Jean-Paul Rodrigue (2013), New York:
Routledge, 416 pages.
Transport Terminal Governance
Authors: Dr. Jean-Paul Rodrigue, Dr. Brian Slack and Dr. Theo Notteboom
1. The Nature of Governance in Transportation
Governance is associated with an effective usage of
existing resources as well as a better allocation of new resources. Like all sectors of activity,
transportation has a unique set of characteristics about its governance
as both the public and private sectors are actively involved.
Governance is the exercise of authority and institutional
resources to manage activities in society and the economy. It concerns
the public as well as the private sectors, but tends to apply differently
depending if public or private interests are at stake. In both cases
a significant concern is performance, which is how effectively available
resources are used.
The governance of transport infrastructure is particularly relevant
because of the strategic, economic and social importance of
transportation and the cross-jurisdictional character of many
infrastructures such as highway, rail and telecommunication networks.
Transport is not of mere convenience, but a fundamental infrastructure
that must systematically and constantly be available to its users. Effective governance is complex to assess since it is not linked
with a specific governance structure, but generally conveys several advantages:
For transport infrastructure such as
port terminals, airports, inland ports or logistics zones, many different forms of
governance are in place which shape modes of financing, operations,
functioning and external relationships. This is particularly important
as large terminal infrastructure involved in global flows of passengers
and freight are complex, capital intensive and of strategic importance
to the economic welfare of whole regions. There are two main components of terminal governance;
ownership and operations. Ownership involves who is the owner of
the terminal site and facilities (including equipment):
- Confidence. Provides a level of confidence that
an activity, such as a terminal or a logistics zone, is
effectively managed. This can involve daily operations as well as
the planning, design and funding of new infrastructure. Effective
governance is linked with consistent and reliable services as well
as a good level of responsiveness and feedback when an unexpected
- Capital costs. Lowers capital costs as investors and financial
institutions have confidence that the allocated capital will be
effectively used in the development and expansion of productive
assets generating returns.
- Competitiveness. Improves the capability to
compete through the retention of existing users and the attraction
of new ones. This can take many forms such as lower costs, but
factors such clear expectations and transparency are also
significant. Keeping market considerations constant, organizations
with better governance are usually able to be more competitive than
organizations having a less effective governance.
- Stability. Confers a long term resilience of
the organization, which provides a level of stability in capital
markets and the financial institutions supporting them.
Operations involve the day-to-day management and carrying
out of terminal activities:
- Public ownership is common because of the economic and
strategic importance of many types of terminals. In several countries
passenger railroads are owned by the national government, and the
passenger stations are thus under the control of the state-owned
railway company, such as is the case in China, Europe and North
America. Public ownership of airports is also prevalent, although
in the United States this takes place at the State or municipal
levels of government. Under public ownership, investment in infrastructure
and planning future expansion is carried out by the public authority
using public monies or public guarantees for capital subscribed
on private markets. The private sector is then offered leasing
opportunities which terms and duration can be negotiated.
- Private ownership is less evident in transport terminals.
There are numerous exceptions for certain modes, such as road freight
(distribution centers), rail freight transport in North America
(terminals and rights of way),
and where privatization has taken place, as for example in ports
and airports in the United Kingdom and New Zealand. Here, private
capital is used to provide infrastructure.
Public ownership and operations has been important in many modes
because of the strategic importance of transport and the long term investments
required that the private sector may be incapable or unwilling to make.
In this way the terminals can be owned and operated as public goods,
and can be integrated with public regional and national economic policies.
On the other hand, public facilities are seen by some as slow to respond
to market conditions, with a propensity to over-invest in non-economic
developments, and with high costs to the users.
There is a growing tendency towards privatization in transport
as a whole, particularly with
Transport terminals increasingly became an attractive form of investment
for private equity firms
seeking valuable assets and a return on their investments. This is manifested
in the sale of ports and airports in some countries such as the UK,
and in the break-up of state rail monopolies, as in the EU. Privatization
is most evident, however, in the awarding of operational concessions
to private companies. The trend towards concessions is warranted in
part by the belief that the private sector is more efficient than the
public in operating terminals, and that this form of governance keeps
the ownership still under public control. It is also seen as a mean
of reducing public expenditures at a time when states are becoming less
willing (or able) to make large investments. Thus, the setting of
public / private partnerships
is seen as a dominant trend in the governance of transport terminals.
2. Port Devolution and Global Terminal Operators
Even as late as the 1980s, ports around the world were the
types of terminal most dominated by public ownerships and operation.
While the forms of port governance differed greatly, from the municipally-owned
ports in Northern Europe and the US, to the state owned ports in France,
Italy and much of the developing world, public ownership was dominant
and publicly managed port operations were prevalent. This contrasted
with the shipping industry, where private ownership was almost universal.
The development of containerization particularly underlined how operationally
deficient public port authorities were to growing time and performance
requirements intermodalism imposed on transport chains. The changes,
slow at first, came from two directions:
- Public control of operations is typical in many ports,
such as Singapore and Hampton Roads, in many state-controlled railroads
such as China, and at publicly owned airports such as in the United
States. Here the public authority provides the handling equipment,
contracts with the labor force, and operates the rail, airport and
- Private companies manage and carry out operations in
privately owned terminals. They are also active as operators in
many publicly owned facilities under a concession agreement. The
latter is a growing trend in ports and airports, where facilities
are leased to terminal operators for fixed terms. The types of concession
vary considerably, in terms of duration and conditions. Some are
short term, a few years or so; more typically they are long-term
concessions of 15 to 30 years. In some the owner provides some equipment,
such as gantry cranes in ports, in others the concession holders
are expected to invest in equipment. In some they are required to
use public employees, while in others they may use their own workers.
In Canada a half-way private/public system of governance of major
airports and ports is in place. The airports and ports are leased
to locally-managed non-profit corporations that have to operate
the facilities commercially, without access to public funds. Surpluses
have to be re-invested.
These developments helped create what has become a global snowball
of port reform, commonly known as port devolution since
the public sector was relinquishing its role from a function it formerly
assumed. It made governments around the world more open to considering
reforming port governance and offering better
conditions to ensure
privatization. The growing demands for public and private investment
in ports, precipitated by the growth in world trade, and the limited
abilities of governments to meet these needs because of competing investment
priorities, were key factors. Thus, while few were willing to go as
far as the UK in the total privatization of ports, many countries were
willing to consider awarding concessions as an intermediate form of
privatization, leading to various forms of public-private
partnerships. The result has been an almost global trend towards the
award of port operational concessions, especially for container terminals.
If the opportunities to award operational concessions can be seen
as an increase in demand, growth has also been greatly affected by an
increase in the supply of companies seeking concessions. In Northern
Europe and the US many ports had already operated through concessions,
awarded to local terminal handling companies. Because they were relatively
small and locally-based with only few exceptions, they did not participate
in the global growth of opportunities for concession awards. The exceptions
were Stevedore Services of America (SSA) that was already active in
several US West Coast Ports, which obtained concessions to operate facilities
in Panama and several other smaller ports in Central America, and Eurogate,
a joint company formed by terminal handling companies from Bremen and
Hamburg, that obtained concessions in Italy and Morocco.
Over a short period a few companies were able to become
major global terminal operators
controlled a multinational portfolio of terminal assets. They mostly
came from Asia with four large companies dominating, three coming from
a stevedore background and one from a shipping line:
- First, there was the belief, promoted in the UK by Prime Minister
Thatcher, that the transport industry as a whole should be divested
to the private sector to promote competition. Ports were among
the many sectors thus targeted. New Zealand actually carried out
this policy before it was finally implemented in the UK. In both
countries the state has relinquished control over the port industry.
- Second, there was a policy recommendation from the World Bank
that developing countries would do well to free their highly
controlled port industry, by issuing concessions to companies
capable of modernizing their port industries and better manage operations.
To facilitate the changes required, the World Bank created a Port
Reform Tool Kit to demonstrate to States how to go about affecting
HPH, which originated as a terminal operator in Hong Kong, first
purchased Felixestowe, the largest UK container port, and today has
a portfolio of 51 terminals around the world, including in Rotterdam
and Shanghai. PSA has been active securing concessions in China and
Europe, including Antwerp. These two terminal operators take their origin
from globally oriented ports offering limited local terminal expansion
opportunities. The local operators were thus incited to manage the constrained
assets efficiently and to look abroad for expansion opportunities. DPW
has grown through purchases, such as P&O Ports and CSX World Terminals,
and by securing concessions elsewhere.
Shipping lines have also participated in terminal concessions, but
to a lesser extent. The most important is the in-house terminal operating
company of Maersk; APM Terminals. In addition, Evergreen, COSCO, MSC,
NYK, and CMA-CGM hold port terminal leases. Between the dedicated terminal
operating companies and the shipping lines, a global pattern of concessions
3. Significance and Consequences of Terminal Operators
The rapid expansion of terminal operating companies reflects
two economic forces. First, the
entry of former terminal operators into the global system represents
a process of horizontal integration, in which the companies,
constrained by the limits of their own ports, seek to apply their expertise
in new markets and seek new sources of income. Second, the entry of
shipping lines into terminal operations is an example of vertical
integration, in which the companies seek to extend their control
over other links in the transport chain. Several other factors explain
the growth of global terminal operating companies:
- Hong Kong-based firm, Hutchison Port Holdings (HPH),
part of a major conglomerate Hutchison Whampoa.
- Port of Singapore Authority (PSA), the government owned
operator of the port of Singapore.
- Dubai Ports World (DPW), which is mainly part of a sovereign
wealth fund created to invest the wealth derived from oil trade.
- AP Moller Terminals (APM), as a parent company
of the world's largest shipping line; Maersk.
The growth of multi-national terminal operating companies has resulted
in a concentration of power. In 2008 the top five global terminal
operators accounted for 28% of global container port activity in
terms of equity based throughput. What
is perhaps most important is that they now dominate at the most important
container ports in the world. They are able to wield monopoly power
in many parts of the world. The consequences of this power remain to
be analyzed, but there is growing evidence of dissatisfaction in many
ports about the actions of these companies that possess long term leases.
Thus, in Genoa there is concern about the lack of performance of the
port since PSA took over the main container terminal. In Antwerp, there
are concerns about the imposition of Singapore-based management systems
on a European operation. In China there is opposition to HPH and how
it is increasing terminal handling costs to enhance profitability, which
is seen as undermining China's competitiveness on global markets. On
the other hand, there is strong evidence to suggest that port performance
has improved in most ports as a result of the award of concessions to
international terminal companies. The question will be whether to regulate
further concentration of power leaving several maritime ranges having
to deal with a limited number of terminal operators in position to impose
oligopolistic price settings.
Deregulation, port devolution, the growing role of global terminal operators and
the changes imposed by intermodalism and global supply chain management
are challenging the role and function of port authorities, or any
agency overseeing regional transportation assets. The governance
of hinterland access regimes is linked with cluster formation.
It refers to the agglomeration effects and the degree of internal cohesion
and competition within a hinterland. This governance concept
not only applies to ports, but can also be inferred to airports, inland ports
and logistical zones, or any freight distribution construct where a closer integration
of the involved actors could lead to performance improvements. An
emerging paradigm concerns the consideration of the city as
a terminal and a hub, which means it acts as a functional
freight region. This paradigm is particularly important because:
- Profitability. By modernizing port operating systems,
mainly through better equipment, information systems and management,
port holdings are able to increase the profitability of their terminal
assets. For instance, HPH achieved a 35% per year return on investment
in the early 2000s. Port management was very lucrative, inciting
others to expand existing assets and new players to enter the field.
- Financial assets. Port holdings have the financial means
to invest in infrastructures as they have a wide variety of assets
and the capacity to borrow large quantities of capital. They can
use the profits generated by their efficient terminals to invest
and subsidize the development of new ones, thus expanding their
asset base and their operating revenues. Most are listed on equity
markets, giving the opportunity to access global capital, which
realized in the last decade that the freight transport sector was
a good source of returns driven by the fundamentals of a growth
in international shipments. This financial advantage cannot be matched
by port authorities even those heavily subsidized by public funds.
In other cases, terminals became financial assets per se which can
become more valuable as the traffic they handle increases (additional
revenue). Financial holdings, such as retirement funds, are thus
considering transport terminals and port terminals in particular,
as valuable assets to own in a portfolio.
- Managerial expertise. Port holdings excel in establishing
procedures to handle complex tasks such the loading and unloading
sequence of containerships and all the intricacies of terminal operations.
Many have accumulated substantial experience in the management of
containerized operations in a wide array of settings and are therefore
able to transfer managerial expertise to new terminals. Being private
entities, they tend to have better customer service and have much
flexibility to meet the needs of their clients. This also includes
the use of well developed information systems networks and the capacity
to quickly comply with legal procedures related to customs, clearance
- Gateway access. From a geographical standpoint, most
port holdings follow a strategy aimed at establishing privileged
positions to access hinterlands. Doing so they secure a market share
and can guarantee a level of port and often inland transport service
to their customers. It can also be seen as a commercial strategy
where a “stronghold” is established, limiting the presence of other
competitors and a situation of monopoly. Gateway access thus provides
a more stable flow of containerized shipments. The acquisition of
a new port terminal is often accompanied by the development of related
inland logistics activities by companies related to the port holding.
- Leverage. A port holding is able to negotiate with maritime
shippers and inland freight transport companies favorable conditions,
namely rates, access and level of service. Some are subdiaries of
global maritime shipping lines (such as the A.P. Moller group controlled
by the shipper Maesrk) while others are directly controlled by them
(such as Hanjin or Evergreen) so they can offer a complete logistical
solution to international freight transportation. They are also
better placed to mitigate pressures from port authorities to increase
rents and port fees. The “footloose” character of maritime shippers
has for long been recognized, with a balance of power more in their
favor than of the port authorities they negotiate with.
- Traffic capture. Because of their privileged relationships
with maritime shipping lines, port holdings are able to capture
and maintain traffic for their terminals. The decision to invest
is often related to the knowledge that the terminal will handle
a relatively secure number of port calls. Consequently, a level
of traffic and revenue can be secured more effectively.
- Global perspective. Port holdings have a comprehensive
view of the state of the industry and are able to interpret political
and price signals to their advantage. They are thus in position
to influence the direction of the industry and anticipate developments
and opportunities to offer global solutions to terminal requirements
in ports around the world. Under such circumstances they can allocate
new investments (or divest) to take advantages of new growth opportunities
and new markets.
Cluster governance is a business
strategy that relates to the mix of, and relations between, organizations
and institutions that foster coordination and pursue projects that improve
the cluster as a whole through regional strategies and the
coordination of their hinterland.
The main advantages of cluster governance are a better access to competencies
and innovative ideas, a better access to suppliers and customers, a
better access to capital and an overall reduction of transactional costs.
Although there is no single cluster governance model, as each port (or
terminal) region has a different set of geographical, economic, regulatory
and operational characteristics, the following four issues tend to be
common to all clusters:
- A metropolitan area is the origin, destination and point of
transit of large volumes of passengers and freight. They are
embedded within their respective supply chains with a wide array
- All regional transportation assets are interrelated and
contribute to the regional, national and global economy. They
are embedded within their respective transport chains with an
array of modes and terminals.
- Existing governance and regulatory structures are ill-placed
to reflect this jurisdictional, functional and operational reality.
The full implications of cluster governance remain to be assessed,
particularly to what extent they generate added value to the terminal
region and if such strategies are linked with the attraction, or at
least the retention of customers and the traffic they generate. There are also impacts on competition within
the cluster as firms undertake collaborative strategies aiming at
improving their respective efficiencies. It can be expected that a better
access to international markets can be achieved, which would indirectly promote the globalization
of the companies within the cluster. This also has an impact on
competition between clusters over discretionary traffic, namely
- Service efficiency. Concern a series of initiatives
to improve the quality and the reliability of terminal assets. This
goes beyond infrastructural issues, as it involves some operational
commitments to standard levels of service, often through certification
by external agencies. An emerging strategy in this direction involves
the development of port community systems that are making available
information helping the management of terminal-related supply chains,
commonly through a web portal. Service efficiency can also involve technical and
managerial training to improve the labor quality. A standard is
thus set among the terminal users in terms of what level of
quality and efficiency is expected. In turn, this promotes the
marketability of all the terminal users.
- Logistical integration. Concern strategies
that aim at better embedding terminals within their regional supply
chains. For a port, this can involve the setting of satellite terminals
or inland ports that are accessed through dedicated corridors. The
setting of co-located logistics zones is also a common strategy both in proximity
to the port, rail or airport terminal facilities.
- Infrastructure and growth management. Although
both infrastructure and growth management have conventionally be
undertaken by port authorities, the emerging paradigm concerns a
higher level of intermodal integration with for instance on-dock
rail facilities. Infrastructure development also takes place more
in a public-private partnership form with the involvement of terminal
operators and other private stakeholders such as rail operators
and logistical firms.
- Terminal-city integration. Concern various
strategies that help mitigate the commonly significant environmental
and social externalities that terminals have on their surrounding
communities. As terminal facilities, notably ports, tend to be in
proximity to high density urban areas, environmental management
and corporate responsibility are perceived as tools helping promote
a better coordination and avoid possible conflicts. On the other
end, airport terminals are typically located away from central
areas implying that their integration can lean on the setting of
transit corridors and adjacent retailing, office and housing