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Transport Economics and Management

Inland Waterway Transport

Piet Rietveld Olaf Jonkeren

This lecture

The sector Current issues Article Konings (2007)

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The sector

Policy document EU, PINE: Prospects of Inland Navigation within the Enlarged Europe. A study that gives an overview of the inland waterway transport sector in four corridors (next slide):

Rhine & tributaries East-West corridor Danube corridor North-South corridor

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The sector

source: PINE (2004)

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The sector

Infrastructure Rhine and Danube form backbone system. Waterway network quite dense in Netherlands and parts of Belgium, Germany. Load capacity on a certain route determined by draught and bridge clearance. Weakest stretch determines load capacity for the whole route!

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The sector

Characteristics and performance: In the former European Union (EU-15) inland waterway transport accounted for:

440 million tons per year, 3,5% market share 125 billion ton-kilometres, 6,5% market share

Gravity lies in countries Netherlands, Belgium, Germany: 113 billion ton-kilometres, 90%. Modal share (ton-kms) in The Netherlands, 40%, Germany, 14%, Belgium, 12%.
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The sector

Employment and training In recent years a decline of national personnel. In West Europe a wave of East European staff. Problems: language/ communication, knowledge of foreign waterways unsafe situations. Also: nowadays not only nautical skills required. Additional qualifications like financial/ management/ ICT skills.

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The sector

Fleet Two main types of vessels:


Self propelled vessels: dry bulk, wet bulk Push barges: dry bulk

Vessels have a very long lifetime (+- 45 years). Advantage: long pay back period for the investment. Disadvantage: hinders fleet innovation behind of rail and road.
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The sector

Information and communication Currently integration of ICT within IWT sector by means of RIS e.g. RIS = River Information Services:

Obstructions in waterway, water levels. Estimation arrival time: for ports terminals Route planning, calculation time schedules, document exchange with waterway authority.

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The sector

3 segments:

Dry bulk Wet bulk Containers

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The sector

Dry bulk

Ore and coal: thick flows (on Rhine), large ships (push barges), Dutch seaports German hinterland (Ruhr area). Sand & gravel: strong relation with construction sector (and construction locations), on smaller waterways, domestic oriented + upper and lower Rhine area. Many suppliers, for some segments many customers, free entrance, leaving market difficult, some heterogeneity (ship size), transparency in spot market, in contract market less transparency.
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Market form:

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The sector

Wet bulk

Chemical industry + refineries, crude oil, oil products, sea port oriented. Relatively few suppliers, few customers, free entrance, leaving market difficult, some heterogeneity, mainly long term contracts > not transparent.

Market form:

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The sector

Containers

Sea port oriented, often pre-and-end-haul by road, clients mainly deep-sea liners who organize total chain, mainly on Rhine and between Rotterdam - Antwerp. Many suppliers and customers, free entrance, leaving market difficult, relatively homogenous, mainly long term contracts (year).

Market form:

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Current issues

Port competition Climate change Increase in ship size Double hull obligation

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Port competition, hinterland connections

Hamburg-Le Havre range: connections via road, rail and inland shipping

Antwerp: strong position via road Rotterdam: strong position via inland shipping Hamburg: strong position via rail

Improvements mainly via rail

Betuweroute Iron Rhine

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Bottlenecks in hinterland connections


Road congestion Lack of rail capacity Maasvlakte II


Stimulation of inland water transport 40% of containers should be transported to hinterland by inland shipping (government regulation)

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Climate change

Global:

In 20th century average temperature worldwide + 0,7oC Cause: use of carbon fuel Winters: warmer and wetter Summers: warmer and dryer

River Rhine basin, climate change for this area:


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Rhine river basin

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Large fluctuations of water levels: change in monthly discharge of Rhine river at different climate scenarios.

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Example: low water levels in 2003

Low water levels during a very long time

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Problems

One-way traffic Alternative routes Delays Lower load factors Other transport modes What does this mean for the competitive position of inland waterways?

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Lower load factor

As a result of low water levels, a ship can transport less cargo, so for transporting the same amount of cargo more ships are needed.

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Extra costs

Inland waterway transport enterprises have to leave tonnes behind so they want a higher tariff per ton transported. Result: costs for transporting of one ton of cargo by barge increase:

Normal water: 1000 ton * 5 = 5000 Low water: 333 ton * 15 * 3 ships = 15000

For transporting the same number of tonnes a shipper pays 3 times the price in case of low water levels.
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Extra costs

Relation between water levels and gas oil freight rate in Rhine shipping Source: EU, CCR (2011)

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Economic theory

Equilibrium at normal and low water levels. Change in economic surplus?

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How to increase supply

Short term

Increase load factor (when possible) Use capacity more hours per day Use capacity more days per year Increase speed Increase speed of loading/unloading

Long term

New ships Larger ships (when possible)


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Speed choice, working hours

Optimal speed depends on fuel prices

Decrease in speed with 30%: decrease in fuel use of 50%


Speed in knots Fuel use in tons Fuel savings (in $000) if fuel price is: $200/ton 14 13 12 11 10176 8184 6546 5156 398 726 1004 $100/ton 199 363 502

Source: Stopford (1993)

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Working hours depend on extra crew cost


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Concluding

Supply in de market is reduced. Higher transport prices: P by 20% for example. Demand is quite inelastic: Qby 3% for example. About same quantity transported at higher prices extra costs for the economy. Binnenvaart vaart wel bij lage waterstand (CBS) Inland shipping fares well with low water levels

Turnover in 2nd quarter of 2011 20% compared to 2010 due to low water levels.
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Increase in ship size


Current trend: new ships are all big (> 1500 ton). Inland ships < 1500 tons are becoming scarce. Reasons:

Economies of scale. Larger living area. New small ships have capital costs, existing small ships are relatively (compared to new ships) old, no capital costs hard to compete.

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Increase in ship size

Consequences:

Less navigation on small waterways: in future less maintenance? IWT dependent firms leave? Low water levels vs. large ship.

Case: building material sector Large ships cannot reach firms transshipment on small ships necessary extra transport costs.

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Optimal ship size


Haulage costs (on the move):

decrease with size (economies of scale/density) Increase with size (diseconomies of size)

Handling costs (in port)

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Optimal ship size


Haulage costs 2/3 Power law


Capacity: Volume of ship Costs: proportional to surface area Cube or ball:


volume=a*radius3 surface=b*radius2 volume=c*surface3/2 surface=d*volume2/3

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Cost proportional to capacity2/3 Costs increase with an elasticity of 2/3 with respect to its size 10% increase in ship size leads to a 6.7% increase in costs
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Optimal ship size

Handling costs (Jansson and Shneerson, 1981)


Handling capacity (tons/day) as function of ship size

1/3 power law: H=h*S*1/3 Fuel cost, operating cost, capital cost Cost of factor i per day: Ci=pi*qi*Sei where ei is the elasticity of factor cost with respect to size Total cost per ton in port: iCi/H= 2*ipi*qi*Sei/(h*S*1/3) = ipi*qi*S(ei-1/3)/h (dis)economies of ship size S if (ei-1/3) (>) <0 efuel cost: 0.6 1; eoperating cost: 0.3 - 0.6; ecapital cost: 0.6 - 0.7 diseconomies of scale in handling

Time costs

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Optimal ship size

total cost per ton = (transport cost per ton

handling cost per ton

haulage cost per ton

ship size

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Optimal ship size

Given ship size, transport costs are linear with distance Handling cost/ton increases with ship size

transport cost/ton tapers with distance: envelope of ship specific cost lines

transport cost/ton small ship transport cost/ton large ship

freight curve: freight rate per ton tapers with distance

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distance
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distance

Optimal ship size, short distance


total cost per ton

smaller optimal ship size

handling cost per ton

haulage cost per ton, short distance

ship size

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Optimal ship size


Optimal size low for short distance and high for large distance Reason: Weight of haulage costs are low for short distance Explanation: haulage costs are product of haulage costs per ton and kilometers When trips get longer larger ships are necessary
E.g. feeder services vs. trunk services Low frequency on long distance routes

Low demand High vehicle (ship) capacity

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More on the freight curve


Prices may taper even if transport cost do not

Quantity discounts: 2nd-degree price discrimination

More possibilities for high mark-up in short trips

positive mark up on short distance haulage cost per ton, short distance haulage cost per ton, short distance

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ship size

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