23 rd IAPH World Ports Conference May 26, 2003

1. 23rd IAPH World Ports ConferenceMay 26, 2003 Existing and Emerging Transshipment Hub Ports in Latin America and the CaribbeanbyLeigh B. BoskeUniversity of Texas at Austin

2. Purpose • Analyze transshipment in Latin America and the Caribbean • Identify existing and emerging transshipment hub ports, ranging from larger global transshipment centers to smaller regional transshipment hub ports • Evaluate hub ports in the region based on a set of necessary criteria, statistical regression analyses and other modeling techniques

3. Regional Containerized Trade • As recently as 1996, there were only 17 ship-to-shore gantry cranes in Latin America and the Caribbean region. • Although ports are expanding their capacity and transshipment is on the rise, the region handles relatively little containerized trade as compared to other areas of the world. • Governments and private interests now recognize the adverse effects of neglected port development on regional economic growth. • Investments in port development projects can now be found throughout the entire region.

5. Role of Transshipment Hub Ports • At present time, approximately 30 percent of worldwide container movements is transshipped. • Transshipment services provide shippers with additional routing options and reduced transit times. • Maritime shipping relies on transshipment as a means of reducing the number of ships in use at one time.

6. Role of Regional Hub Ports • The average container vessel operating in Latin America and the Caribbean region carried approximately 1500 TEUs. • If vessels remained the same size, the number of weekly vessel services would need to double in accommodate the expected growth in trade. • One logical response to this increased traffic is to use ships with greater capacity for containerized cargo. • Moreover, transshipment will become increasingly important and hub ports are expected to become catalysts for global and regional trade.

7. Necessary Criteria • While debate persists over the extent of future hub port development, experts have noted a number of features that should exist at successful hub ports.

8. In their book Strategies for Global and Regional Ports, Gustaâf de Monie et al. identify necessary criteria for either global or regional hub ports: 1.   Location: The port must be geographically located in a suitable position. It must have a central position with respect to the ports to be served as feeder ports. 2.   Minimum Deviation: Potential hubs will be differentiated from the general pool of possible stops if they allow only a “minimum deviation”’ from main shipping lanes. This deviation should be measured in terms of time and not distance. 3.   Access: The port should have adequate draft for the ships it intends to serve–for global and regional ports this would be the largest ship traversing that particular route and making calls to the selected port. 4.   Container Terminals: As the use of transshipment increases globally, a hub port (global or regional) should have facilities to accommodate these needs, in terms of both equipment and storage space. 5.   24-Hour Operations: The ability to offer year-round service on a 24-hour basis and availability of all support services, such as pilotage, towage, and mooring are critical elements. Hub Ports Criteria

9. 6.   Turnaround: Ports hoping to serve as hubs within their regions of influence should minimize turnaround time; hub ports should offer a “central position” with respect to the feeder ports. This condition also assumes that the ports exhibit high levels of productivity and are operating efficiently. 7. Costs: The ability to offer competitively priced port and terminal services, which would ideally fall below industry/regional averages. 8. Favorable Business Environment: The selected port should be located in an environment that not only enjoys political stability but also can guarantee that there will be no interruptions to port operations because of labor unrest. 9.   Eliminate Bureaucratic Rules: The elimination of bureaucratic rules, regulations, procedures, and practices would enhance port productivity. 10.High-Frequency Feeder Network: In order to satisfy the shipping industry’s demands, ports should offer an array of high-frequency feeder services, connecting the hub with its network of feeder ports. In addition, the availability of high-frequency intermodal links will benefit ports that handle a significant amount of domestic cargo Hub Ports Criteria

10. Jan Hoffmann has also developed a list of criteria for transshipment centers: Have a strategic location in relation to multiple trade routes and desired markets. Charge market-determined dues and tariffs. Be surrounded by a dynamic local economy that provides a balanced cargo base load (except in the case of off-shore megahubs). Offer modern infrastructure encompassing berths of 900-1,100 feet in length. Own at least three or four gantry cranes. Provide 40-50 acres per berth of container storage space. Possess dock or contiguous railway connections. Maintain minimum water depth of 14-15 meters. Require minimal transit time from sea to dock. Be served by competitive ocean feeder and inland transport services. Be known for harmonious labor relations and productive workers. Hub Ports Criteria

11. Cautionary Note about Hub Port Development • Martin Stopford, managing director of Clarkson Research, argues that the overall growth in container ships and hub ports will actually lead to slower transit times as compared to direct shipping by smaller carriers. • He also believes that this growth will not necessarily lead to greater profitability. • Ship-related costs are less than one-quarter of the total cost of service, and, as ships grow in size and feeder services are used, economic benefits will shrink. The following figure illustrates the cost per TEU on a 7,000-mile round-trip voyage.

12. TEU Costs on 7,000-mile Round-Trip Voyage

13. Implications • As ship sizes increase to 6,500 TEUs, mainline costs are reduced using larger vessels but not total distribution costs. Once feeder charges are factored in, any savings secured on the main voyage could be lost. • Stopford also suggests that while containerized shipping will be sufficient for transporting bulk commodities, premium cargoes will require a higher level of service than that provided through containerization. • He predicts that global liner companies, medium-size operators, and freight forwarders/logistics operators will compete for these contracts.

14. Principal Component Model • The purpose of this analysis is to ascertain whether the ports generally mentioned as global transshipment ports, namely Colon, Kingston and Freeport, cluster together and, therefore, function similarly. • We wish to see if these ports act differently from other ports of similar size. • The analysis includes 17 of the largest ports from South America, the Caribbean, and the Gulf of Mexico. • Each of these ports moved at least 250,000 TEUs in 1999.

15. Variables Used in Principal Component Analysis • TEU99: The number of total TEU movements in the port for 1999 as reported in Containerisation International Yearbook 2001 (CI2001) or on the Containerisation International Webpage. • Berth length: The meters of berthing dedicated to container movements. A multipurpose general-cargo berth that also handles containers was counted at 50 percent of its length. These values were taken from the CI2001. • Terminal Area: The area in square meters of the terminal. These values were taken from the CI2001. • TEU Storage: The number of TEUs that can be stored at the terminal. These values were taken from the CI2001. • Gantry Cranes: The number of ship-to-shore gantry cranes. These values were taken from the CI2001. • Direct Calls: The number of direct calls by liner shipping services as listed on the CI Webpage on May 23, 2001. This number would be highly correlated to the number of ship visits a port receives.

16. Port Database

17. Graph of the two Principal Components ofLatin American/Caribbean/North American Ports Model

18. Caribbean Transshipment: Location Linear Regression Model • Trade lanes crisscross the Caribbean Sea. • The purpose of this analysis is to examine the importance of proximity to major trade lanes in terms of transshipment volumes. • Three different models are presented: • a.Panama-North America East Coast trade lane model • b.Panama-Europe trade lane model • c.Panama-South America East Coast trade land model

19. Caribbean Ports’Transshipment/Location Database

20. Transshipped TEUs vs. Deviation Distance from P-NAEC Trade Lane

21. Transshipped TEUs vs. Deviation Distance from P-E Trade Lane

22. Transshipped TEUs vs. Deviation Distance from P-SAEC Trade Lane

23. Implications • The hub ports in the Panama-North America East Coast trade lane are shown to have deviation distance as a significant indicator of transshipment trade. • But the South American ports and those in the Panama-Europe trade lane do not show the same relationship. • Different concepts of location may be needed for different situations. The ports located along the Panama-South America East Coast trade lane (except for Colon) are all regional or local ports. • A regional port that experiences transshipment is most often acting as a recipient of local feeder traffic, concentrating trade from the immediate area. • As such, port locations with respect to local trade are more important than port locations with respect to international trade lanes.

24. Location Loading Factor (LLF) The LLF compares the amount of activity taking place in and around different ports and is calculated by applying an exponential decay function to all container movements taking place around the port. This function applies a diminishing value to TEU activity taking place at a greater distance from a port. In the equation, Port Xi, in turn, represents all the ports included in the database, including Port A, meaning a port’s own activity is included in its LLF. LLF Port A =  ( TEU Port xi ) • ( e ^ - ( distance from Port A to Port xi / 150 ) ) The value in the denominator of the exponential function can be changed to apply greater or lesser importance to trade taking place at different distances. The value of 150 miles was chosen so that TEU movements taking place 100 miles from a port would be added at 50 percent of their value, as demonstrated by raising E to the negative of 100 divided by 150.

25. Location Loading Factor and Draft for South American Ports