Dr Patrick Verhoeven is Managing Director of the International Association of Ports and Harbors (IAPH), responsible for policy and strategy. In this article, Patrick provides an international perspective on the role of ports in global trade and recent developments in the industry.
The role of ports in the global economy cannot be underestimated. On its website, the International Chamber of Shipping cites that approximately 90% of world trade is carried by the international shipping industry and that without shipping, the import/export of affordable food and goods would not be possible. Half the world would starve and the other half would freeze.
That being said, the globalisation of trade has taken some interesting turns in recent times, which will require ports to rethink their role as trade facilitators and even perhaps their own models of governance and operation.
On one hand, you have the emergence of trade and tariff barriers which is not singularly related to the US-China trade war, which have so far impacted around
$250 billion worth of Chinese goods and $110 billion worth of US goods. For example, pressure on US-Indian trade relations has emerged in recent months, which was worth $142.1 billion in 2018, of which India has a surplus of $24.2 billion.
The EU has in recent months imposed import duties of 25% on a $2.8 billion range of imports from the United States, in retaliation for US tariffs on European steel and aluminium. Then of course there is the case of Brexit. To put this particular trade issue in perspective, the figures published last week by the Commons records account for £172 billion in goods exports to the EU with £265 billion in imports from the EU to the UK in 2018.
In its latest report the IMF has projected world economic growth to slow down even further, with world trade revised downwards heavily by -0.9 percentage points for 2019, down to 2.5%. Advanced economies have been revised downwards by -0.6 percentage points, and the emerging economies revised downwards by an even higher -1.4 percentage points.
On the other hand, despite this pessimistic outlook, global growth does persist, albeit at a much lower level than shipping has been used in recent decades. Some of the world’s ports are maintaining their growth trajectories whilst others have seen some impact on volumes. What has been interesting is growth in regional volumes, particularly in Asia. The traditional industry view on terminal size and transshipment being everything is now changing. Becoming a successful port does not necessarily mean having to be amongst the largest players if you can serve your local and regional economies in an efficient and sustainable manner. This requires an explanation.
“Vast databases of information could be shared to provide predictive forecasts of future vessel, cargo and intermodal movements at a port to optimise the efficiency of vessel calls, minimising emissions and energy use.”
We are witnessing interesting developments in both manufacturing methodologies as well as the role of ports in overall supply chains. First of all, there is further momentum in the emergence of megacities or mega-conurbations, often located in coastal regions. Secondly, the rapid emergence of robotics in manufacturing as well as the deployment of artificial intelligence to improve productivity is impacting how and where goods are now produced. As the costs of capital for these new technologies become lower, the opportunity to bring manufacturing closer to the actual consumer is rising. In addition, the explosion in retail e-business demand is changing the face of supply chains, where we are seeing our port members becoming increasingly involved in connecting directly with exporters and importers as a critical node in their supply chains. Customising orders in a cost- effective manner upon discharge, whether this is from a container door, a bulk hatch or even a cryogenic hose means that ports are having to rethink their role entirely.
We are beginning to see this emerge in particular where manufacturers are making long-term investments in regional production locations in port areas, especially in the case of greenfield developments.
There have also been some very interesting developments where air and land-based modes are being combined with sea legs to optimize the supply chain. A good example of this is the Chinese Belt and Road initiative where regional sea hubs such as Baku can provide useful connectivity options on the landside, especially with rail. We have also seen recent examples at our annual IAPH World Ports Conference last May in Guangzhou, of airports beginning to collaborate with ports when it comes to meeting shipper demands for transit reliability for high-value products and consumer goods.
Consolidation, mergers and joint ventures are resulting in the reduction in the number of service providers at the world’s ports, whether they are liner shipping companies, port agents, bunker suppliers, terminal operators or ship's chandlers. How fast the ports themselves, and the organisations serving the ships that call at them, are prepared to move in terms of the data they share with each other, will also determine how interconnected and competitive a port can become in the future, irrespective of size.
The emergence of collaborative technology now crosses borders, organisations and organisational processes and has the proven potential to simplify cargo movements. Potentially the chronological path of a product’s progress from factory floor to container, to stack, to vehicle, to port gate, quayside, ship’s hold, right through the converse path to importer and buyer, can be tracked and traced by all parties involved. Vast databases of information could be shared to provide predictive forecasts of future vessel, cargo and intermodal movements at a port to optimise the efficiency of vessel calls, minimising emissions and energy use.
The combined changes we are seeing and the way people buy, manufacture, supply and, in the case of the circular economy, reuse goods, have transformed supply chains. Ports will need to keep up with these changes and revisit their traditional roles as landlords and regulators to become genuine business promotors and community managers.