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CONNECTING PORTS #6: Game-changing impetus for the future of the port industry

Degrowth, sustainability, internalization of external costs: these were just some of the topics that presenter Christina Prieser, Associate Partner at HPC, discussed with her guests from academia and practice as well as the audience from more than 30 countries during the sixth CONNECTING PORTS talk show on 13 December 2023.

Degrowth, sustainability, internalization of external costs: these were just some of the topics that presenter Christina Prieser, Associate Partner at HPC, discussed with her guests from academia and practice as well as the audience from more than 30 countries during the sixth CONNECTING PORTS talk show on 13 December 2023.

"We need to rethink the current economic model of ports," all three panelists agree. Michael Horton, consultant for port development at the World Bank Group and other financial institutions as well as semi-retired Vice President at Moffat & Nichol, explains what this consists of: growth. He cites ever-larger shipping company mergers, the increasing capacity of container ships and the associated expansion of port facilities and their infrastructure as signs. However, if co-operation in the ports and the management of hinterland connections do not improve, the further competition-driven growth of each individual port will not be manageable for much longer. He also doubts the necessity of this: there must be sufficient capacity - but not in every port, but within a region viewed as a unit.

Dr Gordon Wilmsmeier, Director of the Center for Shipping and Global Logistics (CSGL) and Professor at Kühne Logistics University (KLU), points out that the consequences of a disruption affecting a large container ship can be significantly greater than for smaller vessels. He therefore advises considering whether trades served by smaller units would not be more resilient. He sees further advantages: Port facilities and shipping channels would have to be expanded less and ports would be more evenly utilized as excessive peaks would be avoided. Michael Horton also states that smaller ships could use more ports, which in turn would shorten the pre- and post-haulage times over land. However, he does not believe that ever larger container ships can be prevented: "The larger the ship, the lower the unit costs per container." If one shipping company doesn't build it, the competition will. If one port says it cannot handle these ships, the next one will make it possible.

"In future, we need to focus more on the value than the quantity of cargo," says Dr Jason Monios, Professor of Maritime Logistics at the Kedge Business School in Marseille, making a further point. On the one hand, he is referring to the capacity utilization of container giants, which is often achieved with goods such as waste. And on the other hand, the possibility of working economically even with less handling in ports. Higher freight rates are not only the key to this. They also make waste transport uneconomical, for example. At the same time, this would lead to fewer transports overall and therefore both lower CO₂ emissions and less land consumption.

Rising prices worry the audience: could this not push up the inflation rate again? Gordon Wilmsmeier and Jason Monios agree that higher-value freight can cope with rising transport costs, as the rates and cargo flows during the pandemic have shown. It could also lead to more value-added processes in ports. Freeing up space could also provide space for non-port industries and diversify value creation in the port. Michael Horton is also in favor of such expansions in order to give ports stability for investments and future planning.

Gordon Wilmsmeier and Jason Monios go even further: Christina Prieser's question as to whether the internalization of external costs, for example for environmental damage caused by transport, could also be successful at some point was answered positively by both of them. The extremely high freight rates during the pandemic had proven that external costs could also be passed on - especially as these would probably only account for a fraction of the freight increases experienced during the pandemic. The revenue could be channeled into global decarbonization and the promotion of the circular economy and support the countries that have suffered the most from climate change to date. Jason Monios: "Transporting goods is expensive either way. If we forgo the allocation of external costs in order to keep freight rates low, we pay for the consequences of climate change and pollution elsewhere as a society."

Michael Horton outlines one way in which such a levy could be made mandatory: Loans from the World Bank, for example, which are often used by emerging countries, are tied to the conditions of the institution. These could include the internalization of external costs via handling and freight prices as well as the obligation to take precautions to protect against the consequences of climate change, such as extreme weather events, and to adhere to compliance rules. Social standards should also be safeguarded in this way. However, it is important to continuously monitor the implementation of the agreed measures once they have been financed. For him, the source of financing is the body that must and will take the lead in the transformation process.

Christina Prieser asks whether models such as the doughnut economy or degrowth could help to reorganize the port industry. Jason Monios first points out what the models have in common: not consuming more resources than can be replaced in the same period of time. The theorists assumed that post-growth degrowth was inevitable. However, the aim was not to harm the economy, but to put it back on the right track. Gordon Wilmsmeier poses a different question: "How can we use the resources that are currently being consumed by industrialized countries beyond sustainable levels for the development of emerging economies? Perhaps we need to limit the pursuit of growth in Europe, for example, and at the same time organize infrastructure investments in the emerging countries more intelligently so that they are sustainable within the safety limits." The aim is to utilize existing resources better and more intelligently than before and to find out what the 'right' infrastructure is for the future. However, this is difficult due to the long planning and construction times.

Jason Monios is convinced that the port industry needs to focus more consistently on sustainability in order to maintain its long-term competitiveness: "Otherwise, we will not be able to meet the unprecedented risks and challenges." In future, contracts would have to include possibilities such as extreme weather events and a partnership-based approach to managing these through prevention. Gordon Wilmsmeier is certain that this will happen. The basis, he says, is the realization that cooperation between public and private stakeholders and a shared vision with a clear joint roadmap is the only way forward. "Unfortunately, we are running out of time. We urgently need to sit down together, formulate clear goals and regulations and then implement them."

In his closing statement, Jason Monios reassures the port industry: "Trade will be more expensive and subject to more disruption in the future. But there will still be a lot to do for the maritime industry. Perhaps the slice of the cake will be smaller, but more valuable. The advice to port operators is therefore to focus more on flexibility and diversification of revenue streams and to consider the consequences of climate change. This will require closer relations between the public sector and commercial players. We need a clear timetable with fixed targets - but not a thousand small regulations. We should trust the innovative strength of the port industry. Competition is necessary for this. It must not be suppressed." Michael Horton also emphasizes that it will not work without competition. For him, it is important that all parties become aware of their responsibility for all aspects of sustainability - economic, social and ecological - in order to make the ports resilient for the challenges of the future.

Gordon Wilmsmeier concludes by pointing out that - in addition to all the necessary medium and long-term implementation plans - there are also short-term and easy-to-harvest fruits, such as the supply of shore power to ships in the port and the electrification of container terminals. For the fastest possible implementation, however, the energy industry would also have to be a partner in intensive cooperation.

Anyone who would like to listen to the original event is welcome to do so via this link. In addition to many practical examples, the recording also contains highly intriguing statements on the importance of automation in ports and its potential impact on jobs, on the conflicting roles of ports as public infrastructure on the one hand and as a competitive economic unit on the other, as well as on cooperation between the respective stakeholders, on energy supply and on other possible paths towards sustainable ports. It's worth a click!

Journalist Kerstin Zapp summarized the event for HPC.