Teacher. Michael Dooms on sustainable port development

0

Port of Lamu under construction (LAPSSET Corridor Program)

Posted on September 2, 2022 at 7:49 p.m. by

Brian Gicheru Kinyua

Over the past two years, the maritime and port sector has undergone a radical transformation. Historically, container shipping has been a loss-making business as overcapacity plagued the industry. For example, in the decade before the pandemic, the container shipping operating profit margin was -0.2%. That figure has now risen to 57.4% in the first quarter of 2022, according to Alphaliner.


As back-to-back disruptions hit the world, starting with the Covid-19 pandemic in 2020, the fortunes of the container shipping industry have changed a lot. Analysts predict that this year’s combined net income for the top 11 shipping carriers could reach $256 billion, a figure nearly equivalent to Portugal’s gross domestic product.


To stay ahead of the game, players need to take a proactive approach in their vision of the entire maritime sector.


To help decipher the new dynamics of the shipping business model, Brian Gicheru spoke with Michael Dooms, Professor of Port Economics at Solvay Business School, University of Brussels, Belgium.


How can businesses build resilient supply chains in a global economy awash with disruption, especially on the port side?


What I have found is that most internationalized companies have been able to adapt very quickly. In Europe, for example, some companies had already launched proximity and relocation plans long before the disruptions occurred. When the shutdowns arrived and ocean freight rates soared, the majority of companies decided to rely on regional (EU) supply chains, also driven by the widespread adoption of risk management (ERM) over the past decade.


Nevertheless, these disruptions continue to pose a structural challenge to companies with internationalized supply chains. Relying on an exclusive or limited supplier base remains a recipe for disaster, as the war in Ukraine and the Covid-19 pandemic have shown. However, the debate on re-shoring and nearshoring cannot be generalized. Different dynamics are at play depending on the type of industry.


The labor cost incentives that encouraged companies to relocate production to developing countries in the past are offset by rising transport costs due to disruptions in ports and supply chains. The labor cost incentive was already under pressure due to automation in some emerging economies, which significantly reduced the labor cost advantage.


For ports, this means that they must develop an in-depth understanding and constant monitoring of the various value chains located in or transiting through their infrastructures and regions.


There has been a recent upsurge in port strikes, particularly in Western countries. What do you think of effective stakeholder management by port authorities around the world?


Following the recent disruptions, ports and airports have become a crucial part of the supply chain. For many years the port industry operated behind the scenes, but the public is now seeing the value of the connectivity offered by large container terminals.


Therefore, logistics is now seen as an important part of the economy to stabilize prices or at least minimize disruptions to keep the entire economic system functioning.


Shipping carriers and ports/terminals make a lot of money. Unfortunately, this has not yet affected the remuneration of ports and dockworkers. Remember that these workers went to extra lengths during the Covid-19 pandemic to keep ports open, often under difficult working conditions. A scenario where the profit share does not reach them will certainly create a conflict. It is about an equitable distribution of resources and benefits among all the stakeholders involved.


Building on this issue of stakeholder management, you referred earlier to a week-long discussion you had with European dockworkers about port automation before the pandemic. Is this a concern for port workers about their job security?


From our conversations, dockers are not necessarily against automation and they recognize that their profession is evolving with the need to embrace innovation. In fact, they see some benefits.


The only concern is that most existing terminals need to automate in stages, which could introduce additional risks and complexities in the interaction between human workers and large automated machines.


This means that port authorities have to invest in extensive training of workers on the hybrid system, which also leads to costs and sometimes even a drop in productivity in the adaptation phase. If such an exercise is rolled out without the involvement of dock workers’ unions, there could be an increased risk of accidents at terminals, ultimately leading to resistance due to safety concerns and diminished stakeholder support for automation. .


Finally, the benefits of innovations brought about by automation and digitization must also be fairly distributed.


Climate change is now a major global concern. How should ports redefine their business strategies to ensure they are compliant with emerging climate requirements?


There is no miracle solution to deal with the sustainable transition. Each port should design a specific green policy based on the type of economic activities taking place and their local environmental impacts.


For example, some approaches are best suited to reducing global carbon emissions, while others are deployed to control location-specific emissions that directly impact local communities (such as fine particulates). Take the case of the Port of Mombasa, where as the facility grows, it could have an increasing impact on the environment of the city of Mombasa.


A few years ago I was taking photos while flying in Mombasa and you will notice a thick layer of smog over the city. The presence of ships in the port with running engines and the movement of trucks play an important role, as impact measurements in port cities around the world have shown. In such a situation, maintaining an appropriate air quality standard becomes a priority. In some cities, increasing air pollution is becoming a public health tragedy.


When designing green port policies, we need to take a holistic approach to environmental vision. We need a strong set of internally consistent measures to ensure that all stakeholders benefit from such a policy.


Additionally, all parties involved must share the common vision of having a good environment, and while there may be negative impacts in the short term, no economic activity should be unnecessarily disadvantaged in the long term.


We are seeing an increase in the construction of new ports in East Africa, such as the ports of Lamu (Kenya) and Bagamoyo (Tanzania). What do you think of this, based on the rapid evolution of the maritime sector over the past two years?


I think in East Africa there has been what I would call a “fever” for large infrastructure projects. Almost every country wants to have a logistics hub and a maritime gateway for each other.


As we have seen in Europe with these large terminals, critical economic questions need to be asked. It is not a business understood by everyone and based on the fact that it takes place away from the public (at sea), the review tends to be lower, as opposed to other large scale infrastructure (such as airports, energy projects, shopping malls).


We need to be realistic about things like ship traffic forecasts, how liner shipping companies operate and, most importantly, how shipping companies evolve with changing business dynamics. Another critical question is to probe the realistic growth of containerization against the potential of projects designated as transshipment hubs.


Many studies have concluded that the decision to build these ports is not always based on sound economic analysis, sufficiently contested by experts and stakeholders.


Usually this stems from top-down government policies and the need to modernize physical infrastructure, which is of course an important and legitimate objective. However, when combined with other factors such as donor pressure – often with specific interests in construction – the inevitable result is a compromise on the socio-economic justification for building new infrastructure.


This poses a solid risk of infrastructure overcapacity for very long periods of time, leading to diminished societal and even market support for these projects, in turn leading to stakeholder opposition to future infrastructure development at all levels.


However, there could be strategic advantages for these upcoming ports. In 1991, Rotterdam embarked on a major port expansion project towards the sea, creating more than 2,000 hectares of space in the sea, including 1,000 hectares for new economic activities. The prevailing thought at the time was that space would eventually fill with containers as trade grew, but that didn’t happen when container markets matured. Twenty years later, the project found relevance with offshore wind companies jostling for port space for the production of wind turbine components.


The zone will therefore rather have a very mixed economic vocation, including but not entirely container handling. The sustainable transition to a low-carbon economy could be an opportunity for these high value-added greenfield projects.

Share.

About Author

Comments are closed.