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Joined up: ports can benefit from sharing assets Joined up: ports can benefit from sharing assets

Olaf Merk explains why mutualising assets is a win-win for neighbouring terminals

There is a lot of excitement about the so-called “sharing economy”. Its simplicity is its genius: money is made by intelligently mutualising assets. The advantage for companies: there is less need for investments in assets. The oft-given example of a sharing economy is Uber.

Shipping is not usually associated with such cool things. At almost every shipping conference, people talk about the mysterious Uber of shipping that will come and disrupt nearly everything. Many of us seem to be waiting for the sexy sharing economy to finally meet the rusty shipping industry.

Yet, container shipping is already a sharing economy. Almost all global carriers share slots via vessel sharing agreements, also called alliances. Just three alliances have a 95% market share on the important East-West container trades. With its extremely high entry barriers, container shipping’s vessel sharing agreements might be the closest that sector will get to a sharing economy. However, this is disruptive enough and will have radical consequences for the way ports are governed.

Landlord losses

Over the last decades, most countries have moved towards a landlord port model. In this model cargo handling operations are left to private operators that invest in cranes, equipment and hire port workers, leaving the public port authority as the landlord, giving out concessions, and determining the rules and investments in common infrastructures. However, times have changed and the landlord port model is much less logical in a world of strong alliances and the mega ships.

Why? Mega ships bring large cargo peaks that require the deployment of many cranes, equipment and workers – more than would be needed for smaller ships, even if the cargo amounts remain the same. So, there is less return on investment. Also, as there are only three major alliances, losing one or two alliances to a neighbouring terminal becomes a matter of life and death. Thus, terminals might feel forced to make investments that do not make financial sense for them, as the alternative would be to lose a third, half or all of their cargo, equating to huge losses.

It is an impossible dilemma, but here the sharing economy offers a solution. Mutualising the assets of terminals in the same port could be a way out of the dilemma. A common pool of cranes, yard equipment, yard space and labour in every port could be used by the terminals only at the moment of need, ie the peak and not at other times. Such asset sharing agreements could help to better utilise port terminal assets, just like vessel sharing agreements help shipping companies to better utilise their ships. This shared terminal assets model would arguably work best in terminals with adjacent quay lines and yards, so that mutualisation is possible at no other cost than taking out the fence between the terminals, allowing a free flow of gantry cranes and yard equipment. In cases where the sharing of equipment is problematic the mutualisation of other assets, such as joint container depots and a labour pool, could help the utilisation of terminals.

The logical outcome of such a development could be the emergence of a new port governance model, some sort of a private tool-port, in which a joint organisation of the port terminal operators can plan the deployment of common tools (equipment, labour, yard space) in that port. There is still competition, but there is also co-operation – to the benefit of all.

We will need a test case, to show that this can work. Ideally a port where all terminal leases expire at around the same period and where mutualisation of assets is physically possible. Did I hear someone say Buenos Aires?

Ultimately the feasibility of the new model depends on whether regulators will be willing to loosen anti-trust legislation for port terminals. Such exemptions exist for liner shipping, so why not for the terminal business? Policy coherence would require that both lines and terminal operators have such an exemption, or neither of them. Allowing the sharing economy in container shipping but not in container terminals is untenable and deserves revision.

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