Game of leapfrog in the Mediterranean
Competition is heating up for the number one slot in the region’s container handling sector. Alex Hughes reports
Over the past 25 years, Valencia overtook first Barcelona and then Algeciras to not only become Spain's leading container port, but also the effective number one box handling facility across the entire Mediterranean. With plans to build a fourth container terminal as part of its new northern extension, the port's inexorable rise seems irreversible.
Piraeus, previously an underwhelming alternative notable for its high costs and poor efficiency, has other ideas.
Last year, throughput growth of 18.4% meant Piraeus reported throughput of 4,907,908 teu, while Valencia grew by “just” 7.25% to 5,182,665 teu. Should those increases continue into 2019, Piraeus will overtake Valencia.
In the Greek port, Piers II and III — which are operated by COSCO as Piraeus Container Terminal — handled 4.4m teu last year, while Pier I, which is operated by Piraeus Port Authority, handled 498,708 teu, achieving an increase of 10%. According to the port authority, there was a significant 25.4% rise in the volume of import-export cargo, which amounted to 95,673 teu, while transhipment rose 6.9% to 403,035 teu.
If Piraeus does, as seems likely, overtake Valencia, it will have COSCO to thank. Although the Chinese state company has a major stake in both ports, owning terminals in each, to date, its shipping line arm has favoured Piraeus.
However, with a fourth container terminal concession on offer at Valencia, the question remains as to whether COSCO management will be tempted to enter a bid and start a similar cascade of traffic as took place when it acquired a major concession in Piraeus in 2009.
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According to Piraeus Port Authority, the Chinese have already invested more than €600m in upgrading port infrastructure there, boosting overall terminal capacity to 7.2m teu, making the port an ideal location as the main hub in the Eastern Med.
Thanks to COSCO, Piraeus has posted some of the highest rates of box traffic growth globally. It has now moved up some 50 places in the overall world ranking of container throughput, occupying a position just within the top 40. It is already Europe's sixth largest box port and second behind Valencia in the Mediterranean. Its ambition is to be among the world's 30 most important ports, Europe's fifth busiest, and the leading box port in the Mediterranean, ousting Valencia.
According to George Vaggelas, managing director of consultants Ports & Shipping Advisory, Piraeus' aspirations do seem to be realistic.
Given that container traffic has already effectively doubled in recent years, he forecasts that it will continue to experience high development rates. Indeed, in both January and February, box traffic at COSCO's Pier II and III operations grew 22.2% year-on-year.
Nevertheless, he cautions that future growth depends on the overall strategy adopted by COSCO in European and, especially, Mediterranean ports in which the company has a presence, which is not just Valencia and Piraeus, but also Port Suez (Egypt) and Kumport (Turkey).
“Chinese decisions regarding the One Belt-One Road strategy, particularly in expanding their interest in other European ports also remains key,” he says, pointing to an existing limitation at Piraeus, where the maximum handling capacity is currently 7.2m teu annually.
By adding a fourth box terminal, Valencia will effectively boost its own capacity from 7.5m teu to 12.5m teu, and with state-of-art technology it could well be in a position to undercut other Mediterranean hubs in attracting transhipment traffic, which is where much of the rise at Piraeus has come from. Greek import-export traffic nowadays plays a relatively minor role at Piraeus, whereas Valencia has been able to wrestle transhipment traffic away from competing regional hubs thanks to its buoyant position as Madrid's leading maritime outlet.
While COSCO has long been a major shipping line customer of Valencia, it only became a majority shareholder in Noatum Ports in June 2017. Furthermore, uncertainty surrounding stevedoring reform in Spain may well have delayed its own development plans, although it has just rebranded its Valencia operation as CSP Iberian Valencia Terminal, suggesting a certain degree of permanence at the port.
Prior to the arrival of COSCO, Mr Vaggelas concedes that Piraeus “was under-performing”, mainly as a consequence of the previous governance model for Greek ports. “Reform didn't advance quickly enough, with the public sector remaining the major player at Piraeus until the arrival of COSCO in October 2009. Prior to that, Piraeus Port Authority had been the sole port operator, with the Greek State holding the 74.14% of the shares and the remaining 25.86% being traded on the Athens Stock Exchange. As such, Piraeus port was operated as a state company, which had an impact on its performance. It was handicapped by over-staffing, reduced operational efficiency and a business strategy focused mainly on achieving state goals instead of pure commercial goals.”
The result was an inefficient port, with workers having jobs for life, and trade unions able to negotiate generous benefits for their members.
Although there are similarities with the current situation in Valencia, the Spanish port has nowhere near the low level of productivity/efficiency that Piraeus once suffered. Although dock workers are generally agreed to be overpaid, and efficiency is not remotely as good as that at the Port of Barcelona, operations at Valencia are still relatively efficient. However, as to what COSCO might be able to achieve at Valencia very much depends on how the EU-directed stevedoring reform is eventually implemented. The current position is one of monopoly providers effectively giving port unions much too much power over negotiations with management. With the sector opening up, all that could change.
The high profile economic crisis faced by Greece proved a major driving force behind reform as did fiscal measures taken by the government. These saw salaries cut, overtime reduced and additional benefits enjoyed by the port workers made less generous, all driving down labour costs.
Many workers were also forced to take early retirement in order to avoid being affected by the new pension scheme, which would have meant lower incomes and an increased age limit for retirement.
“The government also froze recruitment and that helped downsize personnel costs,” says Mr Vaggelas.
The takeover by COSCO didn't just mean the introduction of modern container handling techniques. The Chinese had long been looking for an EU port in which to invest and, when they got a foothold, traffic from COSCO's deep sea fleet began to flood in.
The port workforce has accepted changes introduced by the new owners, since all personnel employed by it at PCT have been hired under working conditions dictated by the company and have therefore not experienced anything different.
PIRAEUS' TRANSHIPMENT AMBITIONS
Given that there are multiple transhipment options open to shipping lines in the Mediterranean, the question remains whether Piraeus will be able to attract more of this, or will simply be seen as a COSCO hub. However, Mr Vaggelas says the situation is more complex than this, since being able to offer attractive prices is just one factor.
“Of course, it plays a role, but in the contemporary port industry cargo is transported via the most efficient and cost-effective transport chain, thus port cost is only one parameter of the decision process. In my opinion, Piraeus will attract more transhipment cargo since COSCO is a decisive factor, not only in terms of its own traffic, but also in that transported by Ocean Alliance and other alliances. If Piraeus wants to maintain its position as a major transhipment hub in the Mediterranean and in Europe, it also has to invest in logistics and especially in added value activities related to the container business,” he says.
In this respect, Valencia is well ahead of the game.
Not only does it offer customers an adjacent logistics activity zone (ZAL), but COSCO has also acquired majority stakes in two inland container terminals, at both Madrid and Zaragoza, which help generate key flows of import-export boxes. Now that passenger trains to Madrid make use of their own dedicated high-speed line, trains on the parallel freight corridor no longer have to compete for slots, although a significant number of containers do still move by road to the Spanish capital.
Upgrading the Zaragoza-Valencia rail link has long been under discussion, although making a good financial argument for doing so has been difficult, even though automotive production plants in northern Spain have undertaken trials to see whether racks of finished vehicles could also make use of this route, thereby making a more sound economic case for investing in it.
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