Monopolies and Common Sense

TCP, the container terminal operator, has recently reasserted its right, set out in its concession agreement, to have priority for all container vessel calls. Effectively, this means that the other main stevedore in the port, Montecon operating on the public berths, will lose out.

Since 2015 Montecon has been handling the lion’s share of container traffic but now it claims that it may not even survive following formal government recognition that, as per the terms of TCP’s concession agreement, container liner traffic must be handled first and foremost by TCP. Montecon, in turn, suggests that this effectively hands a monopoly to TCP which is not allowed under Uruguay’s constitution.

Hence Montecon is continuing with legal action aimed at overturning the recent government decision which has resulted in a major redirection of container flows in Montevideo.

What is the volume involved you ask? – a question that tends to have a bearing on the monopoly issue – for 2020 it was 765,000TEU, and it is on the increase. Indeed, TCP is initiating a comprehensive, front end led, investment programme, a large part of which is aimed at establishing Montevideo as the hub port for the River Plate as well as southern Brazil.

So, on the one hand it is possible to suggest that with a volume of this order and given a positive outlook for traffic development that it may well be beneficial to have a second string – second operator – involved in container handling.

On the other hand, TCP has committed to a US$455 million investment programme and it is logical to require some form of protection in this respect. Bottom line, from a liner perspective, the right service capacity has to be in place at the right price – the downside of monopolies is when they facilitate inflated prices.

It all usually comes back to a sensible concession agreement, price issues can be dealt with in this context and particularly for gateway cargo. Transshipment tends to have an inherent element of selfregulation via the presence of competing capacity in the wider region.

Indeed, TCP in a general context claims that it does face competition from overseas terminals, such as those in Buenos Aires, but practically speaking it is hard to extend this argument to import/export cargo.

A good concession agreement should always offer a level of protection to a serious investor in terminal operations. It should facilitate a sufficient volume turnover to generate an acceptable return on investment (ROI).

The other side of the coin is when a second operation is introduced too early to allow this to happen – this is not an intelligent approach. A typical situation in this instance is when the original investor – a common user terminal operator – experiences a relatively slow build-up of cargo and the host port authority decides to bring to the market a second terminal with a dedicated terminal for a shipping line in mind.

It may facilitate the port authority’s desire to open another stream of income, particularly with grants and soft loans playing a part in setting up the second terminal, but it shows little respect to the original investor and sends out a bad message regarding FDI in the host country. It is always better to exercise common sense