As ports draw up masterplans for two or three decades ahead, debate when to go ahead with that multi-million dollar quay extension or quay crane purchase, or try to convince the banks that their project is indeed a safe investment, demand forecasting takes centre stage.<\/p>\n
But is forecasting ever accurate enough? \u201cThe answer is pretty well no,\u201d says Niels Westberg, founder of Brabazon Fox and a member of the consultancy alliance UK Port Advisers. \u201cIt is such a complex game that it is almost impossible to be exactly right. Of course you can be partly right \u2013 but that can be misleading.\u201d<\/p>\n
As haven master at the Port of Bristol until two years ago, Capt Westberg was heavily involved in masterplanning and making a case for the proposed deepwater container terminal in the river outside Avonmouth docks; he also had experience of working \u2018against\u2019 a generally accepted forecast that had been drawn up by MDS Transmodal for the UK\u2019s Department for Transport (DfT). The MDST forecast suggested that, other than existing traffic at Liverpool, deepsea shipping lines would be reluctant to make calls at ports outside the UK\u2019s Greater South East.<\/p>\n
Bristol disagreed \u2013 and it did so vociferously, because such an assumption could undermine belief, or confidence, in its plans \u2013 whether among shipping lines, shippers or investors \u2013 and could also affect its chances of gaining planning consent.<\/p>\n
\u201cWe analysed about a quarter of a million of box moves going to port of entry and post code destination, so we knew our figures were real, and we used that as a basis for challenging the report,\u201d says Capt Westberg.<\/p>\n
\u201cUnder the [EU] Habitats Directive, you have to prove need; and underpinning need is forecasting. So the government and its agencies have to look at that. For banks and investors, it is different; their approach is \u2018before I lend I have to have proof\u2019. They presume government data is enough proof \u2013 it is the only way they can get it.\u201d<\/p>\n
Suddenly, the impact of a forecast you don\u2019t agree with becomes clear. Bristol spent three years challenging the DfT report: \u201cIt does take time to break free from the shackles of received wisdom. We had to overturn received wisdom, and we won in the end,\u201d he says.<\/p>\n
However, Capt Westberg adds: \u201cYes, you have to prove need. But that is a slightly theoretical hurdle to jump because it is quite different from the reality of commercially winning the trade. People should really know their own business.\u201d<\/p>\n
Richard Clarke, global director, ports and marine, at consultant AECOM, uses demand forecasts to generate cash flows for projects but he says: \u201cOne certain thing about demand forecasting is that they can be wrong.\u201d<\/p>\n
However, he says: \u201cMy approach is that unless something catastrophic happens, like someone opens a competing port next door, generally there will be growth \u2013 because port business grows all the time. The uncertainty and demand forecasting just varies the date on which things happen. If you think you need an extension of your port in 2020 and you then get a global recession for a few years, OK maybe you don\u2019t need it until 2028.\u201d<\/p>\n
Indeed, there is a certain inevitability that there is going to be growth, says Capt Westberg \u2013 for example, the UK population is around 60m but there is talk of 70m already. \u201cIf the population is growing, then GDP will grow. There are a limited number of big ports and therefore if one is taking the long-horizon view, which one must, then one isn\u2019t going to get too far unstuck, because growth will come.\u201d<\/p>\n
AECOM\u2019s Mr Clarke says the same principle could be applied to, for example, Iraq, where a lack of any real history makes cargo forecasting a real challenge. \u201cIn Europe, each person uses \u2018X\u2019 number of containers of goods, so you can take the population of Iraq and predict that they will get there eventually \u2026 but it is impossible to come up with a date, of course.\u201d<\/p>\n
Sensitivity testing is always an important part of the process in creating financial models for ports, he says \u2013 i.e what happens if you only get half the expected growth rate, and how would that affect the sums? \u201cI get endlessly accused of being a killjoy. People just want to hear what they want to hear \u2013 unless you meet the finance manager!” he says.<\/p>\n
When Mr Clarke was with Halcrow, he was involved in drawing up the Port of Dover\u2019s 30-year masterplan; the approach was to build a model which could be updated or revised every quarter, based on throughput figures. A lot of the focus was on Dover\u2019s plans to build a new ro-ro terminal in the Western Docks.<\/p>\n
\u201cWe knew we needed six years\u2019 lead time to get consents and build, so the whole model was put together so that they knew the critical data they needed to \u2018push the button\u2019,\u201d he says.<\/p>\n
\u201cIt is interesting meeting different clients; attitudes vary tremendously. Dover was pragmatic and prepared to adjust year to year; others just say \u2018go and build it and the trade will come\u2019. The Middle East ports are famous for that. But it is commercial clients, who have to get a return for their money, that are more dependent on forecasting.\u201d<\/p>\n
What a forecast does do is set a time framework, \u201crather than actually predicting that trade in this year will be that\u201d, says Mr Clarke. \u201cIt is much more a matter of when trade gets to this point, you will need new facilities or two new cranes; it is predicting the trigger point.\u201d<\/p>\n
Forecasting in connection with the extension of an existing port is far easier than trying to make predictions for starting from scratch on a greenfield site, he adds. And always, \u201csome really surprising things\u201d can come along later.<\/p>\n
For example, Mr Clarke has a long association with Mauritius \u2013 including producing masterplans for Mauritius Port Authority first with Royal Haskoning and later with Halcrow. \u201cWhen we first built the container terminal, we really struggled to justify it; and now they are in the process of extending it.<\/p>\n
\u201cThat has nothing to do with trade to Mauritius, but the fact that ships coming down from Suez to Australia are crossing over with ships from Singapore to South Africa, and a certain number of boxes needing to move from one to the other. Almost overnight this transhipment business doubled the throughput of the terminal. That was completely unpredicted, except by MSC, and that sort of thing is incredibly difficult to forecast.<\/p>\n
\u201cIf you are forecasting wine imports into the UK, really that is a function of how the economy is going and that sort of thing is quite easy to do; but predicting bit structural changes in shipping patterns is much harder.\u201d<\/p>\n
Neil Davidson, Drewry\u2019s senior advisor \u2013 ports, agrees. \u201cIt is all about gathering the data that you can and seeing how much you have to work with. For example, if there\u2019s a steel works next door to the port, as long as the steel works stays open then certain volumes can be expected. But if the steel works could shut, the forecast is zero. It is much more difficult to forecast transhipment; it is easy to change and the decision of one person sitting in an office can change volumes overnight from 500,000 teu to zero.\u201d<\/p>\n
In a sense, it isn\u2019t about actual numbers coming out of a forecast, he says. \u201cMaybe the more important thing is to help the client or port to fully understand the drivers behind the forecast and the issues affecting the forecast. It is more about helping to paint a picture and understand the soft side of it, rather than saying that in 2036 the port will have \u2018X\u2019 million teu.<\/p>\n
\u201cIt is more about saying these are the things that will affect your market position, your volumes and your market and these are the strengths and weaknesses \u2013 to help ports and also banks to understand the risks and sensitivities.\u201d<\/p>\n
The role of the forecaster or consultant is to help clients make their own informed decision, not to make the decision for them, says Mr Davidson. \u201cUltimately, people have to make their own judgment \u2013 for example, the bank whether it is going to lend money or the terminal operator whether it is going to invest in that facility or buy that company.\u201d<\/p>\n
Drewry has been asked to forecast everything from cruise passengers to livestock and it can be frustrating not being able to get the data you need to work with, says Neil Davidson. \u201cThe other frustration is that the world can turn around and bite you, with an economic crash that no one expected.\u201d<\/p>\n
And there is always a limit to what forecasting can do, says Capt Westberg. He highlights an airport policy review drawn up in the UK about two decades back, which missed in its entirety the birth of the low-cost airlines. \u201cAnd they turned airports on their heads in many ways.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"
Demand forecasting \u2013 an exact science, a crystal ball or just someone else\u2019s opinion? Felicity Landon reports<\/p>\n","protected":false},"author":8,"featured_media":8365,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[62],"tags":[],"sponsor":[],"class_list":["post-8364","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-equipment"],"acf":[],"_links":{"self":[{"href":"https:\/\/www.portstrategy.com\/greenport\/wp-json\/wp\/v2\/posts\/8364","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.portstrategy.com\/greenport\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.portstrategy.com\/greenport\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.portstrategy.com\/greenport\/wp-json\/wp\/v2\/users\/8"}],"replies":[{"embeddable":true,"href":"https:\/\/www.portstrategy.com\/greenport\/wp-json\/wp\/v2\/comments?post=8364"}],"version-history":[{"count":0,"href":"https:\/\/www.portstrategy.com\/greenport\/wp-json\/wp\/v2\/posts\/8364\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.portstrategy.com\/greenport\/wp-json\/wp\/v2\/media\/8365"}],"wp:attachment":[{"href":"https:\/\/www.portstrategy.com\/greenport\/wp-json\/wp\/v2\/media?parent=8364"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.portstrategy.com\/greenport\/wp-json\/wp\/v2\/categories?post=8364"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.portstrategy.com\/greenport\/wp-json\/wp\/v2\/tags?post=8364"},{"taxonomy":"sponsor","embeddable":true,"href":"https:\/\/www.portstrategy.com\/greenport\/wp-json\/wp\/v2\/sponsor?post=8364"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}