priorities”, says Mr Garcia-Milà. So, in order for the battle for ship/rail to become a contender in the decision-making, Barcelona has, along with partners RENFE and Naviland Cargo, put in a rail link to Lyon. While the link still means a cross-over between gauges, it has a ‘window’ booked at Port Bou to minimise the stoppage.

Guillermo Massot of Arup describes that as a “brave” move, but one he thinks might well work, especially given the political will to even out trade across the region. Regarding gateway traffic, he says, the battle is now on to improve inland transport links and hinterland connections. “Through making this big bid for rail traffic, Barcelona is implementing a remarkable plan that reaches beyond the Iberian market,” says Mr Massot.

The development of trade ‘corridors’ is one aspect that can be pushed while there is over-capacity in the ports. And, importantly, “it is one thing that governments can actually get directly involved in”, explains consultant Roman Poersch. “While they can’t command trade, they can certainly make it an attractive option.”

Added to this is the extra “push” that EU members benefits from. “European Union would like to see barriers to trade removed, especially with its near neighbours, and harmonising and streamlining processes like administration and customs will help. Programmes such as Motorways of the Sea projects, will continue to support modal shift,” explains BMT’s Ms Hadland. It is hiccups like this that put freight forwarders off some routes, but again, showing people an easy, clear and fast way through may change the habits of a lifetime. Even if that lifetime has meant long distance trucking across the continent.

A new development in Vado, Italy, aims at doing just that. APM Terminals is developing the facility as the newest gateway port to, it hopes, 75m consumers that are within an eight hour locus of the port.

Tom Boyd of APM Terminals says the deepwater port and inland connections will offer the fastest, most cost-effective routing option in the market, adding importers will be able to achieve “significant” cost and time savings of around seven to nine days over the traditional Asia and Northern European port routings.

“We believe it’s an attractive proposition, as vessels will come up through Suez and tuck into Vado’s 15m deepwater facility. From there the existing rail network will push a trade corridor as far as Southern Germany, Switzerland, Austria, Eastern France and Northern Italy,” says Mr Boyd.

The facility aims to open in 2014 with an initial capacity of 720,000 teu and an option of growing. Richard Mitchell adds that APM Terminals does have international interest from some shipping lines, although these can’t be named as yet. It is envisaged that around 40% of Vado’s boxes will be inland destined as the rail connections are already in place.

At present, nobody in the region has a dominant market share and shipments through Mediterranean ports move up and down with some fluidity depending on the lines. However, the Vado enterprise certainly aims to nail some of this fluidity down.

Andreas Nigulis of Vector PTS says that the ‘new idea’ of joining the supply-chain dots is in fact an old – and successful – strategy. “If you can sell integrated transport concept and manage the whole system, you have a great advantage,” he says.

He points out it follows in the footsteps of Contship Italia Group’s La Spezia Container Terminal, which in the 1990s took the innovative step of selling a complete freight service, all the way to the consignee. “Not only loading and unloading but offering full supply chain management all the way to the doorstep,” says Mr Nigulis. “And very successful they were too, with around 30% of its cargo connected by rail,” he adds, “more than the other ports in the area who managed, usually, between 17% and 20%.”

He continues: “Though you need a lot of space for this kind of operation, if you have some control of the rail system to back it up (as La Spezia CT did), it is actually a less intensive use of space. You get to push and pull cargo in and out at your own convenience.”

However, Mr Nigulis adds that a Vado trade corridor through the middle of Italy might well suck the life out of nearby ports like Genoa.

Times have certainly changed, and so have port investment strategies around the world, especially in the mature market of southern Europe. Julian Johanson-Brown of consultant Halcrow says that before the downturn, it wasn’t unusual for operators to dive into a project and build two or three berths at the outset, but now strategies are shifting as investors are now much more conscious of the cash flow on their investments, and want to see some return – even if a trickle – before moving to Phase 2. This has resulted in “less frills, more functionality for many developments globally”, says Mr Johanson-Brown.

APMT’s Mr Mitchell concurs, and says in that respect the company has substantially changed its investment strategy in southern Europe. “No more greenfield developments, the pressure is on for profitability,“ he says, adding that the risk associated with large developments that needed high amounts of investment before returning any cash is not appropriate in the present climate. “This means phased development, a more practical, slow and steady evolution.”

But as a counterpoint to all this, it should be noted, says Halcrow’s Mr Johanson-Brown, that lead times are fairly significant, often coming to around three or five years and a lot depends on having the confidence, or simply the commitments, to go forward – because there is, after all, a recovery predicted, even if at the end of a longish lead in time itself.

Barcelona, despite being hit very hard by the downturn, is one of those keeping faith with its plans. Mr Garcia-Milà explains the port is still in a “strong situation” financially, which means that its investment strategy is continuing as expected. It has already finished the key elements of its enlargement project: seawalls are finished and terminals are well underway.

So what prompts investment in a market glutted with overcapacity? Halcrow’s Mr Johanson-Brown explains that there’s still interest in joint ventures, although appetite has reduced in the region.

“There is still an apparent appetite for investment from banks, not so much activity as previously but industry sources suggest that the market is a fairly sound investment (at the right price), provided you acknowledge the inherent risks associated with the confidence levels of the forecasts growth figures – and the need for cash flow within the investment which is playing a larger part than previously seen,” he says.

He sights the importance of recognising the importance of understanding an individual ports role in the overall supply chain and the merits of one location over another and the attraction to a line in terms of variables such as rates, accessibility, turn around times and capacity. “You have to consider both schedule and route, any one port is only one part of the overall equation. The schedule makes a big difference, so although there might be capacity around the area, past experience has shown that lines are reassured by certainty of service – more so than declared capacity. However, neither approach is exclusive, and it’s a balancing act. But, in my experience, lines do like to be confident of meeting their schedules.”

Since capacity is no longer the problem it was, there’s still the issue of investing in equipment. Some operators in the region are looking to specialised handling systems and sector experience to attract more ships.

For example, terminal operator Euroports presently operates four dry bulk and general cargo terminals in southern Europe – but of particular interest is the new area they are developing in Tarragona specifically targeted at products such as pulp paper and high-value steel. Euroports has already established itself in paper-handling in northern Europe, and is keen on transferring “best-practice” across from its Antwerp-based Westerlund facility to the new development. And with the move of designating a dust-free area at the port, there are high hopes that separating out the clean cargo from the other bulk will bring benefits.

Richard Jennings of Euroports explains: “Tarragona is ideally located to serve the Spanish paper industry, but its position in the heavy dry-bulk sector has prevented it in the past from capitalising on its geographic location.” Further, the new terminal in Tarragona has 16.5m of water and will be equipped to provide high-speed discharge productivity more commonly seen in northern Europe. This, hopes Tarragona, will tempt the large open-hatch forest products carriers and their paper-industry clients away from the present mixture of smaller Spanish and French ports. In addition to forest products, the new Euroports terminal is also targeting steel and project cargoes.

Again, it’s another phased development starting with a €3m ($3.7m) initial investment building to €12m ($14.8m) over a couple of years, lending weight to the argument that, as Mr Massot puts it, “the right options for the area are the longer term ones”.