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ABSTRACT The bases for the internationalization of the port terminal industry are
explored. While the industry is being transformed by the penetration of transnational
companies, there are important regional differences between Europe and North America.
In Europe, the lead actors are companies that have arisen out of the industry itself,
whereas in North America, most of the new actors are shipping lines. The consequences
of this differentiation are substantial, since they represent fundamentally different types of
organization, one being a product of horizontal integration based on multi-user berth
operations, the other being an outcome of vertical integration and oriented towards
dedicated berth use. The dissimilarities are explained in terms of governance, competition
and capacity. Intraregional differences are also examined through the case of France, where
an unwillingness to open French ports to global operators has affected the performance of
those ports. The paper concludes by discussing some of the implications of the findings,
including the issue of monopoly control of ports and the potential for conflict between the
two models of contemporary cargo handling.
Introduction
Despite there having been a variety of institutional arrangements governing ports
in the past 50 years (Adams, 1973; Goss, 1990; Stevens, 1999), two models typified
container terminal management up to the very end of the 20th century. Some port
authorities provided cargo-handling services themselves, investing in and
operating terminal equipment, and directly employing dock labour. A second
model involved contracting terminal and stevedoring operations to third parties.
Examples of each model could be found in ports across the spectrum from state-
owned facilities to those under different forms of control. Whether there was
direct or leased management of container terminals, operations tended to have a
local character, since in the leased model the firms tended to be locally based, and
in the direct port ownership model operations were inevitably local (Martin and
Thomas, 2001). This pattern held sway for much of the 20th century up to the last
Correspondence Address: Brian Slack, Department of Geography, Concordia University, 1455 boul. de
Maisonneuve W., Montreal, Canada H3G 1M8. Email: slack@vax2.concordia.ca
decade. Thus, in the case of Europe’s leading port, Rotterdam, the Netherlands, a
number of firms operated the terminals on lease from the municipally owned port
authority (Doe and Schoenmakers, 1998), while in London, it was the port
authority itself that ran the container terminals (Adams, 1973). Similarly, in the
USA, the Virginia Ports Authority operated the facilities at Norfolk (Marcus,
1976), while in the port of New York–New Jersey, facilities were leased to local
stevedoring firms (Warf, 1988). This simple distinction did not apply in every
case, and there were examples where the two systems operated in parallel in the
same port. An important feature of both models was the use of terminals for
multiple shipping line clients. Each terminal had its own collection of shipping
line customers for which container-handling services were provided on a
contractual basis.
Terminal operations have been caught up in a maelstrom of change over the last
decade. The former organizational and ownership structures have evolved in
very significant ways. Most notable has been the involvement of global actors in
terminal operations. There are two main types. Over the last few years, many
ports around the world have ceded container handling to a small number of
transnational terminal operating companies (TTOs). The result has been that
whereas in 1991 TTOs (including those identified as hybrids below) controlled
20% of container handling world wide, their share had grown to 35% by 2001
(Fossey, 2002). At the same time, international shipping lines have also extended
their interests in terminal operations by securing long-term leases over dedicated
berths. In 1991, the shipping lines controlled 11% of world container port
handling, and by 2001, their share had risen to 19%. Thus, at the start of the 21st
century, international companies controlled over half the world’s container-
handling business. Both developments resulted in the disappearance of inde-
pendent local terminal management firms. However, the differences, both
practical and theoretical, are very substantial. The TTOs pursue operations still
based upon the multi-user model. On the other hand, the shipping lines manage
dedicated terminals to work their own ships and those of other lines that are
members of the same strategic alliance. These differences also reflect a
fundamental organizational distinction. For the TTOs, their control over facilities
around the world is the outcome of an expansion horizontally. For the shipping
lines, control over terminal operations is a product of vertical integration. In the
terminal operating industry, therefore, two fundamentally different processes are
taking place with contrasting modes of operation.
The goal of the present paper is to provide an understanding of a process of
change that is manifesting itself in different ways and for different reasons. It
begins by examining why in less than 10 years there has been such a radical
restructuring of the port terminal industry. The literature on the subject suggests
that the restructuring has come about due to a number factors, including
globalization, economic restructuring, deregulation and privatization (Musso et
al., 2001; Notteboom and Winkelmans, 2001; Heaver, 2002). While the process of
restructuring is seen to have arisen out of forces that are global in scope, attention
is drawn to the fact that the transformation is uneven and that important regional
differences are evident. In the ports of the USA, dedicated terminals are far more
evident than in Europe where the TTOs hold greater sway, while in East and
North Asia a greater balance between TTOs and shipping line managed terminals
is evident. Europe and the USA appear to be at different ends of the spectrum and
therefore provide a useful set for comparative analysis.
Transformation of Port Terminal Operations 119
Terminal operating
companies Europe North America East and North Asia
(Slack, 1993). For the new actors, individual ports are but one node in networks
that span the oceans and the world.
Former local stevedoring companies have also undergone a transformation,
with outright purchases or significant intervention from the new global players
(Ferrari and Benacchio, 2000). The need to install expensive information
technology systems, the pressures to replace equipment and to operate berths at
ever higher levels of throughput have imposed pressure on the traditional
terminal operating firms that many were unable to meet. The international
players offer such services, and hence have made rapid and extensive inroads in
ports around the world (Notteboom, 2002).
While the changes have resulted in a global internationalization of the port
industry, a distinct difference is emerging at the operational level in the degree
to which berths are operated for a single user or are managed for a number of
shipping line clients. The two models are very different. The multiple user
model is the traditional management and operational system. Here, the terminal
manager provides a range of equipment and manpower to handle vessels from
a number of client shipping lines. In this way, berths can be occupied more
fully, and the equipment theoretically can be used to its maximum efficiency in
which the idle time is minimized (Haralambedes et al., 2002). This is the system
that port authorities and terminal management companies prefer because it is
seen to use resources more effectively and because higher berth occupancy
results in higher revenues. Turner (2000) has estimated that if the Port of Seattle,
WA, USA, were to adopt multiple users at all its terminals, its capacity could
increase by 17% with no increase in terminal space. The dedicated terminal
model is one preferred by shipping lines in some circumstances, since it gives
them absolute control over operations (Haralambedes et al., 2002). Waiting time
for berths is minimized, and the particular needs of the traffic or the stacking
sequences can be planned to the complete satisfaction of the carrier (Heaver,
2002). The shipping lines’ interest in dedicated terminals is traffic dependent. If
the volume of traffic at the port is not great, the costs of managing a dedicated
terminal would make it uneconomic (Brennan, 2002). The tendency of the major
shipping lines to operate their mainline services out of a few hub ports has
resulted in a strong traffic concentration, a trend accentuated by the merging of
lines and the formation of strategic alliances. This has given the impetus for
carriers to seek dedicated terminals. On the other hand, many port authorities
have been reluctant to cede leases for dedicated facilities because of a potential
loss of revenue because of fewer ship calls and lower berth throughputs
(Haralambedes et al., 2002).
The net effect of these developments, however, is that Europe has seen much
greater involvement by the terminal operating firms than North America (Table
1). Three of the TTOs account for nearly 20 million TEU (twenty-foot equivalent
unit) of Europe’s container traffic. With the exception of the US-based SSA, none
of the major global ‘pure’ terminal operating companies has penetrated the North
American market.
Globalization in the North America industry has come from the shipping sector.
Two hybrids, P&O Ports and APM, have entered the terminal industry in the
USA, the former through its purchase in 1999 of ITO, a stevedoring firm that
operated on the East and Gulf coasts, the latter through inheriting Maersk and
SeaLand facilities. There is also a growing list of shipping lines involved in the
provision and operation of dedicated terminals (Table 1).
Several factors account for the regional differences. First is the degree of
liberalization that has occurred in the governance of ports in Europe. In the UK,
there has been a complete privatization of the ports industry (Thomas, 1994),
which has allowed interested parties to secure equity interest in ports. In Italy,
Spain and Portugal, port reform has opened management and control to the
private sector that has represented a fundamental transformation of the port
industry. It is significant that the greatest involvement of the international
terminal operators has been in these countries. In the Benelux (Belgium, the
Netherlands and Luxembourg) countries, the municipal port authorities have
responded only recently to the developments taking place elsewhere in Europe by
looking with favour on mergers between local terminal operators and the
involvement of foreign capital.
In the USA, equivalent port reform or liberalization has been absent. There,
municipal or state governments control ports and in many cases continue to
provide port services themselves. While not inamicable to private capital, the lack
of change in governance has not provided the catalyst for change that took place
in Europe. More important for the situation in the USA is the manpower situation.
US dock-workers are some of the most militant and restrictive of any in the world:
witness the container terminal strike on the West Coast in the Fall of 2002. Their
unwillingness to adjust to technological change and their insistence of maintain-
ing acquired rights has not been attractive to the TTOs, for whom modification of
labour practices is an essential step for greater efficiency and profitability. In
Europe, reforms in the UK and Italy essentially destroyed the power of the
unions, creating circumstances that encouraged the participation of TTOs.
Yet, why should the shipping lines be more prevalent in North American ports?
Again, it is suggested that governance provides a partial answer. However, there
is also the issue of a spatial strategy. US port authorities, particularly on the West
Coast, have been amenable to sacrificing potential higher utilization rates (and
hence higher revenues, possibly) for commitments to long-term leases and capital
investment by the lines. From their perspective, there is intense competition for
business, with neighbouring ports that are in a position to lure clients away. Los
Angeles, CA, faces immediate competition from Long Beach, and Seattle, Tacoma,
both WA, and Vancouver, BC, Canada, are keen local competitors. From the port
authority’s view, it is more important to secure commitments from the carriers to
continue to provide services than maximizing berth utilization rates. At the same
time, the lines have exerted strong pressure on the ports to obtain dedicated
facilities, because from their perspective there are few potential alternatives on the
West Coast. There may be six or seven major ports on the range, but they are
124 B. Slack and A. Frémont
clustered, and from a line’s point of view there are only three entry points: the
Pacific North West, Central California and San Pedro Bay. The need to secure
space at one or more of these entry points has been critical, and hence they are
driven to assure themselves of berths that they can manage and operate according
to their own needs.
The volume of business handled by the major carriers on the trans-Pacific trade
routes is a further factor. The lines have been more willing to agree to long-term
leases because the traffic justifies their operation of dedicated facilities, and the
port authorities have been ready to acquiesce because of port competition.
In Europe, on the other hand, the TTOs have secured a dominant position. They
have acquired ownership of terminals in some cases, and even where they are
leasing facilities, the port authorities see them as more preferable tenants because
of their high levels of expertise and promises of efficiencies. When in place, the
TTOs are even more reluctant than port authorities to consider offering carriers
dedicated berths because of perceived lower berth throughputs. An indication of
this is the recent opposition of HPH in Shanghai to proposals to invite
participation of the carriers in the development of the new deep-water terminal at
Yangshan. As the main terminal operator of the existing container facilities in
Shanghai, its manager claimed that ‘common user facilities are a better allocation
of resources, they assure greater neutrality and offer the highest productivity’
(Bangsberg, 2003).
The deterrent of US longshoremen for TTOs does not appear to be as serious a
consideration for the shipping lines. The explanation proposed here is speculative
and requires verification, but the difficulty of coming to an agreement with the
stevedores for working a berth is less of a problem than dealing with an entire
terminal involving many berths, several clients and a great range of terminal
operational demands.
with a family capital. The Perrigault group, a major investor in the Terminaux de
Normandie, is a financial holding whose interest in cargo handling activity is
limited. GMP and MGM-Eurofos depend on public companies, some of which,
such as Féron de Clebsattel, a subsidiary of the French national railway company
SNCF, are themselves struggling with serious financial difficulties.
In contrast to their European competitors, French terminal companies are not
entirely responsible for running the container terminals they operate. They share
operations with the port authority, which causes extremely muddled relations,
which vary from port to port. In terms of equipment, the straddle carriers are
bought, run and maintained by the handling companies, while the gantry cranes
are bought, run and maintained by the port authorities. The gantry cranes are
then leased to the handling companies. In terms of the workforce, the dockers
have been salaried and employed by the terminal companies directly since the
reform of 1992, while the gantry crane operators and maintenance staff are
employees of the port authority. This extremely confusing system has led to the
dissipation of responsibilities between the different actors and has produced
inflexibility. Conflicts arise over the maintenance of the equipment, with the port
authority on the one side wishing to respect maintenance and safety require-
ments, while on the other side, the terminal operations companies seek to
maximize the use of equipment. The distinction between the gantry crane
operators and the dockers, who are responsible for all other activities within the
confines of the terminals, including the operations of the other lifting gear, has led
to strict working practices. According to the activity on the terminal, a gantry
crane operator can only drive a gantry crane and not a straddle carrier. The gantry
crane operators work for 2 hours at a time, which causes interruptions in
handling operations. French container ports remain at the level of a traditional
breakbulk port community (Martin and Thomas, 2001) characterized by a
fragmented system between the different actors who remain ignorant of one
another.
These difficulties result in low French container terminal productivity com-
pared with their European competitors. In Antwerp, Belgium, a container gantry
crane is used about 4000 hours/year compared with only 2600 hours in Le Havre.
Gantry cranes on average handle 30–35 containers/hour in Antwerp compared
with 20–25 in Le Havre. While Le Havre still possesses a locational advantage as
the first or last port of call on the Northern range, the low productivity of the
French terminals encourages neither a growth in traffic nor expansion, thus
restraining any modernization.
Why have French ports been unable to extricate themselves from the vicious
circle in which they are trapped? The dockers are an easy scapegoat. They are
affiliated with the large CGT trade union that is vehemently trying to preserve its
monopoly in the entire port sector. For example, a shipping line calling on a
private haulier to transport a container to a terminal requires the agreement from
the dockers’ union. The recruitment system is principally from father to son, from
one generation to the next. The reform of 1992 has allowed the dockers to be paid
on a monthly basis and to become ordinary salaried staff, but this has led to
numerous strikes that have tarnished the long-term reputation of French ports.
The reform has also put a financial strain on the already financially stretched port
authorities and handling companies because they have had to take on a large part
of the costs of the redundancy schemes that have drastically reduced manning
levels.
126 B. Slack and A. Frémont
have formed a joint venture to acquire an 80% interest in EGIS. Negotiations have
also taken place with the Hutchinson Group. However, there is a fear of the port
falling under the control of a powerful actor that nobody locally can control. The
third principle, therefore, is to guarantee the presence of public investment at the
heart of one of the present terminal operators, GMP.
The problem of managing terminal workers has still to be solved. Single
command implies the transfer of the port authority gantry crane operators and
maintenance staff to the private terminal operators. This transfer means a huge
redefinition in the role of the port authority, refocusing its role as a ‘facilitator’ of
projects between the different port actors. Change brings fear. In Marseilles, the
simple proposition of creating a new container terminal in Fos nearby, Fos 2XL,
under the new regulations, led to a 3-week strike in December 2000.
How these changes play out still remains to be seen. It is unlikely that the
French Government will get further involved, since it has more pressing social
and economic issues to address. The success of projects such as Port 2000 lies
essentially in the capacity of the local actors to find negotiated and innovative
solutions to competitive pressures that are at a global scale.
European Networks. Its directive aimed at opening access to ports and promoting
internal port competition appears to be at odds with the actual power of the
TTOs. Competition within and between ports appears to be marked increasingly
by competition between the different terminal networks of the TTOs. How can
European ports retain their independence of strategic choices when the interests
of the TTOs are pre-eminent? In seeking to promote port efficiency, are European
policy-makers indirectly favouring monopolies that will limit the abilities of local
public interests to intervene in planning European transport networks?
The two major types of port terminal operations, the multi-user terminal
management company and the dedicated berth managed by a shipping line,
represent outcomes of different economic processes. The TTOs are creations of
horizontal integration. The shipping lines’ interest in berth management is a
manifestation of vertical integration. The contemporary growth of both models
appears set to place them on a trajectory that may lead to future conflicts. With
increasingly more major ports ceding operations to TTOs, the lines are likely to
extract dedicated terminal space from the TTOs, something they have largely
resisted so far. Which model will prevail? Financially, the terminal industry
appears to be in much better shape than the shipping industry, but the shipping
lines are generally much larger companies, with greater capitalization. The lines
are customers of the TTOs and have the ability to shift from one to the other, and
so may have advantages in future competition. On the other hand, it may be that
in future the two will find it better to cooperate, either in loose strategic alliances
or in formal mergers. The ‘hybrids’ may be the direction in which the industry is
heading. As companies that manage terminals, they are affiliated with shipping
line groups and have grown in part by taking over former terminal operators,
such as ITO in the case of P&O Ports. The purchase in 2002 of CERES, a regional
North American terminal operator that had expanded into the Netherlands, by
NYK, a major Japanese carrier, may be seen as a strengthening of this trend.
Conclusion
Whatever its future, it is evident that port terminal management has undergone
a major transformation very recently. The changes have important theoretical and
practical implications. At the heart of the developments is the fundamental
contrast between the TTOs, which operate terminals for multiple clients, and the
dedicated terminals controlled by one shipping line. This distinction is differ-
entiated regionally, with Europe tending to a much greater degree towards the
TTO model and North America tending to a dedicated berth operation. This
finding is yet another example of the limits to globalization. The container
shipping lines and TTOs may be operating on a world scale, but their penetration
of markets is differentiated regionally. It is suggested that even regional
differences may mask more localized distinctions, between France and the rest of
the European Union, between the East and West Coasts of the USA for example.
Thus, it is observed that while local control in terminal handling can be ceded to
international actors, the scope and form of operations may be shaped by locally
determined governance issues.
Important questions arise out of the transformation of terminal management.
The economic efficiency of dedicated terminals versus common user facilities is a
basic research question. The evidence is unclear. Some research suggests that
multi-user facilities achieve higher levels of performance (Turner, 2000), while
Transformation of Port Terminal Operations 129
other studies claim higher throughputs for dedicated facilities (Carriou, 2003).
Research in this area is necessary to determine which model is best suited to what
particular type of port. However, the present study suggests that cost differentials
are not the only determinant, and that governance, institutional relationships and
spatial competition, factors that are regionally differentiated, are additional
considerations. An important question, therefore, is whether or not these forces of
regional differentiation diminish or grow. Finally, the question is raised of
whether public authorities may be forced to act to curb growing threats of
monopoly power in ports. So far, the academic evidence suggests a negative
(Notteboom, 2002), but with the continued expansion of both TTOs and shipping
lines in terminal operations in many regions, the ability to exert power over local
and regional supply chains is enhanced, and the interests of local port
communities is diminished. These are important questions, the answers to which
will help in the understanding of the nature of globalization and maritime
transport.
Acknowledgements
This paper is a much modified version of a presentation made at a seminar
organized by the Working Group on Globalisation E-Economy and Trade of
STELLA, Brussels, April 2003. The authors gratefully acknowledge the perceptive
and very helpful comments and suggestions from two anonymous referees.
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