Port Terminals

Authors: Dr. Jean-Paul Rodrigue, Dr. Brian Slack and Dr. Theo Notteboom

1. Ports and Port Sites

Ports are points of convergence between two domains of freight circulation (sometimes passengers); the land and maritime domains. The term port comes from the Latin portus, which means gate or gateway. Ports are bound by the need to serve ships, and so access to navigable water has been historically the most important site consideration. Before the industrial revolution, ships were the most efficient means of transporting goods, and thus port sites were frequently chosen at the head of water navigation, the most upstream site. Many major cities owed their early pre-eminence to this fact, such as London on the Thames, Montreal on the St. Lawrence River or Guangzhou on the Pearl River. Ship draft was small, so many sites were suitable. Sites on tidal waterways created a particular problem for shipping because of the twice-daily rise and fall of water levels at the berths, and by the Eighteenth Century the technology of enclosed docks, with lock gates was developed to mitigate this problem. Because ship transfers were slow, and vessels typically spent weeks in ports, a large number of berths were required. This frequently gave rise to the construction of piers and jetties, often called finger piers, to increase the number of berths per given length of shoreline.

The gradual shift from conventional break-bulk terminals to container terminals since the early 1960s brought about a fundamental change in layout of terminals as well as site selection. Containerized transportation has substantially changed port dynamics to favor the emergence of specialized container ports. As compared to conventional break-bulk cargo ships containerships did not have onboard cranes, container terminal facilities had to provide capital intensive cranes and well as ample storage space to stack containers dockside. Finger piers were no longer adequate and berths were redesigned to accommodate for quick ship turnaround and more effective dockside operations between the crane and the container storage areas. Containerization has consequently become a fundamental function of global port operations and has changed the structure and configuration of port terminals that tend to occupy more space. While inland port sites (such as at the end of a bay or along a river) generally have the advantage of being closer to the final market they imply longer deviations from maritime shipping routes. Therefore the most successful inland ports sites are those that act as gateways (e.g. Antwerp, Montreal, Constanza).

As terminals, ports handle the largest amounts of freight, more than any other types of terminals combined. To handle this freight, port infrastructures jointly have to accommodate transshipment activities both on ships and inland and thus facilitate convergence between land transport and maritime systems. In many parts of the world, ports are the points of convergence from which inland transport systems, particularly rail, were laid. Considering the operational characteristics of maritime transportation, the location of ports is constrained to a limited array of sites, mostly defined by geography. Most ports, especially those that are ancient, owe their initial emergence to their site as the great majority of harbors are taking advantage of a natural coastline or a natural site along a river. Many port sites are constrained by:

Maritime access, which refers to the physical capacity of the site to accommodate ship operations. It includes the tidal range, which is the difference between the high and low tide, as normal ship operations cannot handle variations of more than 3 meters. Channel and berth depths are also very important to accommodate modern cargo ships. A standard Panamax ship of 65,000 deadweight tons requires more than 12 meters (40 feet) of depth. However, about 70% of world ports have depths of less than 10 meters and are unable to accommodate ships of more than 200 meters in length. In view of the construction of larger ships, namely tankers and containerships, many port sites found themselves unable to provide maritime access to modern cargo operations. Since container terminals were constructed much more recently, they have a better nautical profile as depth and available space were fundamental factors in site selection. There is thus a pressure in increase channel depth where possible, but this is a costly and environmentally controversial endeavor. Many ports are also impacted by sedimentation, particularly ports in river deltas. This requires continuous dredging, which adds to the costs of port operations.
Maritime interface. Indicates the amount of space that is available to support maritime access, namely the amount of shoreline that has good maritime access. This attribute is very important since ports are linear entities. Even if a port site has an excellent maritime access, namely deep water waterways, there may not be enough land available to guarantee its future development and expansion. Containerization has expanded the land consumption requirements of many ports. It is therefore not surprising to see that modern port expansion projects involve significant capital investments to create artificial port facilities.
Infrastructures and equipment. The site, to be efficiently used, must have infrastructures such as piers, basins, stacking or storage areas, warehouses, and equipment such as cranes, all of which involving high levels of capital investment. In turn, these infrastructures consume land which must be available to insure port expansion. Keeping up with the investment requirements of modern port operations has become a challenge for many ports, particularly in light of containerization which requires substantial amounts of terminal space to operate.
Land access. Access from the port to industrial complexes and markets insure its growth and importance. This requires efficient inland distribution systems, such as fluvial, rail (mainly for containers) and road transportation. The land access to ports located in densely populated areas is facing increasing congestion. For instance, the ports of Los Angeles and Long Beach invested massively to develop the Alameda rail corridor in an attempt to promote inland access and reduce truck congestion. A similar trend has taken place in Europe where ports such as Rotterdam and Antwerp have been involved in the setting on inland barge and rail shuttle services.

All these constraints have a significant impacts on port operations and which can be called the port performance continuum. There is also an array of problems related to port infrastructures. Ports along rivers are continuously facing dredging problems and the width of rivers is strongly limiting their capacity since it provides constraints to navigation. Rarely a port along a river has the capacity to handle to new generation of giant ships, namely Post Panamax containerships, which have put additional pressures on port infrastructures to accommodate the transshipment generated by these ships. Ports next to the sea are commonly facing a lateral spread of their infrastructures. Several ports have growth problems that force them to spread their infrastructures far from the original port sites. Since ports are generally old, and in several cases were responsible for urban growth, they are located nearby central areas. This is creating congestion problems where the transport network has the least capacity to be improved.

The city and the port are often competing for the same land, which can create prioritization problems. Ports thus have a complex set of relationships, sometimes conflicting, with the cities they service, often a function of the port and city size. While they are sources of employment of commercial interactions, ports also generate externalities. The pressure of many ports on their sites is even more demanding than those of airports because they have to be adjacent to deep water. Such sites are very limited, and may give rise to conflicts with the city at large that sees waterfront land as potential park space, or as environmentally sensitive. Many ports are now constrained by urban and environmental pressures, which did not exist when the existing facilities were developed.

2. Port Functions and Traffic

The main function of a port is to supply services to freight (warehousing, transshipment, etc.) and ships (piers, refueling, repairs, etc.). Consequently, it is misleading to consider a port strictly as a maritime terminal since it acts concomitantly as a land terminal where inland traffic originates or ends. Ports are becoming increasingly regional in their dynamics, which represents a new development from their traditional local function, namely as industrial complexes. For instance, the port of Hong Kong owes its wealth to its natural site and its geographical position of a transit harbor for southern China. A similar function is assumed by Shanghai for central China with the Yangtze river system. Singapore, for its part, is been favored by its location at the outlet of the strategic Strait of Malacca and is therefore a point of convergence of Southeast Asian transportation. More than 90% if the traffic it handles is strictly transshipments. New York has traditionally acted as the gateway of the North American Midwest through the Hudson / Erie Canal system, a function which Western European ports such as Rotterdam or Antwerp perform with their access to the Rhine system.

About commercial 4,600 ports are in operation worldwide, but only less than one hundred ports have a global importance. There are about 500 container ports with 180 handling a traffic of more half a million TEU. Maritime traffic thus has a high level of concentration in a limited number of large ports, a process mainly attributed constraints related to maritime access and infrastructure development. Major ports have established themselves as gateways of continental distribution systems and have access to high capacity inland freight distribution corridors, notably rail. Such a position is very difficult to challenge unless a port is facing acute congestion forcing maritime shipping companies to seek alternatives.

A port throughput is linked to a variety of local and regional industrial activities as the largest ports in the world are all gateways to massive industrial regions. However, comparing ports on a tonnage basis requires caution as it does not indicate the nature and the value of the cargo. For instance, a mineral port (e.g. iron ore), an energy port (e.g. coal or oil) and a commercial port (containers) could handle a similar tonnage but significantly different value levels. They will also be related to different commodity chains. In terms of the freight they handle, ports can be classified in two categories; monofunctionnal ports and polyfunctionnal ports.

Monofunctionnal ports transit a limited array of commodities, most often dry or liquid bulks (raw materials). The oil ports of the Persian Gulf or the mineral ports of Australia, Africa and in some measure of Canada are monofunctional ports. They have specialized piers designed to handle specific commodities and where the flows a commonly outbound, implying that they are usually load centers.

Polyfunctionnal ports are vast harbors where several transshipment and industrial activities are present. They have a variety of specialized and general cargo piers linked to a wide variety of modes that can include containers, bulk cargo or raw materials.

The world container throughput is the summation of all containers handled by ports, either as imports, exports or transshipment. In 2008, about 530 million TEU were handled by container ports, with a notable growth in containers transshipped at intermediate locations as well as the repositioning of empty containers. This means that a container is at least counted twice; as an import and as an export, but also each time it is handled at the ship-to-shore interface, such as at a transshipment hub where it will be counted when unloaded and reloaded. Empty containers, most of them being repositioned, are also counted as they account for about 20% of the world's throughput. Thus, throughput should ideally be counted in container moves, but for basic commercial and strategic reasons, both port authorities and terminal operators prefer to communicate throughput figures in TEU. The world container traffic is the absolute number of containers being carried by sea, excluding the double counts of imports and exports as well as the number of involved transshipments. The throughput reflects the level of transport activity while the traffic reflects the level of trade activity.

3. Port Authorities and Port Holdings

Due to the growing level of complexity of port operations, public port authorities were created at the beginning of the 20th century. For instance, the London Port Authority, the world's first, was established in 1908 by consolidating all the existing harbor facilities. Such a management structure became a standard that was adapted to many other ports. For North America, in 1921, the States of New York and New Jersey created the Port Authority of New York and New Jersey, which has become one of the world's most diversified port authority with a portfolio including port facilities, bridges, airports and public transit systems. Administratively, port authorities are regulating infrastructure investments, its organization and development and its relationships with customers using its services.

Port Authority. An entity of state or local government that owns, operates, or otherwise provides wharf, dock and other marine terminal investments and services at ports.

The main rationale behind the setting of many port authorities was their ability to manage more efficiently port facilities as a whole rather than privately owned and operated terminals. Since port facilities were becoming more complex and more capital intensive, it was perceived that public agencies would be better placed to raise investment capital and mitigate the risk of such investments. Port authorities tend to be vertically integrated entities as they are involved in most of the activities related to port operations, from the construction and maintenance of infrastructure to the marketing and management of port services. Yet, their activities were limited within their jurisdictions, an attribute that became increasingly at odds with the transformations of the maritime shipping industry through globalization.

In the past ports were dominantly managed in their entirety by port authorities that were selling transshipment and other port services. On some occasions, terminals were leased to private companies. Privatization marks a reversal in the trend of having ports as public entities since many became inefficient, unable to cope with market pressures (performance, reliability and quality of service) and provide adequate financing for infrastructure and equipment becoming increasingly capital intensive. As public agencies, many port authorities were seen by governments as a source of revenue and were mandated to perform various non-revenue generating community projects, or at least provide employment.

The emergence of specialized and capital intensive container terminals servicing global trade has created a new environment for the management of port terminals, both for the port authorities and the terminal operators. Port authorities are gradually incited to look at a new array of issues related to the governance of their area and are increasingly acting as cluster managers. For port operations that have conventionally be assumed by port authorities, a significant trend has been an increase in the role of private operators where major port holdings have emerged with the purpose to manage a wide array of terminals, the great majority of which are containerized.

Port holding. An entity, commonly private, that owns or lease port terminals in a variety of locations. It is also known as a port terminal operator.

A "terminalization" of ports is taking place where different terminals within the same port are owned (or leased) and operated by different operators. As of 2005, port holdings accounted for over 58% of container port capacity and 67% of global containerized throughput. In an era characterized by lower levels of direct public involvement in the management of transport terminals and port privatization, specialized companies involved in the management of port terminals are finding opportunities. They thus tend to be horizontally integrated entities focusing on terminal operations in a variety of locations.

The main tool for global port operators to achieve control of port terminals has been through concession agreements.

A concession agreement is a long-term lease of port facilities involving the requirement that the concessionaire undertakes capital investments to build, expand, or maintain the cargo-handling facilities, equipment, and infrastructure to satisfy a minimum level.

A number of issues are involved in the decision of a terminal operator to invest in a particularly port, namely the transparency of the bidding process and the quality of infrastructures (port and inland). The market potential however remains one of the determining criteria. The range of port terminals controlled by port holdings covers several of the largest freight markets. As globalization permitted the emergence of large multinational corporations managing assets in a variety of locations, global port holdings are a similar trend concerning the management of port terminal assets. Yet, regional orientation remains a strong characteristic of container terminal operators.

4. Port Evolution and Development

The evolution of transport terminal development has been examined most extensively in port site studies. Port terminals and activities, as documented by Bird's Anyport, tend to expand away from their original sites towards locations offering better maritime and land access. The site of the port is thus the object of a process of valorization through capital investments in infrastructures, the convergence of inland and maritime transport networks with their flows as well as the complex management of the concerned supply chains. Port development can be perceived within a sequential perspective, where each phase builds upon the previous, from port cities of the 19th century to the emerging port logistics network of the 21st century.

Conventionally, port terminals where located close to city cores as many where the initial rationale for the existence of the city. The proximity to downtown areas also insured the availability of large pools of workers to perform the labor intensive transshipment activities that used to characterize port operations. But these activities tended to have low productivity levels as a stevedoring team could handle 10 to 15 tons per day and a berth could handle 150,000 tons per year. At their peak in the early 1950s ports such as London and New York each employed more than 50,000 dock workers. Over time, changes in ships and handling equipment gave rise to new site requirements. By the post World War II period a growing specialization of vessels emerged, especially the development of bulk carriers. These ships were the first to achieve significant economies of scale, and their size grew very quickly. For example, the world’s largest oil tanker in 1947 was only 27,000 dwt, by the mid 1970’s it was in excess of 500,000 dwt. There was thus a growing vessel specialization using semi-automated transshipment equipment and increase in size which resulted in new site requirements, especially the need for dock space and greater water depths.

The mechanization of cargo handling and the storage requirements because of greater vessel capacities have greatly extended the space demands for port activities. Many ports, such as Rotterdam and Antwerp are larger in area than the cities they serve, and even more space-intensive ports, such as Montreal, are in excess of 500 hectares in area. The expansion of Chinese ports, such as Shanghai, has required altogether the use of entirely new sites outside central areas. Further, growing ship sizes have implied several new constraints for port sites such as deeper waterways, larger terminal space, both for ship handling and warehousing, and more efficient inland road and rail access. Modern port infrastructures are often intensive in capital and several port authorities are struggling to keep up with large infrastructure investment requirements. However, the presence of infrastructures does not necessarily guarantee traffic as maritime companies can select the ports they service as business opportunities changes. Over this, three recent mega projects are particularly revealing:

Maasvlatke II (Rotterdam). For decades, the port of Rotterdam, Europe’s largest port, has expanded downstream. The growth of container traffic along with continued expansion of bulk traffic caused the port to consider expansion out in the North Sea. This led to the construction of an entirely new facility on reclaimed land at Maasvlatke in the 1980s. However, subsequent traffic growth in the 1990s resulted in the port authority proposing a new facility further out in the North Sea: Maasvlatke II. The project began construction in 2008 and should be open for traffic in 2013 and fully completed by 2030. Once completed, this terminal facility would likely mark the end of geographical expansion for Rotterdam, outside the reconversion of existing terminal sites into more productive uses.
Deurganck dock (Antwerp). Like Rotterdam, the expansion options of the port of Antwerp are limited. With the right bank of the River Scheldt, where the bulk of the port’s facilities are located, reaching capacity a new dock complex was built on the left bank. The Deurganck dock opened in 2005 and can add about 9 million TEUs to the existing capacity of about 10 million TEUs.
Yangshan container port (Shanghai). A rare case where a completely new facility has been built from scratch, and this well outside the existing port facilities in the Changjiang delta to a facility located in Hangzhou Bay, 35 km offshore. It opened in 2005 and was built for two purposes. The first was to overcome the physical limitations of the existing port facilities, too shallow to accommodate the latest generation of containerships. The second was to provide additional capacity to meet traffic growth expectations as well as room for new terminal facilities if container growth endures. The fully completed port would have an expected capacity of 15 million TEUs. To link the port to the mainland, the world’s third longest bridge with a length of 32.5 km was built.

The success of major container ports is jointly the outcome of a shift to containerized shipping in new industrializing regions (containerized commodity chains), the quality of their infrastructure and services and an efficient interface with inland transport systems. Still, container traffic is subject to fluctuations mainly related to seasonal variations in the demand.

5. Regionalization and Transshipment Hubs

The current port development phase underlines that ports are going beyond their own facilities to help accommodate additional traffic and the complexity of freight distribution, namely by improving hinterland transportation. Port regionalization is such an outcome and indicates a higher level of integration between maritime and inland transport systems, particularly by using rail and barge transportation, which are less prone to congestion than road transportation. The development of global supply chains increased the pressure on maritime transport, port operations, and on inland freight distribution, which in turn has incited active container transloading activities in the vicinity of port terminals. Inland accessibility has become a cornerstone in port competitiveness since it can be serviced by several road, rail and barge transportation, notably in Europe. Port regionalization is characterized by strong functional interdependency and even joint development of a specific load center and logistics platforms in the hinterland. This leads ultimately to the formation of a regional load center network, strengthening the position of the port as a gateway. Many factors favor the emergence of this phase, namely:

Local constraints. Ports, especially large gateways, are facing a wide array of local constraints that impair their growth and efficiency. The lack of available land for expansion is among one of the most acute problem. This issue is exacerbated by the deep water requirements for handling larger ships. Increased port traffic may also lead to diseconomies as local road and rail systems are heavily burdened. Environmental constraints and local opposition to port development are also of significance. Port regionalization thus enables to partially circumscribe local constraints by externalizing them.
Global changes. Global production and consumption have substantially changed distribution with the emergence of regional production systems as well as large consumption markets. No single locality can service efficiently the distribution requirements of such a complex web of activities. For instance, globally integrated Free Trade Zones have emerged near many load centers, but seeing a FTZ as a functionally integrated entity may be misleading as each activity has its own supply chain. Port regionalization thus permits the development of a distribution network that corresponds more closely to fragmented production and consumption systems.

Cargo at ports always required some transshipment to smaller ships used a feeders to smaller ports. For obvious reasons, it is impossible to connect directly all possible port pairs, so transshipment is required to insure connectivity within the global trading system. With the growth of container volumes, many gateway ports were facing the challenge of handling export, import and transshipment containers. This went on par with the growing share of transshipments in regard to the totality of maritime containerized traffic, from around 11% in 1980, 19% in 1990, 26% in 2000 to about 29% in 2010. The number of times a container is handled at a port is also increasing, underlining the setting of complex containerized transport chains as well as the growing difficulties of transferring cargo into large containerships.

An important emerging function for several container port terminals thus involves transshipments (ship-to-ship). Maritime shipping companies also elect for transshipment as a way to use more rationally their networks. In a conventional pendulum container service, a maritime range such as the American East Coast or Western Europe involve several port calls. If the volume is not sufficient, this may impose additional costs for maritime companies that are facing the dilemma between market coverage and operational efficiency. This is particularly the case with the growing size of containerships that forces a lower number of port calls. By using an intermediate hub terminal in conjunction with short sea shipping services, it is possible to reduce the number of port calls and increase the throughput of the port calls left.

An intermediate hub (or transshipment hub) is a port terminal used for ship-to-ship operations within a maritime transport system. These operations do not take place directly, which requires the temporary storage of containers in the port's yard. The term offshore hub has often been used to characterize such locations because the cargo handled at the port of destination is transshipped at a location commonly in a country different than the country of origin.

There are several patterns in which intermediate hubs can be inserted by connecting long distance and short distance (feeder) maritime services, by connecting different long distance services and by connecting services calling different ports along a similar maritime range. Intermediate hub terminals can thus become effective competitive tools since the frequency and possibly the timeliness of services can be improved. By using an intermediate hub terminal in conjunction with short sea shipping services, often organized as small pendulum services, it is possible to reduce the number of port calls and increase the throughput of the port calls left.

While in theory intermediate hubs do not have an hinterland, but a significant foreland, the impact of feedering (mainly by short sea shipping) confers them a significant indirect hinterland. Feedering combines short sea and deep sea containerized shipping at a hub where traffic is redistributed. The usage of larger containerships has lead to the concentration of traffic at terminals able to accommodate them in terms of draft and transshipment capacity. Smaller ports, particularly those well connected to inland transport systems, become feeders through the use of short sea shipping. As the transshipment business remains a highly volatile business, offshore hubs might sooner or later show ambition to develop services that add value to the cargo instead of simply moving boxes between vessels.

The intermediate hub enables a level of accessibility that incites them to look beyond their conventional transshipment role. This includes actions to extract more values of cargo passing through and, as such, get more economic rents out of transshipment facilities. Such strategies have led to some transshipment hubs, such as Gioia Tauro and Algeciras, to develop inland rail services to capture and serve the economic centers in the distant hinterlands directly, while at the same time trying to attract port-centric logistics sites. The multiplying effects of being an intermediate hub in terms of frequency of port calls and connectivity to the global economy can thus be leveraged for developing hinterland activities.